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The decision of whether to buy a house in 2004 may seem daunting.
Will prices increase? Will interest raises rise? How will the economy
fare this year?
The process may seem overwhelming, especially if you're buying
for the first time. But many industry experts say the general outlook
appears promising.
For starters, price increases overall are expected to slow down
a bit -- at least compared to 2003, when the national existing home
price rose 9.1 percent to $172,600; the new-home price rose 3.6
percent to $194,400. The National Association of Realtors predicts
existing home prices to rise 4.7 percent this year and new-home
prices to go up by 5.1 percent.
"Although the rate of price increase is expected to slow next
year, it will remain above the historic norm of one-to-two percentage
points higher than the general rate of inflation," said David
Lereah, NAR's chief economist.
The 30-year fixed-rate mortgage is projected to average only 6.4
percent in 2004, up modestly from an average of 5.8 percent this
year -- the lowest in four decades.
"With tame inflation, mortgage interest rates are staying
at very low levels much longer than many people expected. This is
extending the period of favorable housing market conditions and
sustaining historically strong sales activity," Lereah said.
If a new house is in your 2004 plans, there are things you can
do and information you should be armed with to put yourself in the
best position possible when the time comes to buy, including:
1. Check out your credit report. You don't want to be shocked if
there are inaccuracies in your credit report -- or that bad debt
you had in college is still on your record. Potential lenders will
view your credit history -- how much debt you've accrued, how many
accounts you have open, whether your payments are made on time,
etc. -- to determine whether they'll give you a loan. You should
get a report from each of the three credit reporting companies:
Equifax, Experian, and Trans Union.
2. Get pre-approved for a loan. This way you'll know if you can
get approved and how much you can spend on a house. It also puts
you in a stronger position when you ultimately make an offer on
a house.
3. Be realistic and look at your big financial picture. Just because
a bank approves you for a certain amount, it doesn't automatically
mean you should find a house for that amount. Factor in other debts
and expenses and long- and short-term savings goals like college
for the kids and retirement for you. Lenders generally say your
mortgage should be about 25 percent of your gross monthly income.
And always factor in some reserve savings to put aside each month.
4. Determine how much cash you'll have available for a down payment
and closing costs (points, which are extra fees paid to secure a
lower interest rate), origination fees, taxes, title insurance,
and financing costs). The higher your down payment, the lower your
monthly mortgage payment and the possibility of qualifying for a
better loan.
5. Figure out how much your new bills -- utilities, water, insurance,
maintenance -- and repairs will cost you each month.
6. Avoid making any major purchases, especially a new vehicle.
If you do, you may have a harder time getting a loan -- or it could
potentially lower the amount you'll be approved for.
7. Keep an eye on interest rates. If they start to creep upward,
you may want to make your move.
8. Make a budget now as if you have a mortgage payment and the
monthly expenses that come with owning a home. Put the money (or
the difference between it and your current living expenses) into
a savings account. After 6-12 months you'll know whether you can
swing the extra payments -- and you'll have extra money for your
down payment.
9. Gather your paperwork -- recent paystubs, tax documents for
the past two years, bank account statements, etc.
10. Begin thinking about homeowners' insurance now. Again, make
sure your credit report is accurate -- credit histories are sometimes
used to determine whether a company will insure you, and, if so,
at what rate. Also, the Insurance Information Institute says you
should get a copy of your loss history report, such as a CLUE report
from ChoicePoint or an A-PLUS report from Insurance Services Office.
This is a record of home insurance claims you have filed. If you
have not filed any insurance claims in the past five years, you
won't have a loss history report. The better your report, the better
chance you'll have of obtaining reasonably-priced insurance on the
house you buy. And if you're renting, make sure you have renter's
insurance -- it's helpful to have insurance history when you obtain
insurance for your new house.
Published: January 6, 2004
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