Financial Q&A: Readers' questions answered

How to shop for a mortgage after bankruptcy; is a trust a public document?

By Steve Dinnen

from the April 23, 2007 edition

Q: Most of my debt was discharged a year ago. Now I only have my student loan to repay. Is there any chance that I can get a loan to buy a house without giving a huge down payment? I am a school teacher and my son is a veteran.

M.J., Philadelphia

A: It sounds to Bobbie Munroe, a certified financial planner in Atlanta, as if you've recently completed a bankruptcy. In the past, there have been lenders who were willing to make mortgages available to almost anyone, including you.

These are known as "subprime" loans, and recent headlines about them have all been bad. Many borrowers have defaulted on these loans as their rates adjusted upwards, and lenders are holding the bag on unpaid debt and empty houses. So getting such a loan in this market might become more difficult but not impossible, says Ms. Munroe.

Mortgage lenders are still in business, so call around until you find at least two who will offer you a loan. That will allow you to compare their rates and closing costs.

You might also try to find a property whose owner is willing to finance the mortgage.

As for a "huge" down payment, that could mean different things to different people. Ms. Munroe likes to see people make a down payment of at least 5 percent and preferably 20 percent. The latter amount lets you avoid private mortgage insurance on the loan.

As for help: If you're a first-time home buyer, your state may provide assistance. This could help you obtain a lower-rate mortgage or even a no-interest loan to cover some of the down payment and closing costs. Do an Internet search using "first time home buyer assistance" and your state, she says.

Finally, remember that even if you are approved for a loan, that doesn't mean you can afford it. So be realistic about how much you can afford, avoid variable-rate mortgages, don't buy before you can make a significant down payment, and have an emergency fund that will pay the mortgage for at least three months if needed.

This means that you may have to wait a year or two, says Munroe. But you want to be in the best financial shape that you can muster before you plunge into what for most people is the biggest investment they'll ever make.

Q: Is a trust a public document? Can a person access a copy of a trust? If so, where would a copy be on file?

E.K., via e-mail

A: Unlike a will, a trust is not a public document, says Brian Staples, a certified financial planner in McDonough, Ga.

At death, the probate process is what makes a will a public document. But a trust can bypass probate. For that very reason, Mr. Staples says, a trust is often used instead of a will if a person has a desire for privacy in his or her financial affairs.

Unless a person is named as a trustee, or possibly named as a beneficiary of the trust, he or she will not have access to the document.