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November, 2004 Newsletter


+++++++++++ November 2, 2004 +++++++++++++++++++

CONTENTS:
Introduction: Both Existing and New Home Sales Increase
Mortgage Rate Update: Rates Resilient
This Month's Tip: Qualifying for a Mortgage
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Introduction: Both Existing and New Home Sales Increase

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

Sales of existing single-family homes were back up again in September
after two consecutive monthly declines, according to the National
Association of Realtors®.

Existing-home sales rose 3.1 percent to a seasonally adjusted
annual rate of 6.75 million units in September from a pace of
6.55 million units in August. Last month's sales activity was
1.0 percent above the 6.68-million unit pace in September
2003 and is the third-highest pace on record.

David Lereah, NAR's chief economist, said a steady decline
in mortgage interest rates since June is now translating into
higher sales. "Since 1971 there have been only five months
when mortgage interest rates were lower, and all of those
have been during the last year and a half," he said. "The
good news is that interest rates have been fairly stable
over the last month, hovering near generational lows, and
that is increasing the purchasing power of buyers trying to
get into the housing market."

Sales of new one-family houses in September 2004 were
at a seasonally adjusted annual rate of 1,206,000, according to
estimates released jointly on October 27th by the U.S. Census
Bureau and the U.S. Department of Housing and Urban Development.
This is 3.5 percent (±9.0%) above the revised August rate of
1,165,000 and is 7.0 percent (±11.8%) above the September
2003 estimate of 1,127,000.

The median sales price of new houses sold in September 2004
was $197,700; the average sales price was $255,100. The
seasonally adjusted estimate of new houses for sale at the
end of September was 404,000. This represents a supply of 4.1
months at the current sales rate.

In the United States, today is Election Day. Take advantage of one
of your most important rights and privileges and get out and vote!

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Mortgage Rate Update: Rates Resilient

As has been the case for much of the year 2004, mortgage interest
rates remain very resilient not only to external factors but also to
economic news, both good and bad. 30-year fixed-rate mortgages averaged
5.64% in the period ending October 28th, after starting the month of October
averaging 5.72%, according to mortgage company Freddie Mac.
At the end of the month, 15-year fixed rate mortgages averaged
5.01% after beginning at an average of 5.12%. Adjustable rate
morgages also remained fairly stable during the month of October,
with 1-year adjustables averaging 3.96%.

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

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See links to LendingTree and other resources at our Mortgage
Loan Center:
Mortgage Loans

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This Month's Tip: Qualifying for a Mortgage

We always have a number of inquiries from potential home buyers
regarding the issue of mortage qualification. They want to know what
the qualification process involves, who handles the qualification and
the specific procedures involved. They often have questions regarding
mortgage qualifying ratios which compare your mortgage payment
(as well as your total debt obligations) to your monthly income.

Mortgage qualifying is the first step in determining whether or not
you are qualified for a particular mortgage amount. Along with your
credit report, the qualification process will determine whether or not
a specific mortgage (as well as the house the mortgage is for, of
course) is a good fit for your financial situation.

Although your lender will do the qualification process for you, it is a
good idea to start the process on your own so you can begin to focus
on those properties taht are priced in line with the loan amount for
which you will qualify. You can do your basic calculations with nothing more
than pen, paper and calculator. You will need to figure 2 ratios:

1) Your "top" ratio, which is the percentage of your housing expense
(mortgage including principal and interest, taxes, insurance and any
homeowner association fees) to your total income.

2) Your "bottom" ratio, which is the percentage of your total debts
(including credit card payments, car and personal loan payments
as well as any other debt payments PLUS the cost of the housing
expense above) in relation to your total income. You can find the
procedure for this computation on the Home Buyer's Information
site here:
Qualification Worksheet

Acceptable ratios will vary somewhat by the type of mortgage you
select, but you'll probably want to make your first goal the 28% (housing
expense) and 36% (total debt expense) ratios used by most
conventional mortgages.

For your income, use your gross (before tax) monthly income.
For those whose incomes include bonuses or commissions,
if the bonus and/or commission structure is established and
long-term, you will probably be able to add an average monthly
amount. If, however, it is variable or short-term, your lender will
need to make a close examination of your pay history to
determine whether or not all, or a portion, of the bonus or
commission can be added to your base income.

Some mortgage programs (notably FHA and VA) are somewhat
more liberal than the 28% and 36% ratios quoted above. In
addition, ratios are sometimes increased a bit for those who have
more downpayment (10-20% or more). This can be a real boost
to a couple of types of buyers--those who are buying their first home
and are confident that their earnings will grow and those who live
in areas where housing costs are extremely high. In these cases,
higher ratios may be the difference between being able to buy a
home or not.

For most buyers, though, staying at or under those 28% and 36%
ratio figures can carry many benefits: Less anxiety at mortgage
payment time and more money left over for reserves, savings and
the life that exists beyond the four wall of the home, just to name
a few important ones.

A special note on ARMs

As interest rates have increased in the last few months, so has the
popularity of Adjustable Rate Mortgages (ARMs). This is especially
important in a discussion of qualifying, since, in general the
qualification is done at the artificially low introduction rate of the
ARM. Higher rates, and higher payments, are virtually guaranteed
under this scenario, meaning that a house that is just affordable
at the current rate will be unaffordable at the new, higher rate, unless
there is a sizeable increase in income. We just read a news article
that detailed a home buyer in California who needs to devote over
half of his income to a house payment (the ratio that traditionally
has been in the 28% range) with not one, but two ARMs. When rates
and payments rise, this situation is a recipe for disaster.

Summing Up

Although mortgage qualifying is less an exact science today than
it was in the past, the original guidelines discussed above make
sense if you want to keep your housing expense in line with your
income. Yes, you may be able to qualify for a bigger mortgage,
but at what cost? Owning a home may be the American dream,
as it should be, but losing a home because you find yourself
buried under an impossible housing payment could be the
American nightmare.

Next Month's Topic: Preparing for Repairs and Maintenance

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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:
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 Buyer's 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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