Apply for home equity mortgage loan online

Jeanne Ballard Robinson stopped renting last year and began building wealth the bricks-and-mortar way. She bought her first home, in Cleveland, after completing an eight-hour financial literacy course that walked her through the entire home- buying process and granted her an $800 certificate to use toward closing costs. Single and with an annual income of under $50,000, Robinson, the 2003 NASW Social Worker of the Year, made a 3-percent down payment and got a $79,500 loan to buy the $83,000 three-bedroom, two-car garage house. It now has a market value of $85,000. So she already has $5,500 in equity; her mortgage payments are $200 a month less than what she paid in rent; and her interest payments are tax- deductible.

For the average U.S. family, the single largest source of wealth is the equity in their home. With interest rates at near 40-year lows, it's easier than ever to own a home. Start by controlling your spending, then make these moves to start creating wealth:

1 CLEAN UP YOUR CREDIT REPORT.

A credit report paints a picture of your account-payment history. Before mortgage shopping, order your report from the three major credit-reporting agencies and correct any errors. Incorrect information that's negative can inflate your interest rate or disqualify you. A previous bankruptcy may not prevent you from getting a mortgage--if you now pay bills on time and if you've had a clean payment history since the bankruptcy was discharged--but your interest rate may be higher. Robinson learned that each credit report often has different information, so she got a copy from Experian, (888) 397-3742; Equifax, (800) 685-1111; and TransUnion, (800) 888-4213. She followed instructions on the reports and disputed the inaccuracies.

2 DON'T BUY MORE HOUSE THAN YOU CAN AFFORD.

Determine what you can comfortably pay each month for housing. Keep in mind that in addition to principal and interest, you'll also have to pay real-estate taxes and insurance. You'll also need funds for maintenance and repairs. Before extending a loan, lenders generally look at your debt-to-income ratio--debt payments (excluding rent) divided by gross monthly income (before deductions). For instance, if you make $3,000 a month and pay $600 toward your debt, your ratio is 20 percent ($600/$3,000=0.20), which is considered good. A higher ratio suggests a need to control spending. Lenders also want to see your mortgage payment equal no more than about 29 percent of your monthly gross income. "You have to know the difference between a fantasy home and one you can pay for," says Robinson.

3 SHOP FOR THE BEST MORTGAGE.

A fraction of a percent difference in an interest rate can save you thousands of dollars over the life of the lean, so shop around. Your first choice doesn't have to be a 30-year, fixed-rate mortgage, especially if you plan to stay in the home for less than seven years. Compare interest rates to see if an adjustable rate mortgage (ARM) is a better financial fit. If you can afford a higher monthly payment, consider a 15- or 20-year mortgage that may have a lower rate, thus saving you money in the long run. (Check out Lending Tree, [lendingtree.com or (800) 555-8733], an online loan marketplace.)

4 NEGOTIATE CLOSING COSTS.

You should receive a Good Faith Estimate of Closing Costs when you apply for a loan. This gives you an idea of the lender's charges for origination and discount fees, credit report, appraisal, title insurance, document preparation, termite inspection and other costs, and tells you how much out-of-pocket money you'll need to pay. Sellers are often willing to help with closing costs, so negotiate.

5 GET YOUR OWN EXPERTS.

For a few hundred bucks, you can get a lawyer to review the purchase contract and make sure your interests are protected. You'll also save a bundle in unforeseen repairs if you hire a house inspector, who may uncover hidden problems like termites or structural defects before you seal the deal. Also understand that the real-estate agent works for the seller--unless you have a "buyer agency agreement." Without one, if you tell the agent, "I just love this place, and I'd pay the $130,000 asking price, but I'll offer $110,000," the agent is obligated to tell the seller you're willing to pay more.--L.S.

THE ROAD TO HOME OWNERSHIP

Want to own a home? Read Your Route to Homeownership, Freddie Mac's online tutorial (freddiemac.com). There's information on government-sponsored first- time home-buyer programs and ownership vouchers at hud.gov (Housing and Urban Development); go to hud.gov/buying, insured.cfm for info on HUD's FHA (Federal Housing Administration) financing, Veterans and those in the military may be eligible for low- or no-down-payment VA loan guarantees (homeloans.va.gov/contact.htm. To get the Fannie Mae Foundation free home-buying guides, visit homebuying.com or call (800) 611-9566. Got credit problems? "The nonprofit National Foundation for Credit Counseling (NFCC) offers credit-counseling and debt-reduction services (visit nfcc.org or debtadvice.org, or call [800] 388-2227).--L.S.