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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

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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, townhomes, 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.

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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% downpayment. 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
LendingTree, 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
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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

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