Tuesday, December 07, 1999 -Inman News Features

Affordability increases as interest rates decrease. Affordability also increases if you use an adjustable rate mortgage rather than fixed-rate financing because the lower initial adjustable interest rate makes qualifying easier. There will be a range of prices you can afford depending on what kind of financing you choose.

Not even the Fed knows for sure

Mortgage interest rates are affected by many unpredictable political, economic and social events. So there is no guarantee what direction interest rates will go, despite the forecasts of the experts. Therefore, make your financial decision based on where things are today including your budget, your needs and your future plans.

Step lively to lock in

If you do decide you want to lock in at a certain interest rate, get a completed loan application to your lender as soon as possible so that your commitment doesn't run out before your loan is approved. Follow up and make sure any additional documentation required by the lender (employment and deposit verification) is sent without delay. Have the loan agent order the property appraisal right away, which probably will require you to pay an up-front fee of approximately $300. Make sure that payoff demands from existing lenders are ordered in time. Existing loans must be paid off before a new first loan can be secured against the property.

Writing interest guarantee into contract

Although most sellers will attempt to accommodate buyers who are in jeopardy of losing an interest rate, a seller doesn't have to agree to do so unless it's part of the purchase agreement. One way to insure that the sellers will cooperate is to include a provision in the original purchase contract that requires them to close early, if necessary, in order for you to preserve an interest rate. Give the sellers the option to rent back at a cost equal to your principal, interest, property tax and insurance payment if they can't vacate before the contract closing date.

Negotiating a buy-down with a lender

Most lenders will allow you to design your own buy-down loan. That is, you can decide how long you want the interest rate to be reduced, how much the rate will be reduced, how many points you'll pay and how often the interest rate will adjust (for example, every 6 months or annually). It's possible to pay fewer points for a buy-down in exchange for a higher interest rate and/or a shorter buy-down period.

Buy-downs cut both ways

Buyers who don't intend to own their homes for very long will probably save money by taking an adjustable rate mortgage rather than paying the cost to buy down an interest rate. Sometimes, however, a seller or builder may be willing to pay the up-front buy-down fee for you. When real estate markets slow, you'll find more sellers willing to pay to buy down a rate for a buyer. But, if you can qualify for a loan without a buy-down, you'll probably be better off negotiating a lower purchase price rather than asking the seller for a buy-down concession.

Try not to obsess about interest rates

Although rising interest rates can add stress to the home-buying experience, waiting for rates to come down may not be the answer. You could pay a higher price later, and you can always refinance if interest rates come down.

Copyright 1999 Inman News Features