Home homebuyer april11

homebuyer april11

April, 2011 Newsletter

+++++++++++ April 1, 2011 +++++++++++++++++++

CONTENTS:

Introduction: Both Resale and New Home Sales Drop
Mortgage Rate Update: Rates Stay in Narrow Range
This Month’s Tip: Common Sense Mortgages

Introduction: Both Resale and New Home Sales Drop

Welcome to the April edition of the Home Buyer’s Newsletter.  In many areas of North America, spring is beginning to raise its head and traditionally that means home sales will begin to increase. That definitely, was not the case in February, though.  Just when you thought that we had turned the corner in home sales activity, the February sales number were published and we found that volume dropped significantly in the month of February.

Existing-home sales fell in February following three straight monthly increases, according to the National Association of REALTORS®. Existing-home sales, which are completed transactions that include single-family, town homes, condominiums and co-ops, dropped 9.6 percent to a seasonally adjusted annual rate of 4.88 million in February from an upwardly revised 5.40 million in January, and are 2.8 percent below the 5.02 million pace in February 2010.

Lawrence Yun NAR chief economist, expects an uneven recovery. “Housing affordability conditions have been at record levels and the economy has been improving, but home sales are being constrained by the twin problems of unnecessarily tight credit, and a measurable level of contract cancellations from some appraisals not supporting prices negotiated between buyers and sellers,” he said.  “This tug and pull is causing a gradual but uneven recovery.  Existing-home sales remain 26.4 percent above the cyclical low last July.”

In new construction, sales of new single-family houses in February 2011 were at a seasonally adjusted annual rate of 250,000, according to estimates released jointly March 23rd by the U.S. Census Bureau and the Department of Housing and Urban Development.

This is 16 9 percent 16.9 (±19.1%) below the revised January rate of 301,000 and is 28.0 percent (±14.8%) below the February 2010 estimate of 347,000.

The median sales price of new houses sold in February 2011 was $202,100; the average sales price was $246,000. The seasonally adjusted estimate of new houses for sale at the end of February was 186,000. This represents a supply of 8.9 months at the current sales rate.

Mortgage Rate Update: Rates Stay in Narrow Range

Mortgage rates stayed in a fairly narrow range in the month of March and 30-year fixed-rate mortgages generally remained under the 5.00% mark. 30-year rates averaged 4.86% at the end of the month according to mortgage company Freddie Mac.  These rates began the month at an average of 4.87%.  The trend in 15-year fixed-rate mortgages was a bit downward, beginning the month at an average of 4.15% and ending the period at an average of 4.09%.

As home prices continue to generally fall and mortgage rates continue in their sub-5% range, a buyer who is prepared to buy should be maintaining a close watch on both housing inventories as well as the rate trend.  Both of these factors can change quickly, and the market will be invigorated when they do.

Mortgage Rate Update:
For current average mortgage rates, see the rates page.

For more information on mortgages, visit the Mortgage Section

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This Month’s Tip: Common Sense Mortgages

Perhaps just as important–or even more so–than developing a strategy for finding a house is a strategy for finding the right mortgage. The right moves here can bring lots of rewards–both financial and in peace- of-mind–but missteps here can be expensive and frustrating. You can always get out of the wrong mortgage decision, but at what cost? Unnecessary interest charges, exorbitant closing costs or both can add considerably to your total cost of financing.

Your first step is to determine what your mortgage needs are. These needs can vary a good deal from individual to individual. Some of the variables that need to be considered 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 may 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 for which you can qualify. 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 eliminate many of the problems of selling, 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% down payment. This insurance (which benefits the lender should you default) can add $50, $100, or even $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.

A mortgage is a commitment 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 downpayment 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

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. See more information on the mortgage page:  Mortgage Information

SPECIAL NOTE

You should be extremely cautious of ANY mortgage that depends to a large degree on large and consistent increases in home values. Examples would be Interest Only Mortgages and, even worse, “Option” Mortgages that allow negative amortization (even though you make a payment every month,  you have an option to make a payment that does not even cover interest charges–which means the amount owed goes up every month). Without big increases in home prices, you could be left holding the bag, owing much more on the house than it is worth, especially when you factor in selling expenses.

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!

Next Month’s Tip: Riding the Foreclosure Wave

The Home Buying Checklist

Many of our visitors have said that one of the most valuable aspects of the Home Buyer’s Information Center is the Buying Checklist, where they can make sure that all the bases have been touched. You can find the checklist here.

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.

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 all your endeavors!

The Team at the Home Buyer’s Information Center