You've found a great house, but qualifying for a big enough loan is a
problem -- for the time being. Maybe you're in your second year at the district attorney's
office with a handful of offers to double your income in private practice. Maybe you're just
about to finish paying your son's Harvard tuition. In either case, you know your disposable
income is about to jump -- and substantially.
What You Want: The answer to your problem could be to "buy down" your loan, or pay
another point or two up front to earn a lower interest rate. Then you can qualify for a
bigger loan.
Consider what's known as a 2-1 buydown. You reduce the first year's rate by two points and
the second year's by one point. In year three, the loan becomes fixed, and it stays at that
rate for the life of the loan. That can help you buy a lot more house.
Where to Shop: Buydowns are most commonly found at mortgage bankers, because they're
typically an attachment to fixed-rate products, the mortgage banker's specialty. But they're
not limited to mortgage banks. Try also midsize banks and thrifts, which will allow you to
open an interest-bearing savings account (funded either by you or a gift from a parent or
other relative), out of which funds are automatically drawn to keep the borrower's
out-of-pocket expense low for the first few years. Plus, if you've got a brokerage account,
you might be surprised at what it can do for you. Several Wall Street firms, including
Merrill Lynch, are writing a lot of mortgages these days -- and they tend to be fairly
flexible.
The High Earner/Poor Saver