Illinois Mortgage Rates and News

When qualifying someone for a mortgage, I look at it as a game of twenty questions. I need to get as much information about you and your finances as possible to make sure we find the best loan program for you. A good loan officer should be a trusted advisor who takes more into account than just how much of a loan you can qualify for. The mortgage you choose has to fit your life style and future goals, as well as your current financial situation.

The whole idea behind the qualifying process is to measure the risk.  That is, to figure out how likely it is that a borrower will pay back the money they’re borrowing. I ask a lot of questions, but the qualifying issues all revolve around 3 areas: 

                                                Credit

                                                Income

                                                Assets

Your history in these 3 areas determines what type of loan you can get, how much you can afford, and what your payments will be.

Credit Qualifying: Our whole society is run on credit. How well you manage your accounts, and how you’ve made your payment in the past are key factors in getting an approval. That doesn’t mean you’re out of luck if you’ve had a few late payments in the past. We look at your overall credit pattern, not just isolated incidents. And even if you have had serious problems in the past, this doesn’t mean you won’t be able to buy a home. We can deal with serious problems like bankruptcies, short sales and foreclosures after a waiting period. If you aren’t able to buy now, I can often help you determine what you can do to improve your credit over time, so you will be in a position to buy later.

Risk Based Pricing – One big change in the mortgage market is the new Risk Based Pricing. This is the idea that those borrowers with the best credit scores and higher down payment will be able to get mortgages at the best rates.  Those with lower credit scores and lower down payments will have to pay more. (The best conventional rates are now for borrowers with scores of 740 or above). The people affected by this change are borrowers with credit scores good enough to qualify for Fannie Mae and Freddie Mac based conventional financing. (FHA does have credit based pricing, but we can make loans with minimum credit scores as low as 580).  This means that good credit is more important now than ever before. Having higher credit scores can save you thousands of dollars in payments over time, or mean the difference between being able to buy, or staying a renter. The best thing you can do is review your credit early and address any problems now.

In the weeks to come, I will review with you our credit reporting system and some key things you need to know about your credit scores.  We will also discuss how your income and assets all play a role in qualifying for a loan.  In the meantime, please let me know what questions you may have and how I can help you.

You know that it makes sense to buy a home and that this is a good time to lock in on a mortgage rate, but how do you go about it? There are so many things to consider. What type of house do you want? What’s the best area to buy in, and what’s the best way to find a home? How do you negotiate the contract? What happens between the time you agree to buy the property and the closing? These are all good questions that you’ll need to make decisions on, but before you do anything else, you need to know how much of a house you can afford. This usually means finding out how much of a mortgage you can afford. Most realtors won’t even show you homes until you have talked with a loan officer.

Pre-qualification and Pre-approval:  How much of a mortgage you can afford, and the type of mortgage you qualify for, go a long way toward determining what kind of home you will buy. The good news is that there are lots of mortgage options, and it may be much easier to qualify for a loan than you think. My job is to go over your situation, and find the program that works best for you and your own personal goals and needs. Choosing the right financing can save you thousands of dollars over the time you have the loan.
To find out what you qualify for you need to be pre-qualified, or pre-approved. Both terms are different levels of the same thing. With both, you are sharing your financial information with a mortgage loan officer, and they are helping you figure out how much of a home you can afford to buy, and what the best program is for your needs.

The difference between the two programs is that with pre-qualification it is usually just a short conversation. Your loan officer will ask you questions about what you are trying to do, and will go into detail about your employment history, income, credit history, savings and other aspects about your financial situation. The pre-qualification is based on the information you tell them. This is a good first step, but it doesn’t give the full picture. Pre-approval takes it a step farther and verifies, or proves, that all the information you told us is correct. This means you are providing all the needed documentation upfront, and we are going through the documents and determining what is acceptable according to the program guidelines, and then running your credit report and putting the whole file through an automated underwriting system to give you an approval. This will make sure there aren’t any unwanted surprises at the end – it will also help save you money when you go to negotiate your contract. 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 it together within 24 to 48 hours.

To get pre-approved we’ll need some documentation. Depending on your situation and the loan program, we may need more, but typically we’ll need to see at least the following:

o W2s and full tax returns for the last 2 years.
o Your pay stubs for the last 30 days.
o Full bank statements for the last 2 months, along with statements from any retirement or stock accounts.
o A copy of your driver’s license or other photo ID.
o The name and contact info for your landlord, or canceled rent checks for the last 12 months.

We may need a few more pieces of documentation based on the situation, but give me a call and we can get the process started.

With a steady drop in home mortgage rates over the past year, owning a home has become a deal too good to pass up. Home prices have seen the sharpest gain in seven years and, once again, our neighborhoods are bustling with the sound of new construction. But the trend has changed sharply since the beginning of May with rates on a 30-year fixed mortgage going from 3.4% to 4.1%. Is this the end of the housing recovery? According to many mortgage analysts, we still have hope.

Mortgage analysts at Goldman Sachs suggest that affordability is not what’s holding Americans back from buying houses but rather other factors that go into buying a home: credit standards, difficulty building up a down payment, and lack of confidence in job stability. Therefore, slight increases in mortgage rates shouldn’t slow the improving housing market. That’s because the improving economic trends that are causing the increase in mortgage rates are the same trends that will positively affect the other factors that weigh down would-be home buyers. According to experts, even though homes may become a bit more expensive, the other stresses on homebuyers may dissipate some. Rising interest rates, as long as they are rising for positive reasons, can be a sign of more confidence in the economy. As people are more confident in the economy and secure in their jobs, home buying becomes more attractive to them. As inflation increases, we find that home-buying trends upward as well because you are buying an asset whose value should increase with inflation while the interest rate of the loan remains fixed.

To the degree that all of this information is reliable, interest rates are rising for good reasons instead of bad. As long as home prices remain affordable and mortgage rates are increasing because the economy is getting stronger, higher mortgage rates should not slow the housing market. To discuss your personal situation, give me a call and I will take the time to find the lowest possible rate and program that is best for you.

Welcome back first time home buyers.  This is the last of a three-part series outlining the main financial benefits to home-ownership:  Principle Reduction, Appreciation, and Tax Advantages.  From a real estate perspective, there are strong tax advantages to home-ownership.

Tax Benefits: The third key financial benefit to home ownership is the tax benefit it provides. When people own their own homes, they have a stronger tie to their community and to the nation. One of the strengths of the United States is that it is a nation of homeowners. The US Government understands this and encourages people to own their own homes. They do this in several ways, but the most important way is through deductible interest. Real estate is treated differently than nearly every other purchase in this regard. If you were to get an auto loan to buy a new car, the interest would be treated strictly as an expense. The same goes with school loans or purchases on your credit cards. It’s different when you get a mortgage. With a mortgage, all your interest, as well as your property tax, is tax deductible. (In some cases, the mortgage insurance is tax deductible, too.)

This means that you may be able to buy your own home for the same amount as you’re paying in rent now. Let’s say you’re paying $1,250 in monthly rent. How much would that payment afford if you were to buy? The truth is, you can afford a much higher monthly payment when you look at it on an after tax basis. Here’s how this works:

Let’s say you were to buy a $200,000 home with a 5% down payment, on a 30 year fixed mortgage at 4.0% over 30 years. It would look like this:

$200,000 purchase price

$190,000 mortgage

$  907  Principal and interest

400  Taxes

60  Insurance

     123   Private Mortgage Insurance

$1,490  Total payment

Of your mortgage payment (principle and interest), $633 is the interest portion. Add that to the real estate taxes and you get $1,033. This is the amount that you base the tax deductions on. How much of a benefit you get, depends on your tax bracket. If you are in the 25% tax bracket, it looks like this:

$907 Interest + Taxes

   x25% Tax Bracket

$258    Tax Savings

Now subtract the tax savings from your full mortgage payment.

$1,490 Total monthly payment

 -$258 Tax Savings

$1,231 Effective Rent

In other words, a rent payment of $1,250 is equal to a mortgage payment of about $1,500. The benefit is bigger if you are in a higher tax bracket. This is a great benefit, but there are ways to stretch your buying power even more. We’ll go over them in a later entry.

One other thing to keep in mind from the financial side, is that if you continue to rent, your rent payment is likely to continue rising. If you buy with a fixed rate mortgage, the mortgage payment will stay the same. You may still have increases in taxes and insurance over time, but compared to rent which could go up every year, your mortgage payment will be much more stable.

Welcome back first time home buyers.  This is the second of a three-part series outlining the main financial benefits to home ownership:  Principle Reduction, Appreciation, and Tax Advantages.  From a real estate investment perspective, appreciation is an important benefit to home ownership.

Property appreciation is one of the great things about owning real estate. Up until the last few years, it was considered a given that home prices would always rise. Home prices have risen steadily over the years, but since the real estate bubble popped in 2008, home prices have fallen – sharply in some areas. If you bought a home in 2005 or 2006, chances are your home value dropped to a lot less than what you paid for it.  But prices are determined by supply and demand. With the crash in prices, home builders mostly stopped building new homes.  As the economy improves, the extra supply on the market will gradually be absorbed, and supply and demand will balance out.  At some point prices will start rising again (as I write this in the Spring of 2013, home prices are starting to move up). Appreciation isn’t an automatic, but historically, home prices have risen at least at the rate of inflation. I think appreciation will be a bigger factor again moving forward. When appreciation is positive, this is a great way to build wealth. Here’s an example:

If you buy a home for $200,000, and the market appreciates, that is the property values increase, by just 3% per year, at the end of 5 years your home will be worth about $232,000. At the end of 10 years it would be worth about $269,000.

In this example, you’ve increased your equity by nearly $69,000 while living in your own home. There’s no guarantee of what home values will be in the future, but this illustrates what has happened in many communities in the past.

Let’s take this a step further. Let’s say you bought this same home for $200,000, but that you took out a mortgage for 95% of the price, or $190,000, over 30 years at 4.00% interest. At the end of the 10^th year, your mortgage balance will be paid down to about $149,700.  If, through appreciation, the value has grown to $269,000, your equity is now worth over $119,000. Not bad for an investment of only $10,000.

Appreciation is the reason so many people are able to move up to a larger house after owning for a period of time. Having the extra money to use as a down payment, gives you the buying power to buy a home for your growing family, or maybe the chance to move into your dream home. Appreciation is one of the key benefits of homeownership.

Next week we’ll cover the Tax Advantages to being a homeowner.  In the meantime, if you have any questions, give me a call and let me know how I can help.

When you’re a first time home buyer, there are so many reasons for owning a home:  the pride of having a place of your own, the need to establish roots, the joy of being able to have a place where you can express your own personality and style.  Buying a home lets you take control of your own home, a control you don’t have when you rent.  With mortgage rates at their lowest point so far this year, it’s a great time to review the financial benefits of owning a home.  Welcome to the first of a three-part series that covers the three main financial benefits to homeownership:  Principle Reduction, Appreciation, and Tax Advantages.

Principle Reduction:  First of all, a quick explanation. With most mortgages, each payment is divided into two portions—principle and interest.  Interest is the amount the lender charges for the use of their money over the time you hold the mortgage.  Principle is the amount of the mortgage you are paying back each month.  Interest is charged on the outstanding loan balance each month, so at the beginning of the mortgage, most of the payment goes to pay off the interest portion. But with each payment you make, you pay off a little more of the principle, and the loan balance goes down a little more each month.  Let me give you an example to help explain (the interest rates here are just examples, the actual rates are determined by your situation and market conditions at the time):

If you borrow $100,000 at 4.0% interest over 30 years, your mortgage payment each month is $477. On your first payment, about $333 will go to pay the interest, and about $144 will go toward the principal. That means after one payment, your loan has been reduced by $144 to $99,856. Each month a little more of the payment goes toward reducing your principle, and a little less goes to pay off the interest. Over time this principle reduction adds up. If you stay in this house, and this mortgage, for the whole 30 years, you’ll have paid off the entire mortgage and you’ll own the home free and clear. But in the early years, you are paying off mostly interest, and chances are, you won’t be in that same home 30 years from now.  There are other, bigger, benefits to homeownership.  In the following two weeks we’ll cover Appreciation and Tax Advantages to being a homeowner.  In the meantime, if you have any questions, would like a quote or to get pre-approval, give me a call and let me know how I can help.

While we have seen rate increases in the early part of 2013, the end of April showed record lows for the year so far. Finance reporters and rate strategists watch the economic trends, they are discussing a casino-like scenario where buyers are gambling to hold out for a better rate or lock in the current ones. To further assist the market, new mortgage delinquencies are at 6 year lows which should help to gently apply the brakes to the foreclosure situation that has kept home values at bay; although the effects will take a while to ripple through the system. There is still a major foreclosure buying opportunity in the marketplace. Estimates still have foreclosures representing over 40% of home sales here in the Chicagoland area, but the number is heading downward.

Factors that cause light volatility in mortgage interest rates will continue for the near future. The jobless numbers have been on a mild roller coaster so far this year and have had an effect on interest rates. As we see jobless claims decrease (more people working), the interest rates tend to trend upward as optimism for home sales increases. We are also likely to see the effects of the federal government’s fiscal policies and stalemates have further effects on interest rates this year, which will lead to uncertainty in both the stock market as well as mortgage interest rates.

As the economic trends illustrate, the mortgage market continues to be strong for those that qualify for a mortgage. There are numerous factors which affect mortgage rates and your ability to be approved for a loan, such as credit scores, amount of down payment, property type, and a number of other factors. 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 and I will take the time to find the rate and program that is best for you.

Mortgage rates have steadily risen since the beginning of the year as signs showed the U.S. economy was growing, and the global economy had stabilized. A big part of the renewed optimism was the view that Europe was on the mend, and through selective austerity, the European Union would hold together and the status quo would survive. Well, what goes up comes back down, old is new again and Europe is back in the headlines. The focus now is Italy, and the election results last week showed that it may be a while before they find a true solution to the European economic crisis. In an upset of expectations, the biggest winner in the election was a comedian leading an anti-establishment party. The right and left wings split, and in Italy’s parliamentary system, it looks doubtful that anyone will be able to make alliances to form a working government. This is seen as a rejection of the austerity policies, and a big monkey wrench thrown into the gears of EU stability. The result in the markets was a rush to safety, and mortgage rates dropped to their lowest point of the year.

On the home front, the economic reports have been steadily improving, but congress is doing their best to keep things unsettled. When congress and President Obama came up with the idea of a sequester, automatic severe budget cuts that would hurt the priorities of both party’s, it was put in place with the assumption that it would never come to pass. At the time, this was a way to kick the can further down the road and avoid making unpopular decisions. But in our dysfunctional system, no one seems willing to compromise, so as of Friday, the sequester is on. Despite all the dire predictions, the world hasn’t ended. Yet. Most of the budget cuts won’t go into effect for months yet, and there is still a chance that there will be a political work around. In the mean time, the next line in the sand is coming up as the government budget will need to be approved again by the end of the month, and congressional Republicans are getting excited about the possibility of shutting down the government if they don’t get their way. The economy has been steadily improving, but this all makes you wonder where we would be if politics weren’t holding us back.

While congress does it’s best to stomp on the brake, Fed Chairman Bernanke continues to push on the accelerator. In testimony before congress this week, he stated that the Fed will continue it’s policy of buying back treasury and mortgage backed bonds in an effort to keep rates low. This policy has fueled the recovery and the Fed will continue this until the unemployment rate has dropped to 6%, which most experts say could be 2016. Knowing interest rates are likely to remain low has helped the housing market tremendously, and signs are that the economy will continue to grow this year.

If you are looking to buy a home soon, you’ve probably seen a change in the market. Listings are selling faster, inventory of homes for sale is tighter, and it is now common to see multiple offers so you are competing against other buyers when a contract comes together. Home prices are still low and with low interest rates homes are very affordable, but the market has shifted from a buyers advantage to a seller’s advantage. This means more pressure on buyers, as the good properties are going fast. One thing you can do to make sure you are in the best position to buy, is to make sure you are pre-approved for a mortgage before you start looking for a home. This means knowing exactly what you can afford, and how much it will cost you, and making sure there won’t be any problems that will keep you from closing on your home. A pre-approval starts with a quick, over the phone conversation. If you would like a rate quote, have any questions or want to go over your situation in depth, let me know how I can help.

Free Home Buyers Guide

You can trust in us to get the job done.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

The consensus in the markets now, is that the worst of the decline is behind us, and the economy is on the mend. The economic data last week was mixed. Reports showed that the overall US economy shrank in the last quarter of last year, the first time we have seen a fall in the last 3 years, with GDP coming in .1% lower than the previous quarter. But this was mostly a result of a drop in government spending, and private industry continues to grow. The Case Schiller home index shows housing prices are moving higher, consumer confidence came in strong and China came in with strong manufacturing  numbers, another indication that the global economy is better than expected. The Big Kahuna of reports is always the monthly jobs report, and this month showed an increase of 157,000 jobs, while the unemployment rate ticked a touch higher to 7.9%. The numbers came in right about where expected, but the revisions of the two previous months showed that the economy added over 100,000 more jobs than was previously reported. It’s likely that the unemployment rate will continue to tick higher now, as more people who have stopped looking come off the sidelines and start looking for jobs again.

Again, the markets are looking at these signs as more evidence that the worst is over. First, the stock market closed on Friday above 14,000 in the Dow Jones average, the first time since October of 2007. This happened after a week of better than expected earning reports, but the bigger reason the index went higher may have been a result of investors moving money out of bonds and into stocks. Stocks are considered a riskier investment, so when there are dark clouds on the economic horizon, investors are less concerned about making big profits and more concerned about preserving what they have. This has been the case over the last several years, and a big reason why interest rates have been locked in at historic lows. But lately, it seems that the market tides are shifting, and fixed income bonds aren’t perceived as the safe haven they were before. Last week the bond markets, both treasury bonds and mortgage backed securities, gyrated around like crazy. Volatility is now the norm and there were re-prices on mortgage rates several days last week, meaning that the price you were quoted in the morning, may have changed by the afternoon. On Friday, after the release of the jobs report, mortgage rates initially reacted to the positive, with mortgage backed bonds surging to their best point of the week. But that didn’t last long. Over the course of the day mortgage rates got hit, and ended the sharply lower from the highs of the day with a slight loss for the. No one knows where we go from here, but those waiting for mortgage rates to drop lower, may be in for a long wait.

If you would like a rate quote, have any questions or want to go over your situation in depth, let me know how I can help.

Free Home Buyers Guide

You can trust in us to get the job done.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

Mortgage rates blipped sharply higher last week after a trifecta of optimism hit the market. One of the biggest reasons interest rates are so low, is because of fear that the European Union is, and has been, on the verge of collapse. To stave off the collapse the ECB, Europe’s version of the Fed, lent out cheap money to banks throughout the continent to maintain liquidity in the system. Last week they announced that more than half the banks participating in the program will be paying off the loans as soon as they are contractually able to (this week). That is much better than expected, and a sign that the overall economy is in much better shape than has been projected.Rates dropped into their lowest range when the markets expected that the European Union was about to collapse, so this good news is indeed bad news for the lower trend in mortgage rates. Earlier in the week the initial unemployment claims number came in at 330,000, which meant 4 straight weeks of decreasing unemployment. This gauge is now at its lowest point since early 2008. No one is saying that the job market is great, but this is more evidence that the economy is gradually improving. Which brings us to the third hit of the trifecta of optimism, the Fed. Probably the biggest reason mortgage rates have stayed so low, is because the Fed Open Market Committee  has continued its policy (the latest twist on qualitative easing) of buying back mortgage bonds specifically to keep rates low and encourage growth in the housing market. They have previously announced that they will continue this policy until unemployment hits 6.5%, or inflation risk is too high. This week, 2 Fed members made comments that were interpreted as being willing to halt the program at an earlier date or with a higher level of unemployment.

This week is going to be a critical week and is expected to be extremely volatile in the mortgage backed securities market, which directly impacts mortgage rates. The FOMC meets Tuesday and Wednesday and will announce their policy statement at the end of the meeting. It is expected to stay the same, for now, but any change in wording will be parsed for hidden meaning. On Friday the Jobs report for January will be released, which is always the most anticipated report for the month, and spikes in rates often come with better than expected numbers. We will also get more data of what is happening in Europe. If optimism continues, mortgage rates could continue to climb.

If you have any questions or want to go over your situation in depth, let me know how I can help.

Free Home Buyers Guide

You can trust in us to get the job done.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages