Despite slightly higher rates, now's the time to consider buying a new home
by Robert K. Heady
Bank Rate Monitor
You know the famous old saying, "Timing is everything"?
Good. Now is probably the time to purchase the new house you've been dreaming about.
Reason: Even though interest rates have gone up to 8 percent or thereabouts on 30-year mortgages, it's never been easier for the average familyor single personto buy a house.
Despite the fact that annual housing sales are on the rise, winter and the holidays are slow-moving periods for most residential markets. Sellers are more apt to negotiate on price, and lenders compete more aggressively for new customers.
Banks and mortgage companies are offering dozens of new financing programs that enable almost anybody to get into a house, even if they have a spotty credit history or have suffered a bankruptcy. Home buying has become almost too easy, complain experts who worry that too many Americans may be financially overextending themselves.
If you have good credit, you can even buy a house without putting down a dime.
And there's at least one mortgage product that lets you reduce your interest rate in the future, as many times as you like, in the event rates decline.
Granted, rates have risen over the past several months. A $100,000, 30-year fixed-rate loan taken out in June would have resulted in a $699 monthly payment and $151,436 in total interest. Now the typical figures are $734 a month and $163,842, respectively.
But rates alone are no longer where it's at. The mortgage process has become so easy that the old American promise of a chicken in every pot, a car in every garage is about to be expanded to include a house for every Joe and Jane.
With so many new programs being dangled before consumers' eyeballs, "There is a mortgage for everyone out there," maintains Tom Halley, executive vice president of Countrywide Home Loans' central division based in Denver. "There's no reason not to buy a house if you want to."
First, get your credit in order. Obtain a copy of your credit report and correct any errors immediately.
Familiarize yourself with the seven key steps of getting a mortgage loan by clicking onto www.mortgage.com.
Get pre-approvednot just "prequalified"for your loan. More than three-fourths of homebuyers nowadays do this, Halley says. It will give you more negotiating clout, and the procedure will usually take only 15 to 30 minutes by phone, plus dropping off some documents at the lender's office.
Down payment is no longer a big barrier to buying. Where once you needed 10 percent to 20 percent of the purchase price, today 3 percent and 5 percent down payments are common. VA loans used to be the only nothing-down arrangement, but no more. Plus, many lenders offer no-down payment deals to folks with good credit. By working with your local housing department and meeting certain eligibility requirements, you may be able to get down payment assistance in the form of a second loan in addition to your mortgage. Ask the lender for details.
Always shop five or six local lenders before you leap. The difference in rates can be as much as a full percentage point.
Read the lender's "good faith estimate" of fees and other costs carefully. Question anything that's not clear. Check the rate lockthe time period between application and closing on the dealto make sure your rate doesn't bounce beforehand.
If you can swing a slightly higher monthly payment, get a 15-year fixed-rate loan instead of a 30-year. On a $100,000 mortgage you'll save a whopping $92,233 in interest! Or, consider making biweekly vs. monthly payments. You probably won't notice the difference of only a few extra dollars per month, but the interest over the life of the loan will be about $60,000 less.
Countrywide's mortgage programs are good examples of how much new flexibility lenders have built into their offers these days. They range from no-down-payment loans of up to 103 percent (to also cover fees and closing costs) to 5 percent-down mortgages for folks with late-payment histories and even a past bankruptcy.
There's also a "credit repair" program with lower monthly payments during an initial fixed period to help buyers improve their credit situation. Yet another deal lets you switch to a lower rate, by just making a phone call or accessing the Internet, if rates happen to drop.
The name of the game is no longer just "interest rates," It's searching the new opportunities and understanding the commitment and responsibility of buying a house you can afford.
Editor's Note: Robert K. Heady is the founding publisher of Bank Rate Monitor and is the co-author of the book, "The Complete Idiot's Guide to Managing Your Money." You can write to him in care of this newspaper or send e-mail to jrnl8888@aol.com.
