BROKER: US Preferred

5 Smart Moves for Young Buyers

      Parents and grandparents:  If a young adult in your family is thinking about buying a first home, your advice can go a long way toward making the process a happy rite of passage. Here are five things to talk to your adult children and grandchildren about before they sign their mortgage papers:

1 The lender. If you have a favorite mortgage banker or broker, encourage your young relative to use the same one.  First-time home buyers make better decisions when they work with lenders they trust and who will take the time to explain all of the financial mumbo jumbo in plain English.  Investing in a home is bound to change the buyers' lifestyle.  Help the youngsters you love keep their expectations real so they will make solid decisions about how much they can comfortably afford to pay for a house

2 The expectatiion.  It's a good idea for first-time home buyers to meet with the lender before calling a real-estate agent.  In about 20 minutes, a banker or broker can help potential homeowners figure out how much house they can comfortably afford - by calculating how big a chunk the mortgge payments and other living expenses will eat from he buyers' monthly income.  That brief meeting could save the young house-hunters from the heartbreak of realizing they can't afford the home they already have fallen in love with.

3  The loan.  Root for a conventional, 30-year mortgage, which guarantees the buyers that their payments will be the same every month of the loan as they are today.  Steer them away from adjustable rate mortgages - or ARMs - which come with attractively low interest rates but only for a few years.  After that, the interest rate can balloon - and so can the monthly payment, leaving the buyers with debt they can't afford to pay.

4  The down payment.  The more money the buyers can put down on the home, the lower their monthly payment and interest rate will be.  Although 5 percent is a typical down payment, a 20 percent deposit will save the young home buyers from paying private mortgage insurance.  Discourage first-timers from borrowing their down payments and adding to their debt.  If you can afford it, consider making a gift of part of the down payment.  Most lenders require borrowers to make only a portion of the down payment on their own - as little as $500.  And advise the young investors in your family to negotiate with the seller for part of the down payment.  In this buyer's market, they're likely to get it.

5  The credit score.  Anyone who wants a mortgage, a personal loan or car insurance needs a "credit score," which tells the lender whether the borrower has a history of paying bills on time.  You can't have a credit score if you don't have any loans or credit cards.  Do the prospective buyers a favor by encourageing them to apply for a major credit card, to use it and to pay it off each month. This will help them establisha positive credit history.

Reprinited by permission of Rosie Romero, who has been in the Arizona home-building and remodeling industry for 35 years.  He has a radio program from 8 to 11 a.m. Saturdays on KTAR-FM (92.3) in the Valley.  See:  rosieonthehouse.com.