The latest on interest rates, homeowner's insurance, credit scores, home sales and more

September 6

Interest.com’s weekly survey of mortgage rates found the average rate for a:

• 30-year fixed-rate loan rose to 6.50% from 6.43% last week. A year ago it was 6.45%.
• 15-year fixed-rate loan rose to 6.18% from 6.13% last week. A year ago it was 6.14%.
• 30-year jumbo loan (for mortgages exceeding $417,000) fell to 7.38% from 7.40% last week. A year ago it was 6.72%.
• One-year adjustable rate loan rose to 6.23% from 6.20% last week. A year ago it was 5.99%.
• Five-year adjustable rate loan fell to 6.45% from 6.53% last week. A year ago it was 6.24%.

Use our extensive database of mortgage rates to find the best deals in your area, including many that are less costly than these national averages.

September 5

Since your new home is collateral for your mortgage, your lender will require you to have homeowner's insurance, paid for and in effect, before closing.

But premiums have been going up so quickly that you've got to shop around for the best possible deal.

The most recent data available from the National Association of Insurance Commissioners says the average cost of a homeowner's policy grew from $593 in 2002, to $668 in 2003 and $729 in 2004.

Premiums also vary a great deal from state to state.

In 2004 Texas had the highest average cost ($1,362), followed by Louisiana ($1,074), Oklahoma ($991), Florida ($929) and Mississippi ($907). Idaho had the lowest average cost ($448), followed by Utah ($473), Wisconsin ($483), Delaware ($488) and Oregon ($492).

After the 2005 hurricane season we know insurers raised premiums and deductibles, while narrowing terms of coverage and turning away new customers, in 18 coastal states from Maine to Texas.

The Insurance Information Institute estimates the rate increase for those homeowners at between 20% and 100%, compared with about a 4% rise in the rest of the nation.

September 1

Each time you apply for a loan, and a lender asks to see your credit report, 10 or so points are subtracted from your credit score.

But when a number of mortgage lenders want to see your history all at once Fair Isaac Co. figures you're seeking quotes for a home loan.

That's a good thing and the creator of the FICO credit score won't penalize you for it.

Fair Isaac used to count a flurry of inquiries over a two week period as a single request. But since home buyers have become more determined shoppers FICO now counts all inquiries received over 30 days as a single request.

Click here to learn more about Interest.com’s step-by-step plan for finding the best loan.

August 27

Existing home sales defied the odds and didn't decline again in July, even though mortgages were more costly and difficult to obtain. The National Association of Realtors reports that:

• Total sales -- including single-family, town homes, condominiums and co-ops – remained at a seasonally adjusted annual rate of 5.75 million homes, almost exactly the same as the 5.76 million homes in June. Sales had steadily fallen during the previous five months, from a rate of 5.90 million homes in May, 5.99 million in April, 6.12 million in March and 6.69 million in February.
• The median price for all housing types fell to $228,900 in July, down from $230,100 in June and $230,200 in July 2006 -- the highest monthly price on record.
• There are now 4.59 million homes on the market. That's up from 4.2 million in June and 4.43 million homes in May and April. It would take 9.6 months to sell that many homes at July's sales rate.

August 22

Child support and alimony can count as income when applying for a mortgage. But most lenders will want to see a court order mandating the payments and proof that they are actually being made.

Since you probably can't get the cancelled checks, be ready to produce copies of several checks and bank statements that show child support and alimony payments being regularly deposited.

If one of your children is about to turn 18, child support will usually stop and the lender won't allow you to count it on your application. The ages of the children and when the support will stop are normally spelled out in the court order.

Click here for a complete rundown of what lenders consider valid income and a checklist of the paperwork they’ll want to see.

August 20

GreenPoint Mortgage is the latest lender to shut down.

The subsidiary of Capital One Financial will stop accepting applications immediately and close its 31 offices in 19 states by the end of the year.

But GreenPoint will proceed with loans to customers who have already been approved and locked in their rates.

GreenPoint, based in Novato, Calif., specializes in no-documentation and Alt-A mortgage loans for borrowers with slightly better credit than subprime borrowers -- typically those with FICO credit scores between 620 and 700.

August 13

Can't get "piggyback" financing for your home?

That's a good thing.

For the past few years real estate agents and mortgage brokers have pushed borrowers with little or no down payment to take out two loans -- a primary mortgage for 80% of the debt and a home equity loan that covered the rest.

Limiting the primary mortgage to 80% of the purchase price negated the need for private mortgage insurance, which protects lenders against default.

But a growing number of defaults is making this type of financing harder to obtain. National City Mortgage, for example, just announced it would no longer provide second mortgages.

This strategy also made more sense when home equity loans cost less than 5%. But with interest rates now averaging 8%, most buyers will actually save by getting a single loan and paying the PMI.

(The premiums you pay for PMI are also tax deductible -- at least for this year.)

August 11

Stretching a mortgage out over 40 or 50 years won’t lower the monthly payments as much as you think.

First of all, you’ll pay a higher interest rate for a longer loan. If you can qualify for a 30-year mortgage at 6.75%, the same loan for 40 years would probably cost 7%.

Interest also gobbles up most of the payments for the first half of any loan. Only a small part of each check goes towards repaying the principal – and that’s the only part of the payment that's reduced when you extend the length of the loan.

So if you used a 30-year mortgage to borrow $100,000 and the payments were $650 a month, you’d save less than $30 by extending the loan another 10 years.

Click here to read more about why 40- and 50-year loans are too long to make sense.

August 10

A buyers market for new, single-family homes has become an extraordinary buyers market this summer.

The Wall Street Journal reports that builders are “going to new extreme to attract buyers, dangling lavish incentives and slashing prices.”

The problem is simple: New home sales are down 40% from their peak two summers ago and builders are now sitting on more than half a million new, unsold homes.

“Among other things," the Journal says, builders “are offering buyers cash discounts of as much as 20%, throwing in a pool and agreeing to finish basements, garages and other spaces at a cost of several thousand dollars – incentives much richer than builders were offering as recently as six months ago, when the downturn didn’t look as bleak.”

So if you’re shopping for a new home, don’t be shy to ask for – and expect – a lot.

August 8

The National Association of Realtors now says home sales will hit a five-year low this year, as wary lenders cut back on loans for many borrowers. The group's revised forecast calls for existing home sales of 6.04 million in 2007, down 6.8% from last year. The forecast was 1% lower, or 70,000 fewer homes, than July's prediction of 6.11 million.

This year's sales would be the lowest since 2002, when sales hit 5.63 million. Last year's sales were 6.48 million.

Click here for more on the Realtor's updated outlook for home sales and prices.

August 6

So many subprime borrowers have defaulted on their home loans that lenders are imposing tough new standards on loans to anyone with poor credit.

One of the biggest changes we've seen is that borrowers with credit scores of 620 or lower have been virtually cutoff from 100% financing.

That's a dramatic change from the past several years when consumers with credit scores as low as 580 had little trouble obtaining a mortgage with no down payment.

How much will you need? At least 3% to 5% of the purchase price.

Click here to learn how state and local programs are providing low- to moderate-income buyers cash for down payments and closing costs.

August 3

October will be a difficult month for tens of thousands of homeowners as a record number of adjustable rate mortgages reset for the first time.

Credit Suisse says borrowers with more than $50 billion worth of loans will see the low initial interest rates they've been enjoying replaced with a new higher rate -- and higher payments.

After that the investment bank says more than $30 billion worth of ARMs will reset each month until October 2008.

How serious is that? Just a couple of years ago Credit Suisse says only a few billion dollars worth of ARMs reset each month.

If you have one of those loans, click here for lots of ideas on how to cope with higher mortgage payments.

July 31

Knowing exactly how much home you can afford is critical.

Without a reasonable limit you'll almost certainly buy a pricier home and take out a bigger mortgage than you can comfortably repay.

Establishing such a limit isn't hard if you follow two simple rules. Your:

Housing costs -- including principal, interest, taxes, assessments or any other fees -- shouldn't exceed 28% of your gross or pre-tax income.

Debt payments -- including mortgage, auto loans, student loans, child support and credit card bills that will take more than six months to payoff -- shouldn't exceed 36% of your pre-tax income.

Click here to learn more about how to determine how much you should spend and borrow.

July 24

When you’re shopping for a mortgage, it’s critical that you compare the Annual Percentage Rate on each loan.

The APR provides a more accurate measure of how much a loan really costs than the interest rate by taking into account all of the points and fees lenders charge -- including origination fees, discount points, appraisal fees, processing fees, underwriting fees, credit report fees, and administration fees.

It’s designed to help consumers:

Spot lenders promoting low “teaser” rates on an adjustable-rate loan, or below-market rates for a fixed-rate loan, without fully disclosing thousands of dollars in points and fees. Watch out for loans advertising a 6.25% interest rate but 8.0% APR.

Find the best deal among loans that offer very different interest rates and fees. Look for the lowest APR and the smallest spread between the interest rate and APR.

That's why our interest rate comparison charts always provides the APR. Click on “APR” at the top of each chart to rank those lenders from the lowest to highest APR.

July 21

If the recent wave of foreclosures has taught us anything it's this: Option ARMs are a terrible option.

These adjustable-rate mortgages are sometimes advertised as "1% loans" and come with as many as four different monthly payment options.

The problem is that way too many of these loans are sold to buyers based on a tantalizingly cheap "minimum payment" that:

• Is based on a deceptively low introductory interest rate that immediately begins going up every month.
• Isn't even enough to cover that month's interest charge. The unpaid portion is added to the principal, which means you're plunging deeper into debt with every check.

That's why hundreds of thousands of homeowners are now struggling with option ARMs -- and many are losing their homes to foreclosure.

Before you even consider one, click here to learn more about the problems with option ARMs.

July 18

USA Today confirms what many first-time home buyers already know, the market is more difficult than at any time since the early 1990s.

Rising mortgage rates have eroded almost all the financial relief that buyers might have derived from the slight decline in prices in most areas. On top of that, lenders are now demanding that customers produce larger down payments, more cash reserves in the bank, higher credit scores and less debt -- all of which many first-time buyers lack, especially in high-cost states such as California, New York and Florida.

Nearly half of first-time home buyers nationwide last year put down no money, according to the National Association of Realtors, compared with fewer than one in five repeat buyers. The remaining first-time buyers put down a median of just 2% of the purchase price.

"I could put anybody in a loan last year," says Stephanie Gagnon, a senior loan officer at First Capital Mortgage in San Diego. But, "In the last six months, all of the big lenders are shutting down all special programs they were working with because they've realized it's bitten them."

Now, she says, "I'm turning away 50% of my first-time home buyers. They just can't qualify."

July 13

Nearly 500,000 borrowers are eligible for a share of the $325 million Ameriquest Mortgage Co. has agreed to pay to settle accusations of predatory lending.

Attorneys general and banking regulators from every state except Virginia investigated the lender, saying it had used high-pressure sales pitches saddled consumers with home loans they had no hope of repaying. They also said Ameriquest used inflated appraisals, failed to disclose loan terms and charged excessive origination fees.

Postcards began going out last month to Ameriquest customers who took out mortgages or home equity loans between Jan. 1, 1999 and April 1, 2003, who are eligible for restitution.

For more information go to www.ameriquestmultistatesettlement.com or call the settlement administrator at 800-420-5875. Hearing-impaired customers may call 866-494-8274.

July 11

Various surveys show a range of housing prices, but no matter which one you read, they all show that national price growth has shifted down from the double-digit gains of 2004-2005 to something near zero, with several markets down from a year ago.

Regional disparities have been magnified, with the higher-priced markets on the coasts that enjoyed the most rapid appreciation in the boom years now suffering declines. Despite the recent softening, however, property values in most areas still remain well above where they were two to three years ago.

According to the “Economic Outlook July” from Freddie Mac, a major buyer and seller of mortgages, “a steady job market and growing national economy may help limit the downside risks to housing prices, several risks-the elevated levels of homes for sale, recent increases in mortgage rates, and rising foreclosures of subprime borrowers-point to continued weakness in the months ahead.”

July 10

If you are shopping for a home, don't shop for any other big-ticket items until you close on your home.

Credit card applications -- or any other requests for credit to buy an auto, furniture or major appliances -- prompt issuers to check your credit report. When they do, those inquiries are noted on your history and lower your credit score by up to 12 points.

The lower your credit score, the more your home loan will cost. So postpone those big purchases until you move in.

July 7

Interest gobbles up most of your mortgage payment.

Most consumer loans require you to pay the interest on your balance each month. Only then is any additional money applied to paying off your debt. (Think about your credit cards.)

So consider a $100,000 mortgage at 6.3% annual interest for 30 years. The monthly payment will always be $618.97 a month for principal and interest.

For the first month, $525 goes to pay your interest and the remaining $93.97 is applied against your debt. With each passing month, the portion going to interest falls a little and the portion applied to reducing the principal increases.

After 19 years, the amount is split almost equally between principal and interest, and for the last 11 years of the loan more than half of what you pay goes towards reducing the principal.

Our mortgage payment calculator will show you how much you'll pay in interest and principal for any loan. Just fill in the amount and terms and click "Show Amortization Table."

July 3

The National Association of Realtors says the median selling price for all types of single-family homes reached a record $221,900 in 2006, up from $219,000 in 2005 and $195,200 in 2004.

But that 1.4% increase was the smallest since the Realtors began tracking prices in 1968 and far short of the average annual appreciation of 6.5%.

Data from the first three months of the year shows the median sales price was 1.8% lower than in early 2006. Home values fell in nearly half the nation's metro housing markets -- 157 of 317-- according to a study by Global Insight and National City Corp.

How low will home prices go? Click here for Interest.com's complete report on home prices and the latest projections for the rest of the year, 2008 and beyond.

July 2

First-time buyers usually have the mortgage, homeowners insurance and property taxes well covered. It’s the unexpected expenses from toilets that won’t flush to lawnmowers that won’t start and the three gallons of paint they desperately need to fix a hideous living room that wreck their budgets.

If you’ve been renting, be prepared to spend at least $100 a month on routine maintenance and improvements. Some months you’ll spend less. Some months you’ll spend three or four times that, like when the dishwasher has to be replaced.

Also make sure the heating and cooling costs don’t deliver any nasty surprises. Ask the seller for a year’s worth of utility bills so you’ll know what to expect.

Be prepared to spend an average of a hundred dollars or more a month on everything from toilets that won't flush to lawnmowers that won't start to furnaces and roofs that must be replaced. If you've been renting, be especially careful not to let those expenses wreck your budget.

June 25

It's smart to get pre-approved for a loan before shopping for home.

But buyers aren't allowed to borrow more than a home is worth, no matter how much a bank or mortgage company says it's willing to lend them.

When home buyers seek pre-approval, lenders consider their income, credit history and other financial data to determine how much they could qualify to borrow. Most home buyers spend less because that's usually more than they can comfortably afford.

How much less doesn't matter because the home is collateral for the mortgage, which means the lender can foreclose and sell it to get its money back if you don't make the payments.

If a home buyer is pre-approved for $300,000, and borrows $300,000 for a home that costs $200,000, the lender would have no collateral on the $100,000 in cash the buyer obtained from the deal.

Have a question about your finances? Ask us at editors@interest.com