Low Rates Open Real Estate Door

If falling interest rates have you considering a plunge into the real estate market, join the crowd.

But don't always follow it, experts warn.

With interest rates at 20-year lows, home-buying interest among Americans has hit new highs.

The National Association of Realtors expects 1997 to chart more sales of previously owned homes than ever, 4.21 million versus 4.12 million the prior year.

Homeownership among Americans, at 66 percent of households, is also the highest ever. And now mortgage rates look set to come down even more.

They've already fallen sharply, from about 7.75 percent last winter for 30-year fixed loans to 6.94 percent Thursday. And last week, rates on 30-year Treasury bonds hit a 20-year low of 5.73 percent, indicating more declines ahead for mortgages.

But just because the climate is ripe for buying a home doesn't mean you should rush out and make an offer. It's the biggest investment most of us will make and one you literally have to live with every day.

Home-buying takes homework on a variety of topics - mortgages, location, home size, amenities, even picking a real estate agent. And the more you know, the happier you'll be with the final product and price.

Lauren Kowalski and John Dalton stepped into the housing market several months ago, and experts say their approach makes all the right moves.

They plan to get married in May, and hope to find a new home by then.

In the meantime, they went to a bank to find out how big a mortgage they can get. They scrutinized their budget to decide how much they wanted to spend. And they settled on a list of what the home should include - not just the specifics, like the number of bedrooms, but what it will take to give them a sense of home.

"Laura's always wanted an old Victorian in the suburbs," John says.

Ideally, they'd like four bedrooms, 1-1/2 baths, a big kitchen, yard, and a basement with a workshop.

And they'd like to keep the price around $200,000, higher than the average home price in America but lower than many homes in the Boston area.

Today's low rates make will make that home significantly more affordable. About a year ago, a 30-year mortgage at 8.14 percent would have given them a monthly payment of $1,412 for a $190,000 loan.

With rates now near 7 percent, that same loan carries a monthly payment of $1,264. Over the life of the loan, the difference works out to more than $53,000.

Americans now spend much less of their incomes on mortgage payments. In 1981, when mortgage rates peaked near 18 percent, they plowed 41.5 percent of monthly pay into house payments. That dropped to 27 percent 10 years ago, and 20 percent today.

Even so, Kowalski and Dalton want to keep the price down and are willing to settle for a house in need of repair. The search is going slowly, and the couple has rejected hundreds of houses.

"We're being picky," Lauren ventures. "But it's the biggest investment of our lives; we should be picky."

Ms. Kowalski, a kindergarten teacher, and Mr. Dalton, an elevator installer, have taken the right approach, says Daryl "Jess" Jasperson, president of Re/max International in Denver. "The biggest trap is to go out and fall in love with more house than you can afford," he says.

If you're not sure what you can afford, Mr. Jasperson recommends talking to a mortgage banker. They deal with prospective home buyers every day and often dispense financial advice for free, he says. They can tell you how much home you can afford and preapprove you for a mortgage - providing a powerful tool for negotiating a sale.

You can also log onto the Internet at www.financenter.com to find out how much mortgage you can afford and the size of the payments, or even apply for a mortgage.

* First in a series on buying a home. Next: how to find the right home and real estate agent. The story will appear Tuesday, Jan. 20, because of the Monday holiday.