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April, 2004 Newsletter

+++++++++++ April 1, 2004 +++++++++++++++++++

Introduction: The Resilient Market
Mortgage Rate Update: Rates Remain Attractive
This Month's Tip: Don't Mortgage Your Life Away

Introduction: Welcome to the April edition of the
Home Buyer's Newsletter, brought to you by the
Home Buyer's Information Center.
The Home Buyer's Information Center

The resiliency of home sales continues to amaze virtually
everyone, including most analysts who called for a dip in
activity in 2004. So far, though, this is anything but the case
as both existing home sales and new home sales showed
increases in the month of February.

Existing-home sales increased 2.0 percent in February to a
seasonally adjusted annual rate of 6.12 million units from a
downwardly revised pace of 6.00 million units in January.
Last month's sales activity was 5.7 percent above the
5.79-million unit pace in February 2003.

David Lereah, NAR's chief economist, said the housing
market could defy expectations this year. "Currently, we are
projecting that home sales will decline slightly, but they
remain at exceptionally high levels," Lereah said. "With a
strong underlying demand for housing from a growing
population in a recovering economy, we could be flirting
with another record this year."

Sales of new one-family houses in February 2004 were at a
seasonally adjusted annual rate of 1,163,000, according to
estimates released jointly on March 24 by the U.S. Census Bureau
and the U.S. Department of Housing and Urban Development.
This is 5.8 percent (±13.5%) above the revised January rate of
1,099,000 and is 24.4 percent (±13.4%) above the February
2003 estimate of 935,000.

The median sales price of new houses sold in February 2004
was $205,500; the average sales price was $257,200. The
seasonally adjusted estimate of new houses for sale at the
end of February was 373,000. This represents a supply of 3.8
months at the current sales rate.

Will this trend continue? Obviously, the major influence here
will be mortgage rate levels, which remain, as of this writing,
extremely atttractive. See the next story on current mortgage
rates (and March's trend) in the following section.


Mortgage Rate Update: Rates Remain Attractive

Although we saw a slight increase in mortgage rates at
the end of March, rates remain very near historic low
levels. According to mortgage company Freddie Mac,
30-year fixed-rate mortgages averaged 5.52% as of the
period ending April 1. 15-year fixed-rate mortgages
averaged 4.84% for the same period. Both of these average
rates are just slightly above the decades low levels we
saw last summer. These average rates do not include
interest paid up-front as points.

March rates ended up very close to where they began.
The 30-year fixed average began averaging 5.59% and
ended averaging 5.52%. The 15-year fixed started at
an average of 4.88% and ended at 4.84%.

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


Sponsor: LendingTree

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This Month's Tip: Don't Mortgage Your Life Away

Long time readers of this newsletter may be familiar with the theme
of this month's newsletter: keeping a close watch on the level of
the mortgage on your home. As we have noted many times in the
past, overextending yourself in a mortgage can be a recipe for
financial disaster. The last 5 years have been excellent for the
real estate market (rising prices, increasing number of properties
sold) but, unfortunately these good years have blinded too many
into the assumption (in some cases, the insistence) that real estate
values only go one way: UP. As long as the market remains strong,
there is less reason for concern about the size of the mortgage
on your home. Should the market stagnate, or worse, go down,
then your mortgage amount becomes a big factor in your financial
health or lack of it.

Maximize Your Downpayment

There have been numerous changes in the mortgage industry (and,
as a result, in the home buying process) in the last few years.
Where it was once common to make at least a 20% downpayment on
a home, today it is far more common to make a 10%, 5% or even no
downpayment at all on the purchase of a house. This radically
changes the home buying landscape for several reasons. First, it
allows those without substantial savings to enter the home buying
market, a positive. Second, it means the majority of today's buyers
are subject to PMI--Private Mortgage Insurance--an extra monthly
cost, since they have less than 20% downpayment. Third, it
leaves these low or no-downpayment buyers exposed to variations
in the prices of homes. Should those prices stagnate or fall and
there is a need to sell the home within the first five years or so,
the buyer will get stuck holding the bag...meaning they will not
have enough equity in their home and will to reach into their
pocket to sell their home and pay off their mortgage.

Be Careful with Adjustable Mortgages (ARMs)

An Adjustable Rate Mortgage (where your rate of interest can move
up or down with market conditions, rather than be set as in a fixed-rate
mortgage) can be a real boon for a couple of types of buyers--those
who will be in the home that they are purchasing for only a short
amount of time (usually 3-5 years at most) and those who are
absolutely certain that their income will be increasing dramatically
in the future (like a physician currently in residency).

Taking an ARM when you can barely qualify at the low "teaser"
rate, though, can be very dangerous financially, especially in
this time of historically low interest rates. Not only will rates rise
from the teaser rate, they most likely will rise a good bit as the
overall rate climate moves upward. You could very easily find
yourself having difficulty making a mortgage payment that becomes
125% higher than the one you started out with (and was barely
affordable at that). If the rate rises substantially, then you may
be at risk of losing the home.

A better way? Unless you are going to be in the home for a
short amount of time (and will take advantage of the low initial
rate and not be too affected by the increase) or are guaranteed
a big jump in income, stick with a fixed-rate, fixed-term mortgage.
Payments too high? Look at lower priced homes.

Tailor Your Mortgage to Your Situation

We see nothing wrong with a couple in their 30s securing a 30-
year mortgage. If they stay in the home it will be paid off some
time in their 60s, perhaps right before retirement time. They will
then have the luxury of staying in the home at a much reduced
cost, or selling the home and recouping all of their equity. The same
30-year mortgage for a couple in their early 50s though, is highly
questionable if they want to make their home a part of their overall
retirement planning. Not only will the home not be paid off (and
not have the advantages above) until they are in their 80s, the
time up until their retirement will be a slow road to equity, since
the early years of a mortgage are virtually all interest.

A better way is to tailor the mortgage to what makes sense in
your financial planning rather than just concentrating on what
makes sense today. Talk to a financial planner and see what
type of mortgage would best be in sync with your plans.

Be Wary of Interest Only Mortgages

In a never ending effort to match affordable mortgage payments
with soaring home prices, the mortgage industry hasa introduced
the "interest only" mortgage. Your payments are kept lower
because you pay nothing aginst the principal--your whole house
payment is devoted to interest. When house prices are rising
steadily and predictably, you gain equity in the home simply by
price appreciation. You have done nothing to reduce the balance
owed. If prices go flat or reverse, though, a buyer would have
absolutely no equity in the home or, worse even, owe more than
it is worth. Either way, it makes the home very difficult to sell
at best or absolutely impossible to sell at worst.

A better way? Start on a firm financial footing by building
almost guaranteed equity in your home with a mortgage that
addresses both interest AND principal.

Next Month's Topic: Should We Build?

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
Home Buyer's Checklist

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:
Home Buyers 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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