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July, 2009 Newsletter

+++++++++++ July 1, 2009 +++++++++++++++++++

CONTENTS:
Introduction: Resales Up, New Sales Down
Mortgage Rate Update: Rates Move Upward
This Month's Tip: Developing a Mortgage Strategy

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Introduction: Resales Up, New Sales Down

Sales in the month of May were mixed, with resale activity increasing
while new home sales slipped. Inventories of both existing and new
homes remain on the high side with a 9.6 month supply of existing
homes and a 10.2 month supply of new homes.

Sales of existing homes showed another gain in May, benefiting from
favorable affordability conditions and a first-time buyer tax credit,
according to the National Association of Realtors®. May’s increase was
the first back-to-back monthly gain since September 2005.

Existing-home sales – including single-family, townhomes, condominiums
and co-ops – rose 2.4 percent to a seasonally adjusted annual rate of
4.77 million units in May from a downwardly revised level of 4.66 million
units in April, but remained 3.6 percent below the 4.95 million-unit pace
in May 2008.

Total housing inventory at the end of May fell 3.5 percent to 3.80 million
existing homes available for sale, which represents a 9.6-month supply at
the current sales pace, down from a 10.1-month supply in April.

Lawrence Yun, NAR chief economist, expected an improvement. “Historically
low mortgage interest rates clearly drew buyers into the market, and housing
remains very affordable even with a recent uptick in rates,” he said.
“First-time buyers also are being drawn off the sidelines by the $8,000
tax credit, which is helping to absorb inventory. However, the increase
in sales is less than expected because poor appraisals are stalling
transactions. Pending home sales indicated much stronger activity, but
some contracts are falling through from faulty valuations that keep buyers
from getting a loan.”

Sales of new one-family houses in May 2009 were at a seasonally adjusted
annual rate of 342,000, according to estimates released jointly June 24th
by the U.S. Census Bureau and the Department of Housing and Urban Development.
This is 0.6 percent (±17.8%) below the revised April rate of 344,000 and is
32.8 percent (±10.9%) below the May 2008 estimate of 509,000.

The median sales price of new houses sold in May 2009 was $221,600; the
average sales price was $274,300. The seasonally adjusted estimate of new
houses for sale at the end of May was 292,000. This represents a supply of 10.2
months at the current sales rate.

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Mortgage Rate Update: Rates Move Upward

Long-term mortgage rates ticked upward in the month of June in nearly
every reporting period. 30-year fixed-rate mortgages, which had been
averaging 4.91% at the beginning of the month according to mortgage company
Freddie Mac, ended the period at an average of 5.42%. 15-year fixed-rate loans
ended the period of May 25th at an average of 4.87% after starting the month
at an average of 4.53%.

It is important to remember that even though we have seen increases in the
averages, these mortgage rates skew far on the low side of the historical
rate picture. It would be wise, however, for a potential buyer to get
their financial picture in order so that they can move quickly should the
picture begin to change--either to an accelerated upward move or to a return
to lower rates.

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: Developing a Mortgage Strategy

So much has changed in the mortgage industry in the last five years
that a buyer entering into the process without adequate preparation
tilts the odds against them when it comes to making a wise decision.

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

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: Laying the Groundwork:
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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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