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American Morning

Home Buying Tips

Aired August 17, 2001 - 10:34   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: If you plan to buy a home, take note. Mortgage rates are falling toward their lowest levels of the year and analysts say weak economic reports are major factors. The average 30- year fixed rate loan fell below seven percent this week for the first time since March, to 6.96 percent. The average is 15-year to 6.48 percent. Analysts believe these rates could rev up home sales in August, typically a slow month for real estate.

Well, we asked earlier for your e-mail questions about buying a home. Here with us to answer those questions: Eric Tyson, author of "Mortgages for Dummies." He joins us from New Haven, Connecticut. And from San Francisco, meet Ray Brown, author of "Home Buying for Dummies."

Gentlemen, thanks for being with us.

ERIC TYSON, "MORTGAGES FOR DUMMIES": Good morning, Kyra.

PHILLIPS: So, Ray, how would you define the market? Transitional or hot?

RAY BROWN, REAL ESTATE CONSULTANT: Transitional. We're going from an incendiary market last year to one where I think the buyers have a much more level playing field year.

PHILLIPS: What about mortgage-wise, Eric? What do you think of these numbers? Are they here to stay for a while? Is it going to get better?

TYSON: Well, I think especially because we don't see any signs of inflation and we also have a weak economy and the Federal Reserve is easing, although that has much more of an impact on short-term interest rates. There's really no reason that interest rates should trend up in the next year or so, but predicting interest rates is, of course, a dangerous game. But rates are low and if people have a mortgage that they could save money by refinancing, they should certainly start to the look into it and lock in what they can. And if rates keep going down and then they could refinance in the future again.

PHILLIPS: All right, gentlemen. Let's get right into the e- mails, OK? This one comes from Jerry in Clover, Wisconsin, and his question is: "What is a Reverse Mortgage and exactly how does it work?" Eric?

TYSON: Well, we actually cover that topic in our "Mortgages for Dummies" book, and one of the key things that we point out is that it's a very complicated and complex topic. In fact, so much so that we had a guest expert author that chapter. It was the only chapter in the book that we outsourced to an expert, Ken Scholen. A reverse mortgage is a reverse of a typical mortgage in that, by the time you get to retirement and you have your home mortgage paid off, you probably have a fair amount of equity in your house. Equity, defined as the difference between the market value less any debt you own on the property.

And what a reverse mortgage allows you to do is to have a monthly income check sent to you from the reverse mortgage lender, so you actually get a source of income. It's tax free. But during the term of the reverse mortgage, you're actually building up debt against the house, which ultimately gets satisfied when you either sell the house or move from the property or pass away.

So it's a good way for people who are in retirement who don't have a lot of financial assets, but do have equity in their home to supplement their other sources of retirement income.

PHILLIPS: All right.

Ray, you can take this one. Jason Bretzmann wants to know: "Is it more cost effective to put down a large down payment to avoid the loan insurance or take the tax break that I get from having a bigger home loan?"

RAY BROWN, REAL ESTATE CONSULTANT: You don't have to have that much bigger a home loan to avoid private mortgage insurance. Private mortgage insurance is abhorrent because you're charged an extra loan origination fee, usually about a quarter of a percent of the loan amount, plus you're charged roughly a quarter a percent on your monthly loan payment, and none of those fees are tax deductible.

It's far, far better to do what we call an A1010, or what's known as an A1010, where you come in, for instance, with as little as 5 or 10 percent down, get a 10 or 15 percent second and an 80 percent first. Lenders like those. They're -- all of the interest on the loan is consumers -- is mortgage interest, rather than consumer interest, and hence, deductible. And that's the good kind of interest.

PHILLIPS: Eric, Jeremy Simon wants to know: "What should mortgage shoppers be aware of in order to protect themselves from mortgage lenders who make you pay twice for the lower rates? And when should you walk away and look elsewhere?"

TYSON: Do you know what he means by paying twice for the lower rates?

PHILLIPS: No, I wasn't quite sure. I was thinking PMI, I don't know. I didn't understand it either. I though maybe it was a term you would understand. Does it not make sense?

TYSON: Well, I can answer in a more general context, which is that there are lots of fees associated with getting a mortgage. And one of the things that a mortgage lender or mortgage broker, if you're working with a mortgage broker, is supposed to provide to you is a written estimate of what those costs should be.

And if you're working with a mortgage agent or a mortgage broker, mortgage lender who is not providing that kind of documentation and is not explaining the cost associated with the loan, you should run as quickly as possible in the direction of the lender who will do that, or with a mortgage broker. Because mortgages are complicated and they're very expensive, lots of fees associated with them. And you want to work with someone who is going to take the time to explain and document all of the fees associated with it.

PHILLIPS: Quickly, gentlemen, before we go, these are great tips.

Ray, how do we know how to find a good real estate agent and a lender? Do you have a couple of tips or -- there are so many out there, and the competition is so fierce.

BROWN: Well, real estate agents are not all alike. There are good ones, better ones and best ones. In "Home Buying for Dummies," our other book, we mentioned in Chapter 8 a whole section on selecting a real estate team, part of which is the agent. Ask several agents to interview with you. Go through, first of all, their activity list. Find out what type of property they sell, where it's located. This gives you a very good idea of the type of property in terms of, if you're looking for a condominium, you don't want to work with someone whose specialty is selling homes. It also tells you whether or not they're working in an area in which you want to buy.

Real estate is very geographically sensitive, and this also holds for mortgages. Here in California, for instance, we sometimes have inadvertent earth movement called earthquakes. If you're a lender and you're not used to earthquakes, it might scare you away. So you want to have lenders who know the area, know property values, as opposed to going on the Internet and searching for someone that might be a half a continent away and is unfamiliar with your local conditions.

PHILLIPS: Good points. And good points made in both books, gentlemen. Ray Brown and Eric Tyson, it's "Mortgages for Dummies" and "Home Buying for Dummies."

Thank you so much for your insight this morning.

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