 Dear
Dr. Don,
My wife and I are planning to buy a house
for the second time. Our first home was in California. Unfortunately,
we bought at the top and sold a year later in
a short sale for $70,000 less than we owed. Our
credit is still intact. We are now renting
in upstate New York. We have been waiting
to apply for a new 30-year, fixed-rate mortgage
because we wanted to see if the Federal Reserve
would lower rates. Now that they have, is that
going to help us get a lower rate on our mortgage? We
plan to buy in the next four months. When
should we prequalify or apply?
-- Nick Notes
 Dear
Nick,
While your California adventure in homeownership
is a cautionary tale, being able to get out of
the house with a short sale and keep your credit
intact counts as a win. Readers interested in
learning more about short sales should take a
look at the Bankrate feature, "Everyone
could win on home short sale."
The Fed lowering its targeted federal funds rate to 4.75 percent from 5.25 percent had the expected impact on short-term interest rates, but long-term interest rates actually went higher. The reason? Long-term investors got worried that the Fed is more concerned with avoiding recession than controlling inflation. The long-term investor wants some compensation for that increased inflation risk in the form of higher interest rates.
Preapproval for a mortgage carries more weight with the seller than prequalification. When shopping for a loan, concentrate your loan applications over a short time horizon, so your credit score doesn't take a hit just because you did a little comparison-shopping.
As to timing when to get your mortgage, I'd suggest that you read Holden Lewis' Mortgage analysis column, Thursdays on Bankrate, along with the Mortgage Rate Trend Index. I have it sent to me as an e-mail every Thursday. You can, too.
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