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April, 2002 Newsletter

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

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

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


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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
* 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

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

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.


* 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.
For more discussion on points, see the article on that
Should I Pay Points?


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 LendingTree, which
deals with numerous lenders throughout the U.S., matching
your needs and ability with up to 4 competing offers.


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

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