001 - 01/02/09

Q. Is this a good time to buy a home?

A. Provided by Colleen Bennett, Estates Director/Realtor/SRES, Dilbeck Premier Properties

Let’s put it this way. If you have good credit, meaning your FICO is above 720, the front door to your next home is wide open. Not since 1961, the “Father Knows Best” and “Leave It to Beaver” era, have mortgage rates been this low. Fannie and Freddie will guarantee loans with FICO scores down to the mid-600s, but they’ll charge you a larger fee for the privilege.

If you believe mortgage rates will drop even further, you can wait a little longer, but don’t be idle while you’re rate-watching. Start shopping for lenders and homes now, so you’ll have all your ducks in a row when the right deal comes along. If your FICO needs cleaning up, start now to get your house in order (no pun intended). Your FICO also reflects the debt you’re carrying. More is NOT good. To qualify for a Fannie or Freddie conforming loan, your monthly mortgage payments cannot exceed 28% of gross income, while all debt payments (including student loans, etc.) cannot exceed 36% of gross income. For a Federal Housing Administration-guaranteed loan, the corresponding figures are 29% for mortgage debt and 41% for all debt. When you better understand what debt ratios you have to meet, you won’t be in such a rush to apply for a new credit card to receive 10% off your same-day purchase, a common department store tactic.

If you’re thinking of refinancing, follow the rule that says it makes sense if your new rate will be a full percentage point below your current rate and you don’t plan to move soon. If you currently have an adjustable rate mortgage (ARM), you might be wise to hold onto it. Short-term interest rates have been plummeting, and if your ARM happens to be indexed to the one-year Treasury bill, scream “Hallelujah,” because the yield has dipped below half a percent. Even after your lender adds its spread (profit margin) to the base lending rate, you’ll still pay about 3.25% a year. ARMs indexed to LIBOR (the London Interbank Offered Rate) are resetting these days to the low 4s. That’s cheaper money than you or any other mortgage borrower has seen in a long time.

Bottom line: Build your relationship with a quailed Realtor and lender today, so you’ll be a market player instead of a sideline observer when the right deal comes along.