September, 2003 Newsletter
+++++++++++ September 1, 2003 +++++++++++++++++++
Introduction: Existing Home Sales Set Record, New Home Sales Stay Strong
Mortgage Rate Update: Higher but Steady
This Month's Tip: Sharpening Your Budget
Introduction: Welcome to the September edition of the
Home Buyer's Newsletter. In Real Estate market news,
sales of both existing homes and new homes remained
extremely strong in the month of July.
Existing home sales set a new record in the month of July,
according to data from the National Association of Realtors.
Existing-home sales were up 5.0 percent to a seasonally
adjusted annual rate of 6.12 million units in July from a pace
of 5.83 million units in June; last month's sales activity was
13.8 percent above the 5.38-million unit pace in July 2002.
The previous record was a 5.94-million unit rate, set in both
December 2002 and January 2003.
David Lereah, NAR's chief economist, said the sales jump is
consistent with other housing data, but that rising interest rates
stimulated some buyers. "When mortgage interest rates first
began to rise from record lows, it appears some buyers jumped
into the market to take advantage of good affordability conditions
before interest rates moved even higher," he said, noting mortgage
interest rates have risen a full percentage point from their weekly low.
"However, given the strong underlying demand for housing from a
growing number of households, it's hard to gauge just how much
'fence jumping' may have accounted for the sales record."
Sales of new one-family houses in July 2003 were at a seasonally
adjusted annual rate of 1,165,000, according to estimates
released jointly on August 26th by the U.S. Census Bureau and the
U.S. Department of Housing and Urban Development. This is
2.9 percent (±10.5%) below the revised June rate of 1,200,000,
but is 21.2 percent (±13.3%) above the July 2002 estimate
The median sales price of new houses sold in July 2003 was
$191,500; the average sales price was $256,000. The
seasonally adjusted estimate of new houses for sale at the
end of July was 338,000. This represents a supply of 3.5 months
at the current sales rate.
Mortgage Rate Update: Higher but Steady
Mortgage rates stayed in a narrow range in the month of August
after making a large jump in July. Mortgage company Freddie Mac
reported that the average for 30-year fixed-rate mortgages stood
at 6.32% for the period ending August 28th. The month of August
began with rates averaging 6.34% in the period ending August 7th.
15-year fixed-rate mortgages averaged 5.66% on August 28th
after beginning the month averaging the same 5.66%. These
rates do not include fees paid for points, which are paid to the
For current average mortgage rates, see:
For more information on mortgages, visit the Mortgage
In this volatile financial and interest
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
This Month's Tip: Sharpening Your Budget
Before looking at homes, before considering Real Estate
Agents, prior to comparing mortgages, a buyer should
spend some time developing, evaluating and sharpening
their budget--both the current situation as well as the
budget which will come into play after the purchase of
the home. Not taking the time to explore your budget
can have powerful consequences after you have moved
into your new home. Getting you budget in line means
that it is more likely you will be able to comfortably
enjoy your home as well as be comfortable with your
everyday life, which is far more important.
Many of us have a natural aversion to household
budgets. Maybe it is just too many numbers or
maybe it is because such a budget sometimes seems so
restrictive. Still, taking a clear-headed look at
your budget may be a bit distasteful, but it truly
is not that difficult. You really will be analyzing
only 2 major variables--where the income is coming
from (and how much of it there is) and where the
spending of that income is going (and how much is
being spent). You will then be looking at the
details of those income and outflow numbers, so that
you can find areas where improvements or adjustments
can be made if necessary.
By focusing on your budget, you will also be able to
get a fairly clear picture of how much you can spend
monthly on your housing expenses. This can then be
converted to what you will be able to spend--price
wise--on a home, which makes the search for an
acceptable home much less difficult. One of the
worst home buying mistakes (and one of the biggest
disappointments) is falling in love with a home that
is simply outside of your budget range. Not only
is it frustrating to not be able to purchase that
home, too often those homes that ARE in your budget
range tend to pale quite a bit in comparison.
In the past, the mortgage qualifying process was
reasonably effective in determining whether or not
you would get over your head with mortgage payments.
Mortgage qualifying, however, has become so liberal
in comparison with past standards that there is
absolutely no assurance that you will be comfortable
with your mortgage payment or, in fact, will be able
to afford it without making extensive sacrifices. It
is important, therefore, that YOU, as the one who
will be making those monthly mortgage payments, spend
the time to take a close look at your budget to
determine affordability. Do not simply assume that
because you "qualify" for a mortgage that the
payments will be easy to make.
Seeing how much payment makes sense is a fairly
simple process that can be done quickly by using
the mortgage qualifying factors that were in
place for many years.
Take your total monthly gross income and multiply it
by 28%. This is generally the total amount most
lenders allowed for your maximum mortgage payment--
including taxes and insurances.
EXAMPLE: $4400 monthly gross income x 28%= $1232
As a second (and just as important) test, take your
gross income and multiply it by 36%. This is the
total maximum outlay for all your monthly debts--
including the mortgage payment, car loans, credit
card payments, personal loans and any other monthly
payment obligations. This would NOT include such items
as food, utilities, clothing, insurance, etc.
EXAMPLE: $4400 x 36% = $1584 maximum monthly debt
Although there may be plans or lenders who will boost the
qualifying ratios above, if you want to remain safely within a
budget, you should adhere to the ratios above as closely as
possible. These ratios were developed over many years of
analyzing repayment histories of home owners. Those with
qualifying ratios of 28% (payment) and 36% (debt) or less
were much less likely to run into problems or default than
were those with ratios above those levels.
Even the most liberal of qualifying ratios, though, have
specific limits. For example, if the home you want to buy
has a mortgage payment equal to 40% of your monthly
income (before adding other debts) or your total debts will
total 50% of income, you'll need to either lower your sights
or make a lot more money. You can't afford the house and
the lender will not approve the loan. It's better to have control
of such a situation sooner (before you go looking for a home)
rather than later (when you've found the "perfect home" and
can't buy it).
What if the numbers don't fit? You'll need to adjust your budget
and spending patterns. We've got lots of hints to help you on
the site at:
Although there may be some advantage to pushing yourself to
the edge of your budgetary constraints when purchasing a home
(you get a more expensive house), the disadvantages frequently
outweigh that single advantage. Financial problems sometimes
resulting in marital problems too), a lack of a life outside
of work and sleep, even bankruptcy or foreclosure are just
some of the potential downsides of living beyond your budget.
Be a wise homeowner--buy what you can afford and spend your
time (and your money) on helping to be sure that you have a
fuller and more complete life.
Next Month's Topic: The Transition from Renting to Owning
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
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:
or access our feedback page at:
Buyers 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