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Low Mortgage Rates, Tax Incentives Woo First Time Homebuyers

[Aug 24, 2009.]


As of August 20, mortgage rates fell again. Freddie Macnotes that average rates for a 30 year fixed rate mortgage (FRM) fell from 5.29% to 5.12 percent. Average rates for a 15 year FRM were 4.56%., the lowest rates reported since May. Lower mortgage rates, coupled with an $8000 tax incentive for first time buyers, may warm up the mortgage market.

In more good news for US housing markets, the Mortgage Bankers Association reports that their index of applications for mortgage loans to purchase or refinance homes was up 5.6% as of the week ending August 14. The Commerce Department reports that new housing instruction increased for the fifth consecutive month as of August 18.  This news points to a reviving housing market, which means home prices may stabilize and begin to increase.

Mortgage Loans: Taking Advantage of Low Mortgage Rates

  • Whether you're buying a home or are seeking a refinance of your current mortgage, low mortgage rates can help you save money while increasing your borrowing power. Here are a few steps that assist in estimating how much you can afford to borrow.

  • Calculate monthly gross income: This is the amount of all income received on a monthly basis before deductions for taxes and social security. This information appears on your pay deposit advice or your check stub.  If you're paid weekly, multiply the gross amount by 52 (weeks) and divide by 12. You may include supplemental income including retirement, disability, spousal support and child support, but you are not required to do so.

  • Calculate fixed monthly obligations: These include credit card bills car payments, student loans,  and child support. Don;t include rent, groceries or other living expenses.

  • Estimate monthly housing expense: Mortgage lenders can help you calculate this, or you can use mortgage calculator tools for estimating monthly amounts of your new mortgage payment (P&I), taxes and insurance.

Mortgage lenders prefer to see a monthlly housing expense of no more than 28 percent of your gross monthly inome (front end ratio) and no more than 36% percent of your gross monthly income (back end ratio) for the combined total of monthly housing expenses and fixed obligations. These figures can be flexible depending on your credit scores and down payment amount. If you don't have a lot of cash for a down payment, ask your real estate broker or mortgage lenders about first time homebuyer programs. A first time buyer is typically described as anyone who has not owned a home in the immediately preceding three years. You can find out about homebuyer programs in your area here.

Please get several mortgage quotes. Read mortgage quotes carefully for accurately comparing terms including estimated closing costs and "points" to be paid at closing.  Although rates are important, also consider how long you plan to keep the home you're buying and how fast you want to pay off your mortgage for accurately evaluating potential mortgage loans. Mortgage lenders want your business and are happy to answer your questions concerning home loans and refinance options.


About Author:

Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.

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