Are you ready to own?
In Lesson 8
How much house can you afford?
Glossary
Take
the test
Top things to know
Are you ready to own?
Setting your budget
Picking a team
The hunt
Closing the deal
For sellers only
Mortgage Home equity loan Overnight avgs
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15 yr fixed mtg 4.93%
30 yr fixed jumbo mtg 6.47%
5/1 ARM 5.14%
5/1 jumbo ARM 5.63%
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$30K HELOC 7.40%
$50K HELOC 7.24%
$30K Home Eq 8.23%
$50K Home Eq 8.14%
$75K Home Eq 7.85%
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Money 101 Lessons
Setting priorities
Making a budget
Basics of banking and saving
Basics of investing
Investing in stocks
Investing in mutual funds
Investing in bonds
Buying a home
Controlling debt
Employee stock options
Saving for college
Kids and money
Planning for retirement
Asset allocation
Hiring financial help
Health insurance
Buying a car
Taxes
Home insurance
Life insurance
Estate planning
Auto insurance
401(k)s
Home ownership means you no longer pay monthly rent for the roof over your head. You can do what you want with your house (within reason). When you leave, you can sell it to recoup the purchase price and - with any luck - earn a profit too.
But don't kid yourself. home ownership comes with a slew of disadvantages, responsibilities, and downright headaches.
So before going any further, consider whether your lifestyle and finances make homebuying a smart move.
TIP: High costs mean you should be prepared to say put. Except in a roaring real estate market, it usually doesn't make sense to buy a home you'll own for less than three or four years. Reason: the high transaction cost of buying and selling property means you could lose money on the deal. If you do make money, you'll pay capital gains taxes if you're in the house less than two years.
So ask yourself if you can really stay put for that long. Will you need to move because you are transferred by your current employer or a new one? Are you thinking of going back to school?
TIP: It may make more sense to rent On the financial side, one key question is whether it costs more, on average, to rent or own in your area. The rule of thumb is that if you pay 35 percent less in rent than you would for owning - including the monthly mortgage, property taxes, and any homeowner's fees - then it's smarter to continue renting.
Only if all those answers still point towards owning should you proceed to the next step - getting the money right.
Thursday, January 17, 2008
Tips on Buying a New Home
1. Don't buy if you can't stay put.
If you can't commit to remaining in one place for at least a few years, then owning is probably not for you, at least not yet. With the transaction costs of buying and selling a home, you may end up losing money if you sell any sooner.
2. Start by shoring up your credit.
Since you most likely will need to get a mortgage to buy a house, you must make sure your credit history is as clean as possible. A few months before you start house hunting, get copies of your credit report. Make sure the facts are correct, and fix any problems you discover.
3. Aim for a home you can really afford.
The rule of thumb is that you can buy housing that runs about two-and-one-half times your annual salary. But you'll do better to use one of many calculators available online to get a better handle on how your income, debts, and expenses affect what you can afford.
4. Don't worry if you can't put down the usual 20 percent.
There are a variety of public and private lenders who, if you qualify, offer low-interest mortgages that require a down payment as small as 3 percent of the purchase price.
5. Buy in a district with good schools.
In most areas, this advice applies even if you don't have school-age children. Reason: When it comes time to sell, you'll learn that strong school districts are a top priority for many home buyers, thus helping to boost property values.
6. Get professional help.
Even though the Internet gives buyers unprecedented access to home listings, most new buyers (and many more experienced ones) are better off using a professional agent. Look for an exclusive buyer agent, if possible, who will have your interests at heart and can help you with strategies during the bidding process.
7. Choose carefully between points and rate.
When picking a mortgage, you usually have the option of paying additional points -- a portion of the interest that you pay at closing -- in exchange for a lower interest rate. If you stay in the house for a long time -- say five to seven years or more -- it's usually a better deal to take the points. The lower interest rate will save you more in the long run.
8. Before house hunting, get pre-approved.
Getting pre-approved will you save yourself the grief of looking at houses you can't afford and put you in a better position to make a serious offer when you do find the right house. Not to be confused with pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history.
9. Do your homework before bidding.
Your opening bid should be based on the sales trend of similar homes in the neighborhood. So before making it, consider sales of similar homes in the last three months. If homes have recently sold at 5 percent less than the asking price, you should make a bid that's about eight to 10 percent lower than what the seller is asking.
10. Hire a home inspector.
Sure, your lender will require a home appraisal anyway. But that's just the bank's way of determining whether the house is worth the price you've agreed to pay. Separately, you should hire your own home inspector, preferably an engineer with experience in doing home surveys in the area where you are buying. His or her job will be to point out potential problems that could require costly repairs down the road.
If you can't commit to remaining in one place for at least a few years, then owning is probably not for you, at least not yet. With the transaction costs of buying and selling a home, you may end up losing money if you sell any sooner.
2. Start by shoring up your credit.
Since you most likely will need to get a mortgage to buy a house, you must make sure your credit history is as clean as possible. A few months before you start house hunting, get copies of your credit report. Make sure the facts are correct, and fix any problems you discover.
3. Aim for a home you can really afford.
The rule of thumb is that you can buy housing that runs about two-and-one-half times your annual salary. But you'll do better to use one of many calculators available online to get a better handle on how your income, debts, and expenses affect what you can afford.
4. Don't worry if you can't put down the usual 20 percent.
There are a variety of public and private lenders who, if you qualify, offer low-interest mortgages that require a down payment as small as 3 percent of the purchase price.
5. Buy in a district with good schools.
In most areas, this advice applies even if you don't have school-age children. Reason: When it comes time to sell, you'll learn that strong school districts are a top priority for many home buyers, thus helping to boost property values.
6. Get professional help.
Even though the Internet gives buyers unprecedented access to home listings, most new buyers (and many more experienced ones) are better off using a professional agent. Look for an exclusive buyer agent, if possible, who will have your interests at heart and can help you with strategies during the bidding process.
7. Choose carefully between points and rate.
When picking a mortgage, you usually have the option of paying additional points -- a portion of the interest that you pay at closing -- in exchange for a lower interest rate. If you stay in the house for a long time -- say five to seven years or more -- it's usually a better deal to take the points. The lower interest rate will save you more in the long run.
8. Before house hunting, get pre-approved.
Getting pre-approved will you save yourself the grief of looking at houses you can't afford and put you in a better position to make a serious offer when you do find the right house. Not to be confused with pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history.
9. Do your homework before bidding.
Your opening bid should be based on the sales trend of similar homes in the neighborhood. So before making it, consider sales of similar homes in the last three months. If homes have recently sold at 5 percent less than the asking price, you should make a bid that's about eight to 10 percent lower than what the seller is asking.
10. Hire a home inspector.
Sure, your lender will require a home appraisal anyway. But that's just the bank's way of determining whether the house is worth the price you've agreed to pay. Separately, you should hire your own home inspector, preferably an engineer with experience in doing home surveys in the area where you are buying. His or her job will be to point out potential problems that could require costly repairs down the road.
Mortgage rates sink on weak economic data
Disappointing jobs report, slow service sector growth sent mortgage rates lower this week; refinancing activity rises, Freddie Mac reports.
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See all CNNMoney.com RSS FEEDS (close) January 10 2008: 10:59 AM EST
Current Mortgage Rates
Type Overall avgs
30 yr fixed mtg 5.42%
15 yr fixed mtg 4.93%
30 yr fixed jumbo mtg 6.47%
5/1 ARM 5.14%
5/1 jumbo ARM 5.63%
Find personalized rates:
NEW YORK (CNNMoney.com) -- Mortgage rates dropped this week on weak economic data, sending refinancing activity higher, Freddie Mac reported Thursday.
The government-sponsored loan buyer said the rate on a 30-year fixed-rate loan averaged 5.87 percent for the week ending Jan. 10, down from 6.07 percent last week.
At this time last year, the 30-year fixed-rate mortgage averaged 6.21 percent.
Unemployment jumped to a two-year high of 5 percent in December and the service sector saw the slowest expansion in nine months, noted Frank Nothaft, Freddie Mac (FRE, Fortune 500) vice president and chief economist in a statement Thursday.
Additionally, the National Association of Realtors suggested a drop in pending home sales for November signaled a possible slowdown in December.
"As a result, mortgage rates came down across the board, with 30-year fixed mortgage rates at their lowest level in more than two years," Nothaft said.
"Because average mortgage rates have come down more than a quarter of a percentage point in the past two weeks, there has been a pickup in refinance activity as borrowers take advantage of the lower rates," he added.
Home sales sink, outlook darkens
Freddie Mac said 15-year fixed-rate loans averaged 5.43 percent, down from 5.68 percent last week. A year ago, the 15-year rate averaged 5.96 percent.
Five-year adjustable-rate mortgages (ARMs) averaged 5.63 percent this week, down from 5.78 percent last week. A year ago, the 5-year rate averaged 6.03 percent.
One-year Treasury-indexed ARMs averaged 5.37 percent, down from 5.47 percent last week. At this time last year, the 1-year ARM averaged 5.44 percent.
Recession may already be here
Ex-Fannie boss fingers White House
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See all CNNMoney.com RSS FEEDS (close) January 10 2008: 10:59 AM EST
Current Mortgage Rates
Type Overall avgs
30 yr fixed mtg 5.42%
15 yr fixed mtg 4.93%
30 yr fixed jumbo mtg 6.47%
5/1 ARM 5.14%
5/1 jumbo ARM 5.63%
Find personalized rates:
NEW YORK (CNNMoney.com) -- Mortgage rates dropped this week on weak economic data, sending refinancing activity higher, Freddie Mac reported Thursday.
The government-sponsored loan buyer said the rate on a 30-year fixed-rate loan averaged 5.87 percent for the week ending Jan. 10, down from 6.07 percent last week.
At this time last year, the 30-year fixed-rate mortgage averaged 6.21 percent.
Unemployment jumped to a two-year high of 5 percent in December and the service sector saw the slowest expansion in nine months, noted Frank Nothaft, Freddie Mac (FRE, Fortune 500) vice president and chief economist in a statement Thursday.
Additionally, the National Association of Realtors suggested a drop in pending home sales for November signaled a possible slowdown in December.
"As a result, mortgage rates came down across the board, with 30-year fixed mortgage rates at their lowest level in more than two years," Nothaft said.
"Because average mortgage rates have come down more than a quarter of a percentage point in the past two weeks, there has been a pickup in refinance activity as borrowers take advantage of the lower rates," he added.
Home sales sink, outlook darkens
Freddie Mac said 15-year fixed-rate loans averaged 5.43 percent, down from 5.68 percent last week. A year ago, the 15-year rate averaged 5.96 percent.
Five-year adjustable-rate mortgages (ARMs) averaged 5.63 percent this week, down from 5.78 percent last week. A year ago, the 5-year rate averaged 6.03 percent.
One-year Treasury-indexed ARMs averaged 5.37 percent, down from 5.47 percent last week. At this time last year, the 1-year ARM averaged 5.44 percent.
Recession may already be here
Ex-Fannie boss fingers White House
Find mortgage rates in your area.
Builders' confidence edges up from record low
Most builders still see weak housing market, but there are signs of hope for the not so distant future.
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See all CNNMoney.com RSS FEEDS (close) By Chris Isidore, CNNMoney.com senior writer
January 17 2008: 5:26 AM EST
Video
More video
National Association of Homebuilders Jerry Howard says the trade group is looking for improvement in 2008.
Play video
--------------------------------------------------------------------------------
Goldman Sachs analyst Jan Hatzius says a recession and a more serious downturn in the housing market are on the horizon.
Play video
Current Mortgage Rates
Type Overall avgs
30 yr fixed mtg 5.42%
15 yr fixed mtg 4.93%
30 yr fixed jumbo mtg 6.47%
5/1 ARM 5.14%
5/1 jumbo ARM 5.63%
Find personalized rates:
Special Reportfull coverage
Mortgage meltdown: Now the rents
Builders' confidence edges up from record low
Cleveland sues lenders over subprime
Housing: No room for bulls
NEW YORK (CNNMoney.com) -- Home builders' confidence showed a very slight improvement in January, helped by a narrow gain in their hopes for the market early this summer, according to the latest survey.
But despite that glimmer of hope, their overall outlook is still near the recent record lows.
The National Association of Home Builders/Well Fargo index had a 19 reading in January, up slightly from the downwardly revised December reading of 18, a record low. The index is based upon three subindexes that measure their view of current market conditions, outlook for six months down the road and the level of buyer traffic.
Builders' view of the market for single family homes six months from now was responsible for most of the index's narrow gain. The reading rose to 28 from 26, the second straight month of a two-point gain in that measure.
Just over half of those surveyed still expect a poor housing market in six months, although that's down from the 57 percent who felt that way in December.
The index's reading on the current market condition stayed unchanged at 19, just above the record low of 18 reached in the October and November surveys. More than two out of three builders surveyed believe the current market conditions are poor.
But their view of current buyer traffic did show a narrow gain, rising to 14 from the record low of 13 reached in December, although three out of four said the level of traffic was either low or very low.
"Builders are taking a realistic view of the continuing housing market correction and doing what they should to get inventories under control and restore greater balance to the supply and demand equation," noted NAHB President Brian Catalde, a home builder from El Segundo, Calif.
The report comes the day before the government report on housing starts and building permits is released. Economists surveyed by Briefing.com forecast that both readings are expected to fall once again to levels that would represent 14-year lows.
The weak market for housing and home building has become a major drag on the U.S. economy and raised fears that it could help to bring on a recession early this year, if such a downturn hasn't already begun.
That weakness has also hammered at the results of the nation's largest builders. A week ago KB Home (KBH, Fortune 500), the nation's No. 5 builder by revenue, reported a fiscal fourth quarter loss that was nearly 10 times worse than forecasts, as CEO Jeff Mezger told investors during a conference call that "As we enter 2008, we see no indication markets are stabilizing."
Lennar (LEN, Fortune 500), the nation's No. 1 home builder, is forecast to report a large increase in fiscal fourth quarter losses when it releases results Jan. 24. Those losses are forecast to continue throughout this fiscal year as well. Analysts are looking for No. 6 builder Hovnanian Enterprises (HOV, Fortune 500) to post losses in both fiscal 2008 and 2009.
Analysts are also forecasting that No. 2 Centex (CTX, Fortune 500), No. 3 D.R. Horton (DHI, Fortune 500) and No. 4 Pulte Homes (PHM, Fortune 500) are going to report continuing losses until at least their final quarters of this calendar year.
The builder with the forecast of the quickest return to profits is luxury home builder Toll Brothers (TOL, Fortune 500), seen as posting a narrow gain in the quarter ending in July. It posted its first loss as a public company in its most recent period, which ended in October.
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See all CNNMoney.com RSS FEEDS (close) By Chris Isidore, CNNMoney.com senior writer
January 17 2008: 5:26 AM EST
Video
More video
National Association of Homebuilders Jerry Howard says the trade group is looking for improvement in 2008.
Play video
--------------------------------------------------------------------------------
Goldman Sachs analyst Jan Hatzius says a recession and a more serious downturn in the housing market are on the horizon.
Play video
Current Mortgage Rates
Type Overall avgs
30 yr fixed mtg 5.42%
15 yr fixed mtg 4.93%
30 yr fixed jumbo mtg 6.47%
5/1 ARM 5.14%
5/1 jumbo ARM 5.63%
Find personalized rates:
Special Reportfull coverage
Mortgage meltdown: Now the rents
Builders' confidence edges up from record low
Cleveland sues lenders over subprime
Housing: No room for bulls
NEW YORK (CNNMoney.com) -- Home builders' confidence showed a very slight improvement in January, helped by a narrow gain in their hopes for the market early this summer, according to the latest survey.
But despite that glimmer of hope, their overall outlook is still near the recent record lows.
The National Association of Home Builders/Well Fargo index had a 19 reading in January, up slightly from the downwardly revised December reading of 18, a record low. The index is based upon three subindexes that measure their view of current market conditions, outlook for six months down the road and the level of buyer traffic.
Builders' view of the market for single family homes six months from now was responsible for most of the index's narrow gain. The reading rose to 28 from 26, the second straight month of a two-point gain in that measure.
Just over half of those surveyed still expect a poor housing market in six months, although that's down from the 57 percent who felt that way in December.
The index's reading on the current market condition stayed unchanged at 19, just above the record low of 18 reached in the October and November surveys. More than two out of three builders surveyed believe the current market conditions are poor.
But their view of current buyer traffic did show a narrow gain, rising to 14 from the record low of 13 reached in December, although three out of four said the level of traffic was either low or very low.
"Builders are taking a realistic view of the continuing housing market correction and doing what they should to get inventories under control and restore greater balance to the supply and demand equation," noted NAHB President Brian Catalde, a home builder from El Segundo, Calif.
The report comes the day before the government report on housing starts and building permits is released. Economists surveyed by Briefing.com forecast that both readings are expected to fall once again to levels that would represent 14-year lows.
The weak market for housing and home building has become a major drag on the U.S. economy and raised fears that it could help to bring on a recession early this year, if such a downturn hasn't already begun.
That weakness has also hammered at the results of the nation's largest builders. A week ago KB Home (KBH, Fortune 500), the nation's No. 5 builder by revenue, reported a fiscal fourth quarter loss that was nearly 10 times worse than forecasts, as CEO Jeff Mezger told investors during a conference call that "As we enter 2008, we see no indication markets are stabilizing."
Lennar (LEN, Fortune 500), the nation's No. 1 home builder, is forecast to report a large increase in fiscal fourth quarter losses when it releases results Jan. 24. Those losses are forecast to continue throughout this fiscal year as well. Analysts are looking for No. 6 builder Hovnanian Enterprises (HOV, Fortune 500) to post losses in both fiscal 2008 and 2009.
Analysts are also forecasting that No. 2 Centex (CTX, Fortune 500), No. 3 D.R. Horton (DHI, Fortune 500) and No. 4 Pulte Homes (PHM, Fortune 500) are going to report continuing losses until at least their final quarters of this calendar year.
The builder with the forecast of the quickest return to profits is luxury home builder Toll Brothers (TOL, Fortune 500), seen as posting a narrow gain in the quarter ending in July. It posted its first loss as a public company in its most recent period, which ended in October.
Mortgage lending forecast to drop
Previously owned home sales are also expected to fall as banks rack up billions in losses, according to the Mortgage Bankers Association.
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See all CNNMoney.com RSS FEEDS (close) January 14 2008: 2:04 PM EST
Video
More video
Bank of America purchases Countrywide Financial, one of the companies hardest hit by the subprime mortgage meltdown.
Play video
WASHINGTON (AP) -- U.S. mortgage lending will fall by more than 16 percent this year, dragged down by a worsening economy and a slumping mortgage market, an industry group predicted Monday.
The Mortgage Bankers Association forecast that U.S. mortgage lending will fall 16.2 percent this year to $1.96 trillion, down from a projected $2.34 trillion last year.
The group also said sales of previously owned U.S. homes will drop by about 13 percent, while median prices fall about 2 percent. New mortgage lending would continue its downward descent in 2009, the group predicted, but home sales and prices would steady a bit.
Subprime lender to file for bankruptcy
Home loan defaults slammed lenders last year. Wall Street banks have posted tens of billions in mortgage-related losses, and traders worry Merrill Lynch & Co. (MER, Fortune 500), Citigroup (C, Fortune 500) and JPMorgan Chase & Co (JPM, Fortune 500). will announce more losses when they report fourth-quarter earnings this week.
With defaults piling up, lenders have turned away from mortgages packaged and sold to investors and back to loans held on their books and those sold to Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500), the government-sponsored mortgage companies.
Doug Duncan, the trade group's chief economist, said in a statement that banks are strong enough to keep making mortgage loans. A recovery "may take longer this time than it has in past financial crises, but a turn for the better still appears to be a good bet later in the year," he said.
Duncan's predictions for the housing market are far gloomier than the National Association of Realtors, the trade group for real estate agents.
He predicts that existing home sales will drop by about 13 percent this year to 4.94 million before rebounding by about 4 percent in 2009. The Realtors group is forecasting about 5.7 million existing home sales, up slightly from last year.
Bad bank earnings: Prepare for the flood
China may block $2B Citi deal - report
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See all CNNMoney.com RSS FEEDS (close) January 14 2008: 2:04 PM EST
Video
More video
Bank of America purchases Countrywide Financial, one of the companies hardest hit by the subprime mortgage meltdown.
Play video
WASHINGTON (AP) -- U.S. mortgage lending will fall by more than 16 percent this year, dragged down by a worsening economy and a slumping mortgage market, an industry group predicted Monday.
The Mortgage Bankers Association forecast that U.S. mortgage lending will fall 16.2 percent this year to $1.96 trillion, down from a projected $2.34 trillion last year.
The group also said sales of previously owned U.S. homes will drop by about 13 percent, while median prices fall about 2 percent. New mortgage lending would continue its downward descent in 2009, the group predicted, but home sales and prices would steady a bit.
Subprime lender to file for bankruptcy
Home loan defaults slammed lenders last year. Wall Street banks have posted tens of billions in mortgage-related losses, and traders worry Merrill Lynch & Co. (MER, Fortune 500), Citigroup (C, Fortune 500) and JPMorgan Chase & Co (JPM, Fortune 500). will announce more losses when they report fourth-quarter earnings this week.
With defaults piling up, lenders have turned away from mortgages packaged and sold to investors and back to loans held on their books and those sold to Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500), the government-sponsored mortgage companies.
Doug Duncan, the trade group's chief economist, said in a statement that banks are strong enough to keep making mortgage loans. A recovery "may take longer this time than it has in past financial crises, but a turn for the better still appears to be a good bet later in the year," he said.
Duncan's predictions for the housing market are far gloomier than the National Association of Realtors, the trade group for real estate agents.
He predicts that existing home sales will drop by about 13 percent this year to 4.94 million before rebounding by about 4 percent in 2009. The Realtors group is forecasting about 5.7 million existing home sales, up slightly from last year.
Bad bank earnings: Prepare for the flood
China may block $2B Citi deal - report
Find mortgage rates in your area.
Mortgage meltdown: ARMs on the wane
Delinquency increases in 2007 caused the number of adjustable-rate mortgages issued last year to decrease, according to Freddie Mac
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See all CNNMoney.com RSS FEEDS (close) January 15 2008: 1:19 PM EST
Video
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Real estate sell offs increase, but Bank of America's deal to buy Countrywide may be good news for some borrowers.
Play video
NEW YORK (CNNMoney.com) -- The number of adjustable-rate mortgages issued by lenders declined in 2007 as loan delinquencies and economic problems took their toll on interest rate discounts, according to Freddie Mac's annual ARM survey.
As of October 2007, the government-sponsored loan buyer said, ARMs made up 17 percent of loan applications, their lowest level since June 2003.
Over the past year, delinquency rates on ARMs surpassed those of fixed rate mortgages, according to Freddie's chief economist Frank Nothaft. Rates hit 3.1 percent in September, as opposed to the 0.8 percent delinquency rate of prime fixed-rate loans.
Foreclosures reach record high
Many of those ARMs had low introductory teaser rates that reset to payments that homeowners could no longer afford. And as teaser rates rose, the loans became less attractive to potential borrowers.
"A year ago, the initial-rate discount on the popular 3/1 and 5/1 hybrid products was about 1.8 percentage points. In our latest survey, the rate discount had virtually disappeared on these products," said Nothaft in a statement.
According to Freddie Mac (FRE, Fortune 500), hybrid ARMs that contain an initial fixed-rate period of five years remain popular with families who intend to maintain their mortgage for five years or less. Five year hybrid ARM rates run about 0.1 percent below those of a 30-year fixed-rate mortgage.
"As ARMs became more expensive relative to fixed-rate loans during the closing months of 2007, the ARM share of lending declined," he said.
Mortgage rates sink on weak economic data
Housing: no room for bulls
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See all CNNMoney.com RSS FEEDS (close) January 15 2008: 1:19 PM EST
Video
More video
Real estate sell offs increase, but Bank of America's deal to buy Countrywide may be good news for some borrowers.
Play video
NEW YORK (CNNMoney.com) -- The number of adjustable-rate mortgages issued by lenders declined in 2007 as loan delinquencies and economic problems took their toll on interest rate discounts, according to Freddie Mac's annual ARM survey.
As of October 2007, the government-sponsored loan buyer said, ARMs made up 17 percent of loan applications, their lowest level since June 2003.
Over the past year, delinquency rates on ARMs surpassed those of fixed rate mortgages, according to Freddie's chief economist Frank Nothaft. Rates hit 3.1 percent in September, as opposed to the 0.8 percent delinquency rate of prime fixed-rate loans.
Foreclosures reach record high
Many of those ARMs had low introductory teaser rates that reset to payments that homeowners could no longer afford. And as teaser rates rose, the loans became less attractive to potential borrowers.
"A year ago, the initial-rate discount on the popular 3/1 and 5/1 hybrid products was about 1.8 percentage points. In our latest survey, the rate discount had virtually disappeared on these products," said Nothaft in a statement.
According to Freddie Mac (FRE, Fortune 500), hybrid ARMs that contain an initial fixed-rate period of five years remain popular with families who intend to maintain their mortgage for five years or less. Five year hybrid ARM rates run about 0.1 percent below those of a 30-year fixed-rate mortgage.
"As ARMs became more expensive relative to fixed-rate loans during the closing months of 2007, the ARM share of lending declined," he said.
Mortgage rates sink on weak economic data
Housing: no room for bulls
Find mortgage rates in your area.
Mortgage applications up 28%
Mortgage Bankers Association says the number of people filing applications rose sharply last week; seasonal volatility and falling interest rates both factors.
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See all CNNMoney.com RSS FEEDS (close) January 16 2008: 8:12 AM EST
WASHINGTON (AP) -- Mortgage application volume skyrocketed for the second consecutive week, rising 28.4 percent during the week ending Jan. 11, according to the Mortgage Bankers Association's weekly application survey.
The MBA's application index rose to 906.4 from 706 the previous week, which was shortened due to the New Year's holiday. Mortgage volume slows during the winter, which can lead to greater volatility. Application volume jumped 39 percent during the same week a year ago.
Refinance volume rose 43.4 percent, while purchase volume jumped 11.4 percent. Refinance volume accounted for 62.7 percent of total application volume, compared with 57.7 percent the previous week.
The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom.
An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. A reading of 906.4 means mortgage application activity is 9.064 times higher than it was when the MBA began tracking the data.
The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50 percent of all residential retail mortgage originations each week.
Applications rose as interest rates continued to fall. The average interest rate for traditional, 30-year fixed-rate mortgages fell to 5.62 percent from 5.73 percent. The average interest rate for 15-year fixed-rate mortgages -- which are typically used to refinance loans -- fell to 5.07 percent from 5.21 percent.
Rates for one-year adjustable-rate mortgages fell to 5.77 percent from 6.04 percent.
Washington's hard case: How to juice economy
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See all CNNMoney.com RSS FEEDS (close) January 16 2008: 8:12 AM EST
WASHINGTON (AP) -- Mortgage application volume skyrocketed for the second consecutive week, rising 28.4 percent during the week ending Jan. 11, according to the Mortgage Bankers Association's weekly application survey.
The MBA's application index rose to 906.4 from 706 the previous week, which was shortened due to the New Year's holiday. Mortgage volume slows during the winter, which can lead to greater volatility. Application volume jumped 39 percent during the same week a year ago.
Refinance volume rose 43.4 percent, while purchase volume jumped 11.4 percent. Refinance volume accounted for 62.7 percent of total application volume, compared with 57.7 percent the previous week.
The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom.
An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. A reading of 906.4 means mortgage application activity is 9.064 times higher than it was when the MBA began tracking the data.
The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50 percent of all residential retail mortgage originations each week.
Applications rose as interest rates continued to fall. The average interest rate for traditional, 30-year fixed-rate mortgages fell to 5.62 percent from 5.73 percent. The average interest rate for 15-year fixed-rate mortgages -- which are typically used to refinance loans -- fell to 5.07 percent from 5.21 percent.
Rates for one-year adjustable-rate mortgages fell to 5.77 percent from 6.04 percent.
Washington's hard case: How to juice economy
Find mortgage rates in your area.
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