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March, 2003 Newsletter

+++++++++++ March 1, 2003 +++++++++++++++++++

Introduction: Resales Rise, New Home Sales Fall
Mortgage Rate Update: Rates Decline to Historic Lows
This Month's Tip: Major Mortgage Mistakes

Welcome to the March edition of the Home Buyer's
Newsletter. Home sales continue on the torrid pace that
was set in 2002.

Sales of existing single-family homes rose to a new monthly
record in January as home prices continued to show strong
gains, according to the National Association of Realtors®.

Existing-home sales increased 3.0 percent in January to a
seasonally adjusted annual rate* of 6.09 million units from
an upwardly revised level of 5.91 million in December. Last
month's sales activity was 2.2 percent above the previous
record high of 5.96 million units in January 2002.

In new homes, sales of new one-family houses in January 2003
were at a seasonally adjusted annual rate of 914,000, according to
estimates released jointly on February 27 by the U.S. Census
Bureau and the U.S. Department of Housing and Urban Development.
This is 15.1 percent (±11.5%) below the revised December rate of
1,077,000, but is 5.1 percent (±13.3%) above the January
2002 estimate of 870,000. The percentage drop, at 15.1 percent,
was the biggest one-month decline in nine years.

As we have mentioned in the past, the government figures for new
home sales are extrememly volatile (these numbers are revised
nearly every month), so it is probably too early to make conclusions
on such a large drop in sales.

Mortgage Rate Update: Rates Decline to Historic Lows

Not only have 30-year fixed-rate interest rates continued to be
below the 6.00% mark, according to Mortgage Company
Freddie Mac, in the period ending February 21st they averaged
5.84%, the lowest in the time that Freddie Mac has been
maintaining records--since 1971. 15-year fixed-rate mortgages
also set an historic low, averaging 5.21% compared to 5.26%
one week earlier.

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


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This Month's Tip: Major Mortgage Mistakes

Just as there is no neighborhood that is right for
everyone and no single home that is perfect for
every buyer, there is no one mortgage that will
be the best for each and every home
buyer. Each buyer's situation will be, to
some degree, unique, and thus their mortgage
needs will vary. This does not mean, though,
that the mortgage selection process is an easy
one. There are a number of situations where
mistakes and errors can--and frequently do--occur.
Mistakes made in the mortgage process can
cause everything from minor annoyances up to, and
including, financial disaster, so the potential
for these mistakes should be taken very seriously.

To avoid mortgage mistakes, the very first thing
that any home buyer must do is to clearly establish
the attitude that they--and only they--will be
responsible for the payment of the mortgage. Not
the lender, not the Real Estate Agent, not friends
or relatives. Therefore, any and all decisions
should be first and foremost personal ones, and
secondly, rooted in common sense.

Are many home buyers currently making major mortgage
mistakes? We think the evidence is fairly clear,
that many are, in fact, making mistakes as evidenced
by the fact that 2002 saw the highest level of home
foreclosures in history. (Higher than in much deeper
and longer recessions, higher than in periods of
much higher unemployment). We see this as absolute
proof that many home buyers are making big errors as
they examine and choose mortgages.

MISTAKE #1: Choosing the Wrong Mortgage

It is easy to make an error here, if only because
there is such a vast selection of mortgage plans
from which to choose. Common sense, though, should
prevail here. For example, choosing a 30-year
mortgage when you plan to retire (and move) in 10
years. Securing a fixed-rate mortgage with high
closing costs when you are going to be transferred
in 2 1/2 years is another example. Another mistake
(potentially a budget-busting one) would be to select
an adjustable-rate loan (especially in this historically
low interest rate environment) when you don't expect
your income to take a large jump in the future. Or,
perhaps, the biggest "wrong mortgage" of all--getting a
large mortgage when you know that 1 of the 2 incomes
needed to support it will be going away in the future.

The key to selecting the right mortgage is to find the
loan that fits your personal budget and situation,
rather than trying--or worse, hoping--to have your
budget and situation magically conform to the mortgage.
The road to financial ruin is littered with examples
of buyers who did not do the research necessary to
ensure that they selected a mortgage that was a good fit.
Take your time, analyze your situation, get several
opinions and use your common sense.

MISTAKE # 2: Letting Qualifying Ratios Get
Out of Hand

"The old rules don't apply anymore." We've heard
these words so often that it is about to make us
crazy. We heard them during the stock market
run-up of the 1990s, when stock prices had no
connection with reality. We heard the words in
1999 and 2000, when businesses that had no reason
for existing drew accolades and admiriation from
the business press and the American public. Strange
that it now looks as though the old rules--like proper
valuation and smart business plans--DO apply.

Now we are hearing the same kind of nonsense when
people speak about mortgage qualifying. "Oh, that's
the way they USED to do it, but things are a lot
different now. Mortgage lenders are much more
flexible on how much you can afford."

True. But there are many homebuyers in very
serious financial trouble now, so who was right?
For years, you qualified for a mortgage based on
some fairly well established ratios. Your total
mortgage payment (including principal, interest,
taxes and all insurances) should not total more
than around 28% of your monthly gross income. Your
total debt load, including the mortgage payment,
as well as all other debts (car loans, personal
loans, credit card payments and any other loans)
should be no more than 36% of your total monthly
gross income.

Many mortgage lenders have thrown those old ratios
out the window, approving household debt ratios
in excess of 50% of income. Let's be clear here:
If over 50% of your income is going to debt service
you will be forced to either live a very shallow life
with little or no funds for saving, investment
or enjoyment, or, worse, are headed for a financial

Want the financial aspect of your home owning
experience to be as stress-free as possible?
Do your best to adhere to the 28% and 36% ratios.
See a qualifying ratio worksheet here:
Mortgage Qualifying Ratio Worksheet

MISTAKE #3: Not Enough Downpayment

Want to really compound mistakes 1 and 2? Get the
wrong mortgage (#1), have too heavy a debt load (#2) AND put
little or nothing down. Not too long ago, a 20%
downpayment was fairly normal when purchasing a
home. In the last decade the average downpayment
fell to 10% and recently, to even less. This has
been a boon for home buyers, espcially those
purchasing their first home, but these lower (and,
at times, nonexistent) downpayments carry with them
some real potential downfalls.

As long as real estate values appreciate at the
supercharged levels thay have in the last couple of
years (and virtually NO one thinks they will) there
should be no problem for those buyers who have little
or no downpayment should they want (or need) to sell.
Should housing values stagnate, though, or worse,
go down, these buyers will not be able to sell their
homes without paying for commissions, selling expenses
and the like out of their own pocket. These expenses
can total upwards of $10,000 on a $150,000 home for

Summing Up

How do you avoid these potential costly and/or
disastrous mistakes? By preparing yourself as
best you can for the mortgage lending process.

1) Carefully research the types of mortgages
available in your area.
2) Spend the time necessary to take a clear
look at your income, budget and future plans.
3) Tailor your mortgage decision to these factors,
rather than just accepting a loan that the
lender offers, even if it may not suit your


Unsure of how to go about purchasing your new home?
Check out The Home Buyer's 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:
Email Us
or access our feedback page at:
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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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