Home homebuyer april02

homebuyer april02

April, 2002 Newsletter

 

+++++++++++ April 2, 2002 +++++++++++++++++++

CONTENTS: 
Introduction: Housing Starts Jump
Mortgage Rate Update: Rates Edge Upward
This Month’s Tip: Making Mortgage Comparisons

Introduction: Housing Starts Jump

Welcome to the April edition of the Home Buyer’s  Information Newsletter. Construction of new homes and apartments climbed to a seasonally adjusted annual rate of 1.77 million, a 2.8 percent increase over January’s level, the Commerce Department reported on March 20th. This was the highest level since December, 1998. In addition, new home sales (actual closings vs. “starts”) increased in February. Although sales of existing homes showed a slight decline, they were also near record levels.

These impressive sales statistics indicate that the market is able to absorb at least some of the mortgage rate increases seen throughout most of the months of February and March (see  following story).

Mortgage Rate Update: Rates Edge Upward

The month of March saw small but steady increases in the average mortgage rates in the U.S. On March 28th, according to mortgage company Freddie Mac, 30 year fixed-rate mortgages averaged 7.18%, up from an average of 6.80% at the beginning of the month. 15 year fixed-rate mortgages averaged 6.69%, up from 6.28%.

For the rest of the year, many analysts see rates running in the 7.5% range, subject to the economy responding at current levels of recovery.

For current average mortgage rates, see:Mortgage Rates  For more information on mortgages, visit the Mortgage  Section at:  Mortgage Information

Get a Copy of Your Credit Report

IPlace.com, the largest supplier of credit reports on the Internet, has a number of options to quickly get a copy of your report. You can get a single report, your credit score, a full 3-bureau report or even a free copy of your credit report, quickly and easily. See more information at: Sources of Credit Reports

This Month’s Tip: Making Mortgage Comparisons

If there is one aspect of the home buying process that can be rift with challenges and confusion it is the  process of comparing and selecting a mortgage. Where there once were just a few choices available for mortgage loans, where are now literally hundreds of different programs. Where you once had to make only a few quick decisions (fixed or variable rate, FHA, VA or Conventional loan, 15 or 30 year term) you must now spend time closely evaluating your needs and comparing them to the myriad of mortgage products that are available.

When a buyer takes the time to assess their needs, they should take into account both present and future needs. By concentrating only on those types of homes that meet these needs, their chances of choosing the right mortgage are enhanced. For example, consideration  should be made as to potential resale (when and for how much), possible job or income changes (either up  or down), and potential life style changes (for  example, more children or children moving out).

Before any committment is made to a mortgage, some of the questions that should be addressed include:
* How long will you be in the house?
* What are your retirement goals (and what is the 
time-frame)?
* Will your income be increasing, decreasing or staying
the same in the forseeable future?
* Will you need more room, less room or the same amount
of room in the future?
* Are funds available that will allow you to put 20%
down to avoid Private Mortgage Insurance (PMI)?

The answers to these basic questions will go a long way toward determining which mortgage best fits your needs.

How long will you be in the house?

If you only plan to be in the home for a short period (say 2-4 years), an adjustable rate mortgage, with its lower entry interest rate, may be a good choice. Since adjustable rate mortgages, as the name implies, adjust either upward or downward depending on market interest rates, if you plan to stay in the home for a longer period of time, an upward adjustment in rate (and payment) could mean either a tighter budget or the need to refinance.

What are your retirement goals (and what is the time-frame)?

If your plans include retirement in 5-10 years, a 30 year mortgage is probably not a wise choice, since you will not have made a big dent in the principal balance– the amount you will owe on the house–by the time you retire. A 15 year mortgage, with its accelerated equity build-up, may make better sense.

Will your income be increasing, decreasing or staying the same in the forseeable future?

If you expect your income to rise appreciably in a given time frame, it make more sense to buy now with that in mind, rather than having to sell, move and buy again later. You will probably want to choose a mortgage that allows you to take advantage of the MOST loan you can qualify for. The reverse is true if you expect a decrease in your income (for example, if a spouse plans to stop working) in the future. You will probably want to select a mortgage that allows you to qualify at the LOW end of qualifying ratios. Better to be prepared now rather than to be forced to sell your home later, perhaps in a depressed market where a property is both more difficult to sell and when it does sell, does so for less money.

Will you need more room, less room or the same amount of room in the future?

By looking forward–past your IMMEDIATE needs–to your potential FUTURE needs, you can elimante many of the problems of needing to sell, moving and purchasing and mortgaging a new home. We’ve seen many buyers purchase a home with only their immediate needs in mind, only to find a year or two later that they either do not have enough room (because of a growing family) or have vast unused spaces (due to decreased family size). This can be especially frustrating if market conditions have changed (either for the better or the worse) during the time that they have owned the home. Long-term mortgages with little or nothing down do not mesh with these scenarios.

Are funds available that will allow you to put 20% down to avoid Private Mortgage Insurance (PMI)?

Private Mortgage Insurance (PMI) is required on  virtually all conventional loans with less than a 20% downpayment. This insurance (which benefits the lender should you default) can add $50, $100, $150 or more to your monthly payment. If you can  find a way to get the 20% down, you can either save on your monthly payment, or, if qualified, buy more home for your money. For more discussion on PMI, see last months newsletter which was devoted to that subject: January 2001 Newsletter

A mortgage is a committment that is not easily reversed, so it is important to have all the facts and options in line before finalizing anything. Also, the house should fit the mortgage rather than the other way around. Budget considerations should take precedence over any other issues. Too many buyers put so much emphasis on the home that they THINK they want–and not enough on how they will pay for it– that they end up either disappointed or deep in debt. Spend the little time that is necessary to avoid major problems later.

SOME COMMON MORTGAGE MISTAKES

* Making little or no down payment when moving in less than 5 years is a near-certainty. If market values stagnate or decrease, selling the home could be an exercise in futility.

* Taking a mortgage term much longer than the estimated time to retirement.

* Letting the lender push you to a specific loan rather than investigating all possible options.

* Not investigating shorter–10, 15 or 20-year–terms, which allow you to increase your equity much quicker.

* Blindly paying points without making comparisons. For more discussion on points, see the article on that subject: Should I Pay Points?

WHERE CAN YOU SHOP FOR A MORTGAGE?

Local Lenders: A local bank may be a good source,  especially if you already have a relationship with them. In many cases, they will have a variety of programs available, but they may be a bit more limited than other sources.

Mortgage Brokers: Brokers deal with numerous lenders and generally have a panoramic offering of lending programs. A good mortgage broker will be able to  match you with a loan that fits your needs.

Online Sources: A recent addition to mortgage shopping choices are online sources where you can submit one application and have multiple loan choices offered to you. An example of this approach is Lending Tree, which deals with numerous lenders throughout the U.S., matching your needs and ability with up to 4 competing offers. Lending Tree

SUMMING UP

Choosing the right home and choosing the right mortgage go hand-in-hand. It is far better to spend the time investigating all of the available options up-front  rather than finding out that there were better choices available AFTER settlement and moving!

As always, if you have suggestions for improving the  site, or topics you would like to see addressed in  this newsletter (or, if you have used the Home Buyer’s  Information Center to successfully purchase a home),  drop us a quick line here: Email Us or access our feedback page at:  HomeBuyers Information Center Feedback

A special thanks to all those who have written to let us know  that they have found the Home Buyer’s Information Center a  helpful resource in their buying process.  Have a great month and good luck in your home buying process!

The Team at the Home Buyer’s Information Center