Potential home buyers are heaving a collective sign of relief about the additional breathing room in today's housing market and it may not be long before all that easy breathing condenses into vapor.

Once hot and bubbling with froth, the housing market is due for some chilling spells of frost this winter, according to recent forecasts.

That's good news for buyers who've been competing with multiple offers and fast-appreciating home prices.

"Twelve months ago, many home buyers worried about missing out on the home that they wanted and might have made decisions without thinking the process completely through," said Marietta Rodriguez, interim director of the NeighborWorks Campaign for Home Ownership.

NeigborWorks, a national network of 4,500 communities, provides financial support, technical assistance and training for community revitalization, redevelopment and growth and recognizes the changing real estate market as an opportunity for buyers to take more time to examine key components of home financing.

"By nearly every measure, the housing market in the United States has slowed considerably from the frenetic pace of the past few years. As a result, first-time home buyers have more opportunities to find and finance the best home for their needs," Rodriguez says.

Indeed.

Once considered too soaked in "froth" the housing market is about to get a taste of "frost" conditions according to a recent Freddie Mac forecast.

"The outlook for economic growth and housing activity sounds similar to the seasonal variation in climate: A cooling trend for the balance of this year, with occasional frost, and warmer conditions as we move into next spring," Freddie Mac reported.

The organization also recently noted that home price appreciation has slowed to it's lowest point since 1999.

Likewise, the National Association of Realtors reported to Congress that housing prices are expected to fall this year as sales drop 8 percent this year, followed by another 2 percent decline in 2007.

Current conditions allow " ... home buyers (to) take more thoughtful approaches about home buying, because the fear of being priced out of their market if too much time is spent house hunting," NeighborWorks reported.

The organization of communities offered three basic but crucial mortgage questions home buyers should consider before signing on the dotted line.

1. "Is this payment fixed for the full term of the mortgage?" A fixed-rate mortgage (FRM) comes with a higher initial monthly payment than an adjustable rate mortgage (ARM), but for the 15, 20, 30, 40 or even 50 year term of the mortgage there's no question about the size of the monthly mortgage payment.

ARMs can give you more financial leverage during any initially lower rate period of the loan and that could help you qualify for a mortgage you might not have landed otherwise. It may also help you qualify for a larger loan. However, eventually, your monthly payment could rise with changing market conditions, which are now changing with an upward trend.

If you choose an ARM you must learn not only the initial rate, but when and how often the rate can adjust, how high it can adjust during each adjustment period and how high the rate can adjust over the life of the loan.

Things get even more dicey if the ARM comes with interest-only payments, payment options, a piggy-back second mortgage or other high-leverage features.

"Being clear on the exact term of the mortgage helps a borrower better understand his or her current and future mortgage obligations," NeighborWorks warns.

2. "Can you tell me about all of the fees I will have to pay?" The cost of the loan is not only the interest but a host of fees on both the mortgage side and the title and escrow side that can increase the size of the loan or require larger down payments -- or both. The mortgage can come with originating fees, rate lock fees, broker fees, yield spread premiums, points and other costs. Title and escrow costs include title insurance, recording fees, transfer fees, taxes, legal fees and a host of others.

All costs eventually wind up, as settlement costs, on the federally required HUD-1 (U.S. Department of Housing and Urban Development) Settlement Statement, but some fees and costs show up sooner on an estimated settlement sheet, while others show up later on the final statement, literally hours before you must sign to close the deal.

"A mortgage lender who is not willing to take as much time as a home buyer needs to explain the fees may not be the best lender for that home buyer," NeighborWorks says.

3. "Is there a penalty if I decide to prepay the mortgage?" Disclosing prepayment costs or penalties is mandatory, but buyers who rush to close the deal may overlook prepayment terms. The terms typically come with penalties the consumer must pay should he or she pay off the mortgage early, either by selling the home or refinancing the mortgage. The contract must spell out when "early" occurs and how much penalty could be levied and home buyers must take time to understand those terms.

"Typically, a borrower receives a lower rate if he or she agrees to not pay the mortgage off before a specified period, usually three to five years. Borrowers should ask how much money they are saving by accepting a mortgage with prepayment restrictions," Rodriguez said.

Published: September 20, 2006

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.