How to navigate new rules to get a mortgage loan

The 2008 residential real estate market has barely begun, but it's not too early for aspiring buyers to get their financing strategies in order.

Lenders and real estate brokers say the confusion and contradictions of the mortgage-credit crunch have left many would-be buyers in a fog. They are not sure whom to approach for what kind of loan. They are equally fuzzy on the new rules of the market.

Industry insiders agree on some key tactics:

Find financing before you go house-hunting. Some of the institutional underpinnings of the mortgage market are still shifting, which can mean that a local lender might not have money available when you are ready to borrow.

To avoid getting stuck at the closing table without a loan, introduce yourself to a couple of lenders that participate in the traditional Fannie Mae and Freddie Mac secondary-lending systems. Knowing that your lender has a ready source of funds should give you confidence to negotiate knowing that your best offer will stick, said Jeremy Stephens, a loan originator with Amcore Bank, of Wauwatosa, Wis.

Chase your paper. Low-documentation loans, especially those that rely mainly on the borrower's word about income and assets, are almost completely gone, Stephens said.

Find, organize and make copies of all the papers that prove what you make and how much money you have: W-2 forms for the last two years; savings and investment account statements for the last several quarters; and pay stubs for the last month.

Expect to put in equity. Down payments are back, though the requirements are not as stringent as the 10 percent to 20 percent demanded a decade ago, say local lenders.

Expect to put down at least 5 percent. Employers' programs, grants, and other ways to piece together a down payment may be worth it, but apply now so that you can bring proof of that money to a lender before you go into full-bore house-hunting mode.

Reconcile your expectations with your budget before you launch into a jammed schedule of open houses and house tours, advises Kate Venne, communications director for the Wisconsin Housing and Economic Development Authority.

Calculate what you can afford assuming a traditional fixed-rate, 30-year mortgage, she adds. In other words, gauge affordability based on the highest monthly payment you would have to make - namely, its standard monthly payment, which will not change for the length of the loan (other than its property-tax component) - and not on artificially low adjustable-rate teasers offered by the few aggressive lenders left in the market.

"Choose a fixed-interest rate to give you a stable, predictable house payment," Venne said. Those who chose the opposite in the last several years have largely become the homeowners now scrambling to refinance, sell or stave off foreclosure in this slow housing market with sluggish appreciation.

If you are a first-time buyer, get remedial help, even if you do not think you need it. Search for local organizations that offer classes on the basics of buying a home.

It is worthwhile to attend if for nothing else than to learn the language of the acronym-filled process, Venne said, so you can talk the same abbreviated language as your lending officer.