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October, 2001 Newsletter


+++++++++++ October 4, 2001 +++++++++++++++++++

CONTENTS:
Introduction
Mortgage Rate Update: Rates Decline to 1998 Levels
Recent Site Updates: Mortgage Rate Watch
This Month's Tip: Economic Effects
++++++++++++++++++++++++++++++++++++++++++++
Introduction

Welcome to the October edition of the Home Buyer's
Information Newsletter. Undoubtedly, September 2001
was one of the most trying times in our history. Our
thoughts and prayers go out to all of those affected
by the tragedies in New York, Washington and
Pennsylvania.

These events will most likely affect virtually all
aspects of our daily lives--social and economic as
well as our personal finances. This month's article
deals with some of the potential effects on the
process of buying a home and is recommended for
both those who are looking to buy a home as well as
those who have already purchased.

+++++++++++++++++++++++++++++++++++++++++++++
Mortgage Rate Update: Rates Decline to 1998 Levels
Rates declined again at the end of September, reaching
levels not seen since late 1998. 30 year fixed-rate
mortgages averaged 6.72% (from 6.80% 1 week earlier
and 6.92% one month earlier) according to mortgage
company Freddie Mac. 15 year fixed-rates averaged
6.23% for the period ending September 27th. Many
analysts feel that we may be at the bottom of the
rate decline trend. Spot checks with several lenders
conducted Tuesday October 2nd appeared to confirm this
with rates rising on many mortgage products between
1/8th and 1/4% from those rates quoted 3 days earlier.

For more information on mortgages including evaluating,
pre-qualifying and choosing loans, visit the Mortgage
Section at:
Mortgage Information

++++++++++++++++++++++++++++++++++++++++++++++
Recent Site Updates: Mortgage Rate Watch
We have added a mortgage rate watch with average
rates for 30 and 15 year fixed-rate mortgages at:
Mortgage Rates

++++++++++++++++++++++++++++++++++++++++++++++
Sponsor:

LendingTree Mortgages
LendingTree Mortgage In this volatile financial and interest rate
environment getting as many loan comparisons as
possible is crucial. At LendingTree you can submit
one simple loan request form and within a few business days
get up to 4 bona-fide offers from lenders competing for your business.
Get more information here.
++++++++++++++++++++++++++++++++++++++++++++++

This Month's Tip: Economic Effects

The psychology involved in dealing with terrorism
reaching the shores of North America, as well as the
resulting economic impact, will have effects on
the home buying process in the short term at the
very least--and quite possibly for many months
to come. We will discuss not only what the
potential effects may be, but also ways of protecting
yourself financially.

Most of the advice you will find here is exactly
the same as we have been advising throughout
the last three years: Watch your budget, control
your debt, be careful of qualifying ratios, don't
overpay for a house and maximize your downpayment.

What Will Happen to Prices?

Even prior to September 11th, it was hard to turn on
the TV, pick up a newspaper or surf the web without
hearing some mention of the potential of a "housing
bubble." Even with the overall economy in a fairly
distinct decline, residential real estate had remained
quite strong. Sales of both new and existing homes
had shown increases throughout much of 2000 and 2001.
In addition, the prices of homes were increasing at
an abnormal rate--6.4% in the U.S. in the second
quarter and nearly 20% in some areas of the country.
Historic annual appreciation is more in the 3% range,
so these increases were quite a bit higher than
normal.

We frequently hear the question "Do you think that
prices will decline?" The most likely answer to
that is both yes and no. Areas that have
seen huge increases in prices may soften. Those
areas where price appreciation has been more in line
with historical averages may see little or no effect.

Contrary to some popular opinions, housing prices do
not ALWAYS go up, at least no more than the stock
market (or virtually any investment) always goes up.
Yes, over the long-term (meaning 10 years or more)
the trend is always upward, but it is the sum of peaks
and valleys that determine that trend. It is important,
then, to keep a careful watch on your entire home buying
process to avoid the worst possible investment scenario:
Buying at a price peak and needing to sell in a price
valley. In addition, it is a perfect time to assess
your real housing NEEDS rather than your WANTS.

How to Protect Yourself

1) Get a handle on your debt.
If your debt picture is not already under control,
adding to your debt load with a large mortgage can
be a devastating mistake. Get your current finances
in order first, then consider buying a home.

2) Be vigilant with qualifying ratios.
Although lenders have been very liberal with
qualifying ratios in the last few years, we feel
that you should make every effort possible to
keep your ratios at or under the "time-tested"
formula: Total mortgage payment (including taxes
and insurance) no more than 28% of total income and
total debt (including all current debt plus the new
mortgage payment) no more than 36% of total income.
Pushing ratios much beyond those limits can be a
recipe for financial disaster.
Worksheet on the site:
Mortgage Ratios


3) Never mortgage more than 100% of the value.
This was unthinkable ten years ago (a lender would
have doubled over in laughter if you had proposed it)
but has become more common in the last few years. There
is nothing good that can come from a mortgage higher
than the value of the house: If you have or want to
sell, there will be no way of selling the house without
having to reach into your pocket, probably at the most
inopportune time. You should, instead, be looking for
ways to maximize your downpayment to keep your exposure
at a minimum.

4) Never, EVER, get caught in a bidding war.
No matter how nice the home is, no matter how much
you feel that you want the house, never find yourself
in a bidding war unless the property is ridiculously
UNDERpriced. Bidding home prices up over realistic
values is only asking for trouble.

5) Never pay a large percentage over the listing price.
Unless a Comparative Market Analysis (CMA) can prove--
without any doubt--that the home is listed considerably
under value, don't let anyone force your hand into paying
a premium.
Information on pricing:
Home Values

6) Most important, Be careful!
Buy with common sense and not just emotion. You should be
excited about buying a home (that is natural and part of
the joy of being a homeowner) but your emotion should not
blind you to the reality of dollars and cents. Yes,
buying a home can be a wonderful experience but don't use
it to boost your ego or show off your wonderful taste.
Buying "trophy homes" (buying more home than you could possibly
need, in the "best" neighborhoods, with all the latest and
greatest amenities) became an accepted practice in the
last few years but could quickly lose favor if the
economy changes. Buy what you are comfortable with and what
you need at a reasonable price, and you should be protected
in both the short and the long term. Over-buy and you could
have problems. By purchasing wisely, not only will you
sleep better at night, may also better your financial position.

Remember that in the final analysis, you will be measured
not by the size of your home but by the size of your heart.

Determining your NEEDS and your WANTS:
Needs and Wants

Next month's topic: Credit and Home Buying

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 at

or access our feedback page at:
HomeBuyers 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. Good luck to all!

The Team at the Home Buyer's Information Center

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