THE VERY FIRST TIME

CINDY ELLEN RUSSELL / CRUSSELL@STARBULLETIN.COM Khamseng Sourakakone and Maria Mercado tour a Mililani home. "It's tiring," Mercado said of the house-hunting experience.

Mortgage lenders offer
a variety of plans for
the first-time buyer

Mortgage insurance allows financing
with little or nothing down

First-time homebuyers with steady incomes have long faced a cash crunch when trying to come up with enough money for a down payment.

But the mortgage industry has softened the blow today with myriad options that allow former renters to go to the next level.

"We have experienced many professionals, semiprofessionals and blue-collar workers who earn very good salaries but with little or no down payment," said Richard Lau, senior vice president of the mortgage loan division at Territorial Savings Bank.

"That's where private mortgage insurance comes into play. It offers up to 95 percent financing and, in some cases, 100 percent financing with little or nothing down."

A borrower buys private mortgage insurance to protect the lender in case of default. At today's median prices in Hawaii of $550,000 for a single-family home and $230,000 for a condominium, a person taking out 100 percent financing would be responsible for monthly PMI payments of $440 and $184, respectively.

Homebuyers also are responsible for homeowners' insurance, which generally ranges from about $100 to $150 a month for single-family homes, and is covered through association dues for condos and townhouses.

Also, homebuyers must pay real property taxes, which for median-priced homes and condos are $2,062 and $863 a year, respectively.

Buying tips for first-time buyers Get a good Realtor: A Realtor won't cost a buyer anything and likely will be more knowledgeable about houses for sale in the market. Once a house is purchased, the Realtor can check and correct any problems to make sure escrow is proceeding smoothly. Don't be put off by cosmetics: If there's no structural damage, don't worry about painting, carpeting or other smaller changes that need to be done to the house. Keep your purchase offer simple: If you want to beat another offer, the more complicated the contract, the less likely it will be accepted. Make a clean offer. For example, don't put in the contract that a dripping faucet needs to be fixed. Get pre-qualified: Work with a lender to find out what house price you qualify for and what type of financing is available. Properties are being snapped up so quickly that a seller won't want to waste time with someone who isn't pre-qualified. Also, have your credit checked so it doesn't hold up or impede a purchase. Be ready to act quickly on a property that you like. Put an additional deposit into escrow: The majority of people put down $1,000 when submitting a purchase contract. That deposit is later applied to escrow if a contract is accepted. But to show the seller you're serious, consider putting an additional deposit into escrow . Let your money do the talking: Many first-time home buyers don't have a lot of extra cash, but an offer above the list price and a larger down payment could make your offer stand out above the others.

Here are some of the financing options available to home-buyers, with closing costs, which range from .5 percent to 2 1/2 percent of the total loan, to be paid separately:

» Fixed-rate loan: 15, 30 or 40 years at the same interest rate.

» Eighty-10-10 loan: An 80 percent first mortgage, 10 percent second mortgage at a higher interest rate, and 10 percent cash that is used for the down payment. Eliminates the need for private mortgage insurance.

» Eighty-20 loan: An 80 percent first mortgage, and 20 percent second mortgage at a higher interest rate. Also eliminates the need for private mortgage insurance.

» Forty-year amortization, 15-year maturity loan: Offers lower monthly payments because the loan theoretically is stretched out over 40 years, but the balance of the loan comes due after 15 years in the form of a balloon payment. Typically, the life of a loan in Hawaii is 12 years, Lau said. But if a homeowner still owns the property after 15 years, that person could refinance the loan or even sell the home.

» Seven-year interest only, 23-year amortization loan: Allows borrower to pay interest only for the first seven years with the loan amortized over the remaining 23 years. Benefit of the loan is that the borrower has lower monthly payments at the outset. And during the first seven years of a loan, the payments mostly go toward interest anyway. Fixed rate stays the same over the life of the loan. Also available in a 10-year interest, 20-year amortization format.

» Adjustable-rate mortgage loan (ARM): Initially offers lower monthly payments than the available fixed rate. However, the interest rates adjust periodically and could rise to a predetermined cap. Not considered as much of a bargain now due to rising interest rates. Best for those who plan to stay in their home a short period of time.

» Hybrid ARM: The borrower makes only interest payments for the first three, five, seven or 10 years of the ARM; then the interest rate is adjusted annually.

» Convertible ARM: The interest rate adjusts every 12 months unless the conversion option is taken that converts the loan to a fixed rate without the borrower having to refinance. There is a conversion window that usually is available between the second and fifth years.