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September, 2002 Newsletter

+++++++++++ September 1, 2002 +++++++++++++++++++

Introduction: July Sales Figures Show Strength
Mortgage Rate Update: Rates Low and Stable
This Month's Tip: Insurance, Insurance, Insurance
Introduction: July Sales Figures Show Strength

Welcome to the September edition of the Home Buyer's Newsletter.
July sales figures showed continued strength in both the new home
and resale housing markets. July new home sales showed an
increase of 6.7% according to the U.S. Commerce Department. This
represented an annual adjusted rate of over 1 million new homes in
the U.S. Existing home sales also increased to an annual rate of
over 5.3 million homes, seasonally adjusted.

Although both reports showed strong increases, it is important to
note that these figures are frequently revised. For example, new
home sales in June were originally reported to have increased 0.5%.
The revised June figure actually showed a decline of 2.6%.

Mortgage Rate Update: Rates Low and Stable

Rates returned to their historic lows at the end of August, with
30-year fixed-rates averaging 6.22% (not including points) according
to mortgage company Freddie Mac. 15-year fixed-rate mortgages
averaged 5.64% for the same time period.

Although no one can adequately predict the direction of rates, it
does appear that the bias appears to be toward rates staying at
or near current levels or rising slightly. Buyers would be wise to
have their up-front work completed so that they can move to lock-in
quickly if needed.

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


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This Month's Tip: Insurance, Insurance, Insurance

A word that you will commonly hear at the time of mortgage
applications, during escrow, at settlement and even after you
close is "insurance." Some of the terms you will hear include
homeowner's insurance, house insurance, flood insurance,
hazard insurance, fire insurance, private mortgage insurance,
mortgage insurance premiums and mortgage life insurance.

It really isn't all that complicated, though. All of these terms
can be summarized into 3 main categories:

* Homeowner's Insurance (including flood and hazard)
* Private Mortgage Insurance and Mortgage Insurance
* Mortgage life insurance

Homeowner's Insurance

Homeowner's Insurance is the most common and the
most important, since this is what covers you against
the most common hazards such as fire or theft. Buying
a home without homeowner's insurance is almost
unthinkable and, if you are planning to finance any
portion of your home, such insurance will be required.
The lender will insist on coverage at least equal to
the amount of the loan, but you will, most likely,
want to cover the entire value of the home (not
including the land).

These policies are sometimes referred to as "hazard
insurance" or "fire insurance" but their coverages
generally will be broader than protection only against
certain specific hazards. Most will have provisions
for broader coverage (such as theft and liability) so
it is imperative that you spend the time necessary to
compare price as well as coverage. There will also be
a number of exclusions to these policies, most notably
coverage against flooding. Flood insurance is never
a part of basic homeowner's insurance and must be
purchased separately. Depending on where the house
is located, the lender may or may not require you to carry
flood insurance.

The first year of homeowner's insurance is paid at the
time of settlement. In addition, you will most likely pay
several additonal months of insurance coverage so the
lender can start an escrow fund, from which the following
years' payments will be made. Thereafter, a portion of
your monthly mortgage payment (the second "I" -- for Insurance)
in your PITI (Principal, Interest, Taxes and Insurance which makes
up your total monthly payment) will cover your homeowner's
insurance premium.

Saving Money on Homeowner's Insurance

The Insurance Information Institute has a number of hints
for saving money. Here are several important ones:

* Shop around
Prices vary from company to company, so it pays to shop around.
Get at least three price quotes. You can call companies directly
or access information on the Internet. Your state insurance
department may also provide comparisons of prices charged
by major insurers.

* Raise your deductible.
A deductible is the amount of money you have to pay toward
a loss before your insurance company starts to pay a claim.
The higher your deductible, the more money you save on your
premium. Consider a deductible of at least $500. If you can
afford to raise it to $1,000, you may save as much as 25%.

* Buy your home and auto policies from the same insurer.
Some insurance companies will reduce your premium by
5% to 15% if you buy two or more insurance policies from
them. But make certain this combined price is lower than
buying coverages from different companies.

For more information (and more hints on saving money)
the section devoted to the subject

Private Mortage Insurance (PMI)

Unlike homeowner's insurance, which protects YOU against
hazards, PMI protects the lender--against your default of the
mortgage. Virtually all conventional mortgages with less than a
20% downpayment will dictate the inclusion of PMI. FHA
mortgages, which are insured by the Federal Government,
require a different type of insurance with different
coverages. The cost of PMI will depend on a number of
factors, including the insurance carrier and the size of the
loan, but monthly payments for the insurance will generally
fall into the $25 - $100 range for median priced homes.

When confronted with PMI for the first time, many buyers
will ask "If I'm paying the premium but it is the
lender who is protected, what's in it for me?" Simply put,
the ability to purchase a home with less than 20% down.
Lenders have found that those who put down less than
20% are far more likely to default than those who put
down more. With the protection of PMI, lenders are able
to make more loans (and more buyers are able to buy
homes) with downpayments as low as 5% or 10%. This is
especially important to first-time buyers, where liquid
cash for downpayments and closing costs is often tight.

Mortgage Life Insurance

Mortgage Life Insurance is pretty much what the name
implies: It is a life insurance policy that covers the amount
of your mortgage. If you die when it is in force, the insurance
company will pay off the remaining balance of the mortgage.

Mortgage Life is almost always term insurance with a declining
benefit--as your mortgage balance declines, your benefit also
declines. As with any insurance, it is wise to compare prices and
coverage offered by different companies. It is also a good idea
to compare costs for the same amount of coverage with a standard
life insurance policy. In that case, the amount of insurance would
not decline but would remain constant throughout the time the
policy was in force.

Summing Up

Make a determination of the type and scope of insurance coverage
you desire, make comparisons of the coverage available and then
make comparisions based on price and value.

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

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
access our feedback page

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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