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Lower Rates, Incentives Benefit Homebuyers

Buyers sitting on the sidelines should take a closer look at available financing and incentives.

The economy grew at a healthy 3.3% in the second quarter, according to the

Bureau of Economic Analysis

. Existing home sales ticked upward slightly, posting a 3.1% increase in July, according to the

National Association of Realtors


Time to celebrate? Maybe, maybe not.

The added boost to the nation's gross domestic product may have resulted from a weaker dollar and the springtime

stimulus checks

. What's more, home sales are still down 13.2% from July 2007. But the news offers hope, and prospective homebuyers might want to take notice.

"Buyers who've been on the sidelines should take a closer look at what's available to them now in terms of financing and incentives," said Richard Gaylord, NAR president and a broker for Re/Max in California. The housing bill signed into law recently provides many of those incentives, including a $7,500 tax credit for first-time homebuyers.

It's still a little harder to qualify for a mortgage than it has been as banks have tightened restrictions and are requiring loan applicants to provide proof of income before forking over cash. But it may be worth the extra effort. Mortgage rates continue to drift downward, with rates on 30-year fixed rate mortgages averaging 6.40% with 0.6 points, according to the latest primary mortgage market survey from

Freddie Mac

. That's down from an average of 6.47% with 0.7 points a week earlier, and an average of 6.52% with 0.7 points the week before that. The drop in rates isn't huge, but could be a welcome shift for those looking to buy a home.

Lower rates and incentives for first-time buyers may get homebuyers off the fence. Just in time, too, because home prices could be starting to level off. In June, prices dropped the least they had since July 2007. In fact, the decline in home prices has been slowing since January 2008, according to the

S&P/Case-Shiller 20-city home price composite index


What's more, there were 4.67 million existing homes ready for sale in July, according to the NAR. That's an 11.2-month supply at the current rate of sales. Although the number of homes ready for sale is up 3.9% from June, the increase largely reflects a steep increase in the number of condominiums on the market. The number of single-family homes on the market dipped slightly.

Many analysts, including those at NAR, believe that things should look better in 2009. While that's good for the overall economy, it might make things slightly worse for homebuyers as it becomes less of a buyer's market. If the analysts are right, those searching for homes have a handful of months to find the home of their dreams and receive the best deal possible.

Keep in mind, though, that the rising rate of foreclosures may give buyers the advantage even longer. Rising foreclosures mean more properties on the market.

Whether a buyer is looking at new construction, existing homes or foreclosure properties, it's important to have an idea of what kind of financing he or she can line up before deciding on a house. And it's a good idea to shop around to find the best financing options. The latest mortgage rates and terms can be found at the mortgage section of the

Web site. Once there, a search by ZIP code can help a buyer find local lenders.

Peter McDougall is a freelance writer who lives in Freeport, Maine, with his wife and their dog.