Is there still a lot of time left for the $8,000 first time home buyer tax  credit?

The biggest part of the housing market in the Chicago area this year has been made up of first time home buyers. Low home prices and low mortgage rates have been big incentives, but the icing on the cake has been the first time home buyers tax credit. Most first time home buyers are now buying with FHA financing, which means a minimum payment of just 3.5% of the purchase price. So if you were to buy a $300,000 home, after the close you could amend your tax return and get more back from the tax credit than what was invested in the down payment. Not a bad deal at all. Up until now there hasn’t been a sense of urgency to buy. We are in a buyers market, and with so many good properties available, if one doesn’t work out another will. But if you are a first time home buyer, and if that tax credit is part of your motivation, there are some real reasons why you need to step things up.

Here are some reasons that the whole process might take longer than you expect:

1. It takes time to find the right house. Buying a home is an emotional decision. This is more than just a place to live, it is an extension of who you are. I hear it all the time and it was the same when we bought our houses, you know the house is right for you when you first see it. Waiting until the ‘last minute’ means you are more likely to settle for what is acceptable, rather than what you really want.

2. Foreclosure and short sale properties take longer. In the Chicago area, over 40% of the sales have been short sale or bank owned properties. With these homes the bank is making the final decision as to whether to take your offer, or not. You can get some great deals with these homes, but don’t expect to close fast. Banks have become quicker and more responsive over the last year, but it can still take 30 days or longer before you even get an answer back on a purchase offer.

3. Condos can take longer to approve. Condos are the home of choice for many first time home buyers because they fit the lifestyle best. But condo financing has tightened up considerably over the last few years, and now it is a matter of not only approving you for a loan, but making sure that the condo building conforms to all the new rules and regulations. Gathering the information takes time, and the home owners association or management company needs to provide the information, and they are more likely to do this on their time schedule than yours. The bottom line is that if you are looking at buying a condo, try and do the research to make sure it fits the guidelines up front (your Realtor and lender can help with this), and allow a little extra time.

4. Appraisals can take more time. The new HVCC appraisal guidelines make the appraisal process more complicated for all mortgage lenders, but for many, including mortgage brokers and some of the big banks, this has meant that appraisals now take longer too. I’ve heard from a lot of buyers who were still waiting for the appraisal 30 days into the process and were concerned that they wouldn’t close in time. Make sure you talk with your lender early in the process and ask how long the appraisal will take so you aren’t surprised as you get near the dead line.

5. Financing can take extra time. It wasn’t that long ago that we were in the midst of a refinance boom and mortgage turn times were out of control. A lot of lenders are still out of control. A lot of companies have staffed up so this isn’t a problem now, but if rates come down again and the first time buyer boom hits a peak at the same time, approval and closing times could stretch out again.

6. Unexpected problems can occur. So much of the real estate transaction is out of your control, and there can be problems and delays that no one foresees. This can be a matter of a title issue which needs to be cleared, a seller who won’t let the appraiser in to see the property, or one hundred other possibilities. In a case I ran into last week, the buyers got to the closing ready to close, but the sellers needed to bring cash to the closing and they didn’t have it. This one did close, but it wasn’t quick and it wasn’t pretty. Most of these problems can be worked out, but if you are on a deadline, they might not be worked out in time to help you.

You can’t control the entire home buying process and it always makes sense to be proactive rather than waiting until the last minute. But there are some things you can do to put yourself in the best position so you can buy your home with more control and make sure you get what is best for you:

• Get pre-approved for a mortgage – Mortgage pre-approval is not only easy and relatively pain free, but it is the first step toward buying a home, and most Realtors won’t even work with you unless they know you will be able to buy. Getting your pre-approval upfront means you know what you can afford, and more importantly, if there are any problems you have time to deal with them. You can start the whole process with a short phone call and if you are serious about buying there is no excuse for putting it off. If you want to go over your situation quickly and with no obligation, give me a call.
• Get your down payment together – Finding the down payment is the biggest obstacle for most first time home buyers. FHA allows a 3.5% down payment and this can all be from a gift. There was talk about finding a way to use the tax credit up-front as part of the down payment, but the way it set you will need to come up with your down payment first and you can get the tax credit after the closing (by filing an amended 2008 tax return). Here is a list of ways to come up with your down payment.
• Find a good Realtor – I’m always amazed at how many people try and find a home by themselves without using a Realtor. The seller pays the commission, but you will get the benefit of the Realtor’s experience. There are hundreds of sites you can go to and search the MLS for properties. But there is a big difference between what you see on the Internet and how the home will work for you in real life. You want someone who is an expert in the neighborhoods you are looking at and has the experience to help make the transaction go smoothly.
• Start looking - You will need to look at a lot of homes to find the one that’s right for you. Get off the computer and get into the car. It’s the only way you will find your home.

Lastly, don’t wait till the last minute. If you do your homework and get going now you will be able relax and enjoy your new home as the calendar flips into December, and with $8,000 extra cash in your pocket you will feel a whole lot better.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

Strike up the band, happy days are here again. Well, maybe not. The economy isn’t improving, in fact the consensus is coming back to the view that the economy is still stagnant. But as I’ve said many a time here, bad news in the economy is good news for mortgage rates. Mortgage rates have nearly come full circle and we are at the outer edges of the low range we were in before the bond market tanked last month with the view that the worst was over for the economy and an impressive rebound was on the horizon. The view is still that we’ve seen the worst of the downturn, but the new reality is that there isn’t going to be much of a bounce any time soon. And that means lower rates are back in the picture. This means another opportunity for those who missed out on the low rates before. I’m now seeing more home buyers lock into their rates, and a pick up in refinances again.

Mortgage rates have been heading back down over the last few weeks, but the news this week kicked that trend into overdrive. The University of Michigan consumer sentiment survey fell sharply this week from 70.8 to 64.6. If consumers are feeling pessimistic, this means they won’t be in the mood to buy, and with consumer spending the biggest driver in the economy that’s not good news. Confirming this trend, retail sales were down 4.9% in June. But the biggest factor in rates moving lower was the good results on Wednesday from the 10 year Treasury Bond auction. With all the new government spending, both now and in the future, as a result of the stimulus plan, the mortgage bond purchasing program and a whole new round of spending, the government has had to raise money through issuing new debt. New debt is always a worry because it has to be paid off at some time. The concern has been that this run up in debt will cause the dollar to fall further and inflation to heat up. This auction was more important than others because the 10 year note is the closest approximation to a 30 year mortgage, and a good gauge of long term rates. The auction went way better than expected. The yield dropped from last month’s 4.0% to 3.30%. This means that bond investors are now expecting that long term rates are likely to remain low. Mortgage backed securities (which mortgage rates are priced off of) rallied, and mortgage rates fell. At the same time, oil rates fell on the world market this week, meaning less inflation. Mortgage rates have improved this week, but what happens next depends on what happens in the stock market. If the stock market falls there will be a flight to quality (bonds) and mortgage rates will fall back to their lows.

We are in the middle of Summer, but if you are a first time home buyer, you need to know that the seasons are changing and Winter will be here before you know it. The $8,000 first time home buyer’s tax credit expires after November 31^st of this year, so if you are in the market for a home and fit the criteria for the credit, make sure you allow enough time to buy and close before the expiration date. This is especially true if you are looking at foreclosure and short sale properties which can take more time to close. The clock is ticking. If you are thinking of buying this year, make sure you get your Chicago mortgage pre-approval so you are ready and able to meet the deadline.

Here are the current Illinois Home mortgage rates for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 day rate lock, with 0 points, and no origination fee. The conventional and FHA rates are based on the highest conforming loan amounts, which give the best pricing. Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me (Illinois mortgage company) and I’ll take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

30 year fixed rate              5.125%     5.276% APR

15 Year fixed Rate             4.625%      4.744% APR

5-1 A.R.M.                         4.25%        4.328% APR

For Jumbo loans over $417,000

30 Year Fixed Rate*          6.75%       6.897%

7-1 A.R.M.                        5.375%       5.453% APR

(For smaller Jumbo loans another option is to break your loan into 2 parts – conventional to the limit and a HELOC or second mortgage for the rest.)

FHA LOANS – 3.5% down payment - FHA Maximum varies by County

With 1 point origination fee – 45 day lock

30 year fixed rate              5.00%      5.579% APR

With no origination fee – 45 day lock

30 year fixed rate              5.25%      5.568% APR

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances

VA Veterans Administration 0 Down Loans

With 1 point origination fee – 45 day lock

30 Year Fixed Rate            5.00%      5.248%  

Call for information on no-cost VA Streamlined Refinances

These are just a few of the mortgage programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

The consensus thinking is now back to an outlook that the economy has stopped its free fall, but there are no signs of a quick recovery. Unemployment is still spiking higher, and with massive loss of wealth (home values and the stock market) inflation has no way to take root. That means the bias is back toward lower mortgage rates. That doesn’t mean rates will continue to drop, and it certainly doesn’t mean that we are back into the calm period we were before (after yesterday’s huge bond market rally the market is off today, meaning slightly higher rates for this morning). But the trend has changed, and rates are now back near their lows again. If you were thinking of refinancing before but didn’t pull the trigger, or if you have been thinking of buying a new home, this could be a good reason to get off the fence now. Rates are low again, but the June move up reminds us that these low rates won’t last forever. Take advantage of them while you can.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

The news released this week continues the trend back toward lower rates, but gave more proof that the economy is bottoming out and the worst of the slide is over. There weren’t a lot of fireworks in the market since so many traders were taking the week off. On the good side, May factory orders ticked up 1.2% and the ISM index, a survey of purchasing managers throughout the country, showed an increase, suggesting more companies are running low on inventories and reordering. The Case Schiller index gave more evidence that housing is forming a bottom. Home prices are still going down, but at a much slower pace than before. On the downside, consumer confidence took a tumble again, falling another five points to 49.3. This is important because if consumers don’t feel confident they won’t spend money and it will be hard for the economy to recover.

The biggest market mover this week, as is usually the case, was the release of the unemployment report. This is always the most anticipated report of the month and this was no exception. Last month the numbers were much better than expected, and if they came in the same range this month it would be confirmation that the economy was rebounding. Didn’t happen. The report came in at 467,000 jobs lost in June, 100,000 worse than expected, and the worst rate in 26 years. This is better than the 600+ range we were seeing earlier in the year, but it is along way from stabilizing let alone recovery. This news sent the stock markets lower, and helped bond rates move lower. Because this was a Holiday shortened week where volume was low, mortgage rates didn’t benefit as much as they otherwise might have. But odds are good that we will see some improvement in pricing next week.

The purchase market is still alive and well as a result of low prices, still affordable mortgage rates and the $8,000 first time home buyer’s tax credit. The tax credit is a big incentive to buy now, and it only applies for those purchases that close before December 1^st of this year. If you are in the market for a home and fit the criteria for the credit, make sure you allow enough time to buy and close before the expiration date. The clock is ticking. Here are the current Illinois Home mortgage rates for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 day rate lock, with 0 points, and no origination fee. The conventional and FHA rates are based on the highest conforming loan amounts, which give the best pricing. Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me (Illinois mortgage company) and I’ll take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

30 year fixed rate              5.25%     5.397% APR

15 Year fixed Rate             4.75%      4.848% APR

5-1 A.R.M.                         4.50%        4.672% APR

For Jumbo loans over $417,000

30 Year Fixed Rate*          6.75%       6.897%

7-1 A.R.M.                        5.375%       5.453% APR

(For smaller Jumbo loans another option is to break your loan into 2 parts – conventional to the limit and a HELOC or second mortgage for the rest.)

FHA LOANS – 3.5% down payment - FHA Maximum varies by County

With 1 point origination fee – 45 day lock

30 year fixed rate              5.25%      5.879% APR

With no origination fee – 45 day lock

30 year fixed rate              5.50%      5.863% APR

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances

VA Veterans Administration 0 Down Loans

With 1 point origination fee – 45 day lock

30 Year Fixed Rate            5.00%      5.248%  

Call for information on no-cost VA Streamlined Refinances

These are just a few of the mortgage programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.

Happy 4th of July!

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

The FHA spot approval was a great program, but there were some glitches:

• Any property which had a “right of first refusal” in its Decs and By-laws was automatically rejected.
• Because of rules regulating how many units in a project could be FHA funded, the condo project had to have at least 5 units. This meant that all the smaller condo units, including a lot of 2 and 3 unit buildings which were converted over to condos during the housing boom, were not eligible for spot loans.
• The project had to be 90% sold out, meaning only well established properties were eligible, and more recent conversions or new construction condo would not be able to be approved.
• The spot loan was for a single unit only. If someone else bought in the same building after a spot loan had been approved, they had to go through the same process again.

The new FHA condo approval process changes each of these, meaning more properties will fit the terms and be able to qualify for FHA financing. As of October 1^st FHA will do away with the spot approval process and begin the new process. Under the new terms, properties won’t be restricted if they have the first right of refusal in their condo docs as long as they don’t discriminate, buildings with 2 units and up will be eligible, newer properties will work once they are 51% sold. The approval is not for the individual unit but the project itself, so once approved other units will then be eligible for FHA financing up to maximum concentrations (1 FHA financed unit in buildings of 3 units or less, and up to 30% FHA financed in larger buildings).

One big change in the guidelines is that going forward the approvals will be handled by only FHA direct endorsement lenders (my company is FHA direct endorsed) with “staff knowledge and expertise in reviewing and approving condominium projects”. This means that the lender will be responsible for collecting all the documentation needed and putting together the full project approval. This means more paperwork and responsibility for the lender (though this is similar to what is needed for many conventional approvals now), but once the approval is complete the project will be added to the FHA approval list and then any FHA lender or broker will be able to do loans in the building. The company I work for is gearing up for this program by hiring a condo specialist who will work with our underwriters and processors to get these approvals out as quickly and smoothly as possible. I think this will be a big help to the market and will give buyers a lot more selection to choose from.

Here are some of the particulars of the new process taken directly from the mortgagee letter The new rules go into effect on October 1^st 2009:

• Projects consist of two units or more.
• Projects must be covered by hazard and liability insurance and, when applicable, flood insurance.
• Right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act regulation in 24 CFR 100.
• No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes. The commercial portion of the project must be of a nature that is homogenous with residential use, which is free of adverse conditions to the occupants of the individual condominium units.
• No more than 10 percent of the units may be owned by one investor. This will apply to developers/builders that subsequently rent vacant and unsold units. For two and three unit condominium projects, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete; and only one unit can be conveyed to non-owner occupants.
• No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment.
• At least 50 percent of the total units must be sold prior to endorsement of any mortgage on a unit. Valid presales include an executed sales agreement and evidence that a lender is willing to make the loan.[1]
• At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units.[2] For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of presold units (the minimum presales requirement of 50 percent still applies).
• Legal Phasing is permitted for condominium processing. It is recommended that developers submit all known phases for initial project approval. For purposes of calculating the owner-occupancy percentage:
• a. On multi-phased projects the owner-occupancy percentage is calculated on the first declared phase and cumulatively on subsequent phases if the ownership of the condominium project
• b. remains the same;
• c. If multi-phasing includes separate ownership per phase, each phase is calculated individually; or
• d. Single-phase condominium project approval requests must meet the owner-occupancy percentage requirement.
• · FHA Concentration
• a. Projects consisting of three or less units will have no more than one unit encumbered with FHA insurance.
• b. Projects consisting of four or more units will have no more than 30 percent of the total units encumbered with FHA insurance.
• · Reserve Study - a current reserve study must be performed to assure that adequate funds are available for the funding of capital expenditures and maintenance. A current reserve study must be no more than 12 months old – if recent events or market conditions have affected the finished condition of the property that information must be included. When reviewing the reserve study, consideration must be given to items that have been replaced after the time that the reserve study was completed.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

If you are a regular reader of this blog, you may have noticed that I’ve missed the last two market updates. I took a much needed vacation and for the first time in years was almost completely cut off from the news of the economy and world events. So the past week has been spent catching up, both at work and with the news of the day. In a way, not that much has changed since I left. The markets are still bouncing around and the economy is showing some rays of sun amid the gloom. The biggest change is with mortgage rates. When I left rates had risen to their highest point in the last six months as investors speculated that the economy was over the worst and poised for a dramatic recovery. We may be over the worst of the crisis, but the odds of a dramatic upturn are fading fast, and investor sentiment is turning from euphoric to cautious. Inflation is the biggest enemy of bond yields, and as the risk of inflation spiking soon disappears (with unemployment still rising inflation can’t take hold), mortgage rates are improving. Mortgage rates have already recovered about half the losses of the last month.

This week the World Bank downgraded the growth estimate for the global economy and expects the economy to shrink by 2.9% for the year and called the global economy unusually uncertain. The announcement from Fed meeting on Tuesday and Wednesday, the most anticipated release of the week, maintained the same bias they had before. While the wording was slightly changed from their previous release, they maintain their emphasis on keeping rates low to help the housing market, and discounted the risk of inflation while stating they are prepared to fight inflation if the situation changes. CPI and PPI release showed that inflation levels are tame and not a threat any time soon. The biggest game changer may have been the release of initial jobless claims. The Labor Department reported that 627,000 people filed for benefits this past week, making this the 21^st consecutive week where jobless claims were above 600,000. There won’t be a substantial recovery until the employment rebounds, and this shows we are still a ways from stabilization. Not surprisingly, this who are employed are saving more instead of spending. The American savings rate hit a 16 year high this week. This all contributed to the move lower for mortgage rates, and if this trend holds, we should see some more improvement over the next few weeks.

In other mortgage related news, HUD released a new mortgagee letter last week regarding FHA condo approvals. FHA has been the best option for most condo buyers with down payments of 10% or less, but even with the FHA spot condo approval process a lot of properties have been ineligible for FHA financing. This new program will open up the process and allow a lot of previously excluded properties to now offer FHA financing. It doesn’t go into effect until October 1^st, but this should be a great and needed boost for the condo market. I will write more about this in the next few days.

The purchase market is still alive and well as a result of low prices, still affordable mortgage rates and the $8,000 first time home buyer’s tax credit. The tax credit is a big incentive to buy now, and it only applies for those purchases that close before December 1^st of this year. If you are in the market for a home and fit the criteria for the credit, make sure you allow enough time to buy and close before the expiration date. The clock is ticking. Here are the current Illinois Home mortgage rates for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 day rate lock, with 0 points, and no origination fee. The conventional and FHA rates are based on the highest conforming loan amounts, which give the best pricing. Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me (Illinois mortgage company) and I’ll take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

30 year fixed rate              5.25%     5.397% APR

15 Year fixed Rate             4.75%      4.848% APR

5-1 A.R.M.                         4.50%        4.672% APR

For Jumbo loans over $417,000

30 Year Fixed Rate*          6.75%       6.897%

7-1 A.R.M.                        5.375%       5.453% APR

(For smaller Jumbo loans another option is to break your loan into 2 parts – conventional to the limit and a HELOC or second mortgage for the rest.)

FHA LOANS – 3.5% down payment - FHA Maximum varies by County

With 1 point origination fee – 45 day lock

30 year fixed rate              5.25%      5.879% APR

With no origination fee – 45 day lock

30 year fixed rate              5.50%      5.863% APR

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances

VA Veterans Administration 0 Down Loans

With 1 point origination fee – 45 day lock

30 Year Fixed Rate            5.00%      5.248%  

Call for information on no-cost VA Streamlined Refinances

These are just a few of the mortgage programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

The Fed is famous for not giving much away. They don’t make their statements in normal English but a convoluted form that might be called Fedese (Fedlish?). All the phrases are spun in a way to make interpreting their absolute meaning difficult. This means that you can interpret the statement differently depending on what your initial preconceptions are, and what you think is going to happen in the near future. This time was no different and the Fed gave a little something for everyone. This was shown convincingly after the statement was released when the mortgage bond mark improved quickly, then sold off just as quickly before finally ending the day exactly where it started.

The way I read the tea leaves, the Fed has made a decision to keep rates low, and though the worst of the down turn appears to be over, they still have work to do. Here are some items taken from their statement which suggest that they are trying to bring rates down and that mortgage rates should remain low:

• The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. - They aren’t raising rates now, and they don’t intend to at any time in the near future.
• To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. - They will continue to buy both mortgage backed securities and treasuries in an effort to keep rates low.
• Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. - The economy is better, but we aren’t out of the woods yet.
• The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time. - Inflation may be a problem down the road, but they have bigger problems now.

But this is just my reading of the statement. What matters is how the markets will read the tea leaves and if they collectively think the Fed is misplacing their responsibilities and inflation is still the bigger problem, rates could rise again no matter what the Fed tries to do. We will know more over the next few weeks as this all sorts out.

Here is the full FOMC press release statement:

Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

Bank fees, including the appraisal and credit report, underwriting and processing charges.

Title charges.

Transfer taxes. In Chicago the transfer tax is .75% for buyers, or $2,250 on a $300,000 home, so this can be a big item.

Attorneys fees and home inspection costs.

The first year’s insurance payment.

Pre-paid interest,  and the money to set up your escrow accounts.

The truth is, real estate is a high cost transaction. It can cost thousands of dollars in addition to the closing costs to buy your first home. You will get tax credits from the seller (for whatever taxes he hasn’t paid up through the date of closing) which will reduce your cash needed, and if you are a first time home buyer you can claim your $8,000 credit after you close. But what happens if you are ready to buy now, but your pockets are empty and your wallet is still a little light? There are ways to buy with no money out of your pocket for closing costs, but you need to plan ahead.

One way is to ask the seller to pay for your closing costs through a seller concession. This used to be rare, but over the last two years, with a real buyer’s market in real estate, this has become much more common. You need to ask for this concession as part of your initial negotiation, once you have a signed contract and agreed to price and terms, it is too late. Most conventional loan programs allow the seller to contribute up to 3% of the value toward the buyer’s costs, and with FHA you can get a 6% seller concession. Work out the numbers with your lender beforehand, and have him put together a Good Faith Estimate so you know everything you will need to cover at the closing. You can ask for these closing costs either as a dollar amount, or as a percentage of the purchase price. Because there are so many fixed items, the percentage needed will be much higher for lower priced items (bank fees and title charges) then for higher priced homes, so there is no rule of thumb as to what percentage of the sales price you will need. Once you know how much cash you are going to need, you can ask that the seller to pay that amount at the closing. From the seller’s standpoint, this is part of the price. Any money that he pays out is deducted from the sale price. If the contract for the home is $200,000 and they are paying $3,000 for closing costs and pre-paids, the true sale price is $197,000. They are most interested in how much they will net after all expenses, how they get there isn’t as important.

When your Realtor writes up the contract, have them insert the phrase - “________ (dollar amount or percentage of the sale price) seller credit will be applied toward closing costs and pre-paids”. This gives you the most flexibility with structuring the transaction.

You can’t walk away from the closing with any extra money, so make sure you have a use for all the money you get as a concession. One of the great things about this program is that you can use it in different ways. Not only can you pay for the normal closing costs, but you can also use a seller concession to pay for points to lower your interest rate, or for more creative financing options like an interest rate buy-down. Remember though, the seller is looking at this based on how much they will net from the sale, but the appraiser is basing the value on the contract sale price. So it will need to appraise out at the full contract price.

Another way to pay for closing costs is through a lender credit. This is more common with illinois Mortgage Refinancing than it is with purchases, but it is a great option in some situations. As a mortgage banker, I can offer loans in a variety of price and cost variations. For people who are strapped for cash, it is possible to offer a slightly higher interest rate, but use some of the premium to pay for the loan costs. Whether this will work for you depends on your whole situation. But it is an option, and one more way to reduce the cash you need to close.

Illinois Mortgage Rates and News

The one question I am asked more frequently than any other is, What is your rate? This is a great question because you obviously want the lowest rate, but it’s a question that is impossible to answer. First of all, the rate will depend on what type of loan you are getting, whether you want to pay extra money in points and fees to get the best rate (which is what happens with the low rates you see in ads). Even if you were comparing apples to apples and making sure the loans are priced the same way, you can’t compare mortgage rates without without taking into account all the factors in your personal situation which go into pricing a loan. When  a lender takes on a new mortgage their goal is to minimize their risk and make sure that they are getting paid for the risks they are accepting. Some loan characteristics increase the chance that the borrower will default on their loan, costing the lender money. Over the last year Fannie Mae and Freddie Mac, the buyers of most conventional loans, have instituted a whole new series of price hits called LLPAs or loan level price adjustments, based on situations they consider more risky. This means that loans that fit into these situations will cost more than other loans. These price hits can be paid as extra fees at closing, or by increasing the rate on the loan.

Here are some of the things that factor into the price of a loan, and how I price out my Illinois Mortgage Rates:

Credit scores – Fico scores are a measure of how likely a borrower is to pay back the loan. It used to be that if you qualified for a conventional loan (a loan that was eligible for purchase by Fannie Mae or Freddie Mac) your pricing would be the same whether your score was in the low 600s or the high 800s. If you didn’t meet these guidelines you could still get a mortgage at a higher rate, but these were considered Alt-A or sub prime loans. Now you will need a score above 780 to get the best interest rate and if your score is below 680 the price hits will be substantial (if your score is below 680 you may be better off with an FHA loan). In order to quote an accurate mortgage interest rate, we need to know your Fico score first. This makes it all the more crucial to review your credit and work on any problems before you are ready to apply for a loan.

Loan type – Even when comparing 30 year fixed rate loans, there are a whole variety of programs available, each to meet specific needs. The pricing changes based on the loan type. Conventional loans (Fannie and Freddie) are good up to $417,000 for a single family home. If your loan is above that you would most likely look at a Jumbo loan. Jumbo mortgages are not able to be sold to Fannie Mae and Freddie Mac and they are priced much higher. If you qualify best for an FHA loan, the pricing would be different.

LTV and CLTV – This means the Loan to Value and the Combined Loan to Value, or how much is the mortgage compared to the value of your home, and how much if you include any other mortgages on that home. This is another way of stating how much equity you have in your home - the higher the equity, the lower the loan to value. And the less equity you have, the higher the risk is to the lender. This is tied in with your credit score, and if you are buying with a lower down payment, this could make a big difference in your rate.  Are you buying with a second mortgage added on? In the past this has been a great way to buy with less money down and avoid mortgage insurance. It is harder to do in many cases now, and you may pay more on your first mortgage if you have a second loan attached.

Loan purpose – Are you buying a home or refinancing? If you are refinancing your home and taking cash out, it would cost you more if your loan to value is greater than 70% (less than 30% equity). A purchase or a rate term refinance would be priced the same.

Occupancy – Is this your primary residence, a second home or an investment property? You get the best rates and fees for your primary residence. Second home loans are often the same, but in some cases they can be slightly higher. Investment property is looked at as a riskier type of loan and investors are more likely to walk away from a bad investment, than home owners are on their homes. So there are higher rates and fees when you buy non-owner occupied or investment homes.

Type of property – Mortgages for single family homes are are priced better than loans for two, three or four unit homes. In one of the biggest changes, you will pay more if you buy a condo with less than a 25% down payment.  (Here is more information on Chicago condo loans)

Loan amount – On conventional loans, pricing is usually better for larger loans. It costs the same to process and close a small loan as it does for a larger mortgage. Because of this the pricing improves on loans over $200,000. On the other side, loans under $100,000 have increased fees, and the fees go higher as the loan price drops.

Property location – There are some areas in the city of Chicago and in the Chicago suburbs that are considered target areas. These neighborhoods are targeted for redevelopment and banks are encouraged to lend in these areas – more than encouraged, they have to have to lend a certain amount in low income areas or they could face big problems with the federal government. Because of this pricing in these areas is better. The original idea here was to offer more homes for low and moderate income borrowers. Often the areas marked for redevelopment are the hot areas where prices are rising. Make sure your loan officer checks to see if you are in a CRA or targeted area.

Buying out of state the pricing can be different, too. I specialize Illinois Mortgages, but also close loans in most states. The wholesale lenders have different rates for each state.

Length of the rate lock – You will get better pricing for a 15 day rate lock than if you locked your rate in for 60 days. The longer the rate is locked in for, the greater the risk to the lender, so they pass the cost of hedging the loan on to you.

Escrows – Mortgages are usually priced so that the end lender will hold your escrows for taxes and insurance, collect 1/12^th of the payment from you every month and pay the bills when they come due. Many borrowers want to pay these bills themselves and earn the interest on their money until the bills come due. You can do this if you meet certain guidelines, but it will cost you. Most lenders charge a quarter point fee if you waive your escrows. On a $300,000 loan this is an extra cost of $750.

Pre-payment penalty – If you know you aren’t going to be moving or refinancing for a while, you can sometimes get a lower rate by agreeing to pay a pre-payment penalty. This will lower your costs, but it also handcuffs you into staying in the mortgage. If you end up moving or refinancing before the time expires, it could cost you a lot.

These are some of the things that factor into the rate and cost of a mortgage. Even bigger though is how the loan fits your needs and what you qualify for best. It doesn’t make any sense to shop the rate on a conventional mortgage if you can only qualify for FHA. Also, make sure you look at the bigger picture, not only the interest rate but the costs of the loan and how the financing works for your personal situation.

Illinois Mortgage Rates                   First time home buyer loans  

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Once I have had this pre-qualification conversation, I generally have a pretty good idea of whether you are ready to buy, or not. But to make sure, it makes sense to take the next step, mortgage pre-approval. This is especially important now when mortgage guidelines are changing on a regular basis. A mortgage pre-approval means we are investigating further, and approving you for a mortgage before you find a property. This means I will need to have the right documentation. Depending on your situation and the loan program you are applying for, we may need more or less, but typically we’ll need to see at least the following:

• W2s for the last 2 years (full tax returns if you are self employed).
• Your pay stubs for the last 30 days.
• Full bank statements for the last 2 months, along with statements from any retirement or stock accounts.

Once I have your documentation, I will run your credit, and put all the information into our automated underwriting system. With most loan programs, the underwriting system has become the key factor in loan approval. The underwriting software is set up based on Fannie Mae and Freddie Mac or FHA guidelines depending on what is best for your situation, and takes into account the same factors that a human underwriter would consider. Years ago, it could take a week or more to get a pre-approval. Now I can usually do it with a single phone call, and have a preliminary answer for you within an hour.

There are times when we need to go a step further and have the underwriter sign off on the loan, but in most cases this approval is what you need for the first step. One thing to keep in mind is that the approval is only as good as the person asking the questions. Garbage in, garbage out. So make sure that you work with someone who knows enough to ask the right questions and understands your full situation, as well as the current mortgage guidelines.

If you are just starting your home search, be sure to get your free copy of The Real World Home Buyer’s Guide - what you need to know in order to buy your home and get the mortgage that’s right for you.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States