Illinois Mortgage Rates and News

Illinois Mortgage Rates, Rants, Raves and Consumer Education from a long time IL Chicago area Mortgage Broker

Archive for December, 2007

« Previous Entries
Next Entries »

How to Understand and Make the Most of Your Credit Scores - Part 4 - Fixing Mistakes on Your Credit Report and Rebuilding Your Credit

13th December 2007

Good credit is crucial to buying a home and being approved for a mortgage. Knowing how credit works and being able to use it effectively is a necessity in today’s real estate market. This is the fourth and final installment of the series. Here are the previous installments:

How To Understand and Make the Most of Your Credit –Part 1 - An overview of credit.

How To Understand and Make the Most of Your Credit –Part 2 - What makes up your Fico score.

 

How To Understand and Make the Most of Your Credit –Part 3 – 10 Ways to raise your Fico scores.

 

This installment will cover what you can do if you have mistakes and problems on your report.

Fixing Mistakes on Your Credit Report and Rebuilding Your Credit

So what happens if you have mistakes or problems on your credit report? Your situation depends on how serious the problems were, and how long ago they occurred. If the problem was from years back you might be surprised at what we can do. Recent credit is much more important than older issues. But even if the problems are more current, there are still options.

Most of the sub-prime loans have disappeared, but depending on your situation and what compensating factors you can show, you may be in better shape than you may think. FHA, a government program, is more lenient of past credit mistakes, and can be a great option for many borrowers. The key here is to be able to show that the circumstances that got you in trouble have changed, and you are now able to use credit responsibly. Many people think that after a bankruptcy, for example, they won’t be able to buy a home again for years if at all. But depending on the causes, you may be able to buy, at good rates, as soon as a year or two after the discharge once you have reestablished your credit. It also depends on your specific circumstances. The best thing you can do is talk with a qualified loan officer and have them review your credit and your goals.             

Another option is to take steps to clean up your credit report. Mistakes on credit reports are surprisingly common. (On my own credit report I’ve had mortgages listed on properties I’ve never owned, and a collection account for someone with my same name who lived in another state.)  Because of this a process has been put in place for consumers to dispute incorrect items on their credit report and have them removed.

As a first step, you need to get a copy of your credit report and decide which items you want to contest. Next write the credit repository (Trans Union, Equifax or Experian - this can all be done on their websites). Explain that the information is incorrect and that they need to investigate the information and remove it from your report. If you have any documentation to help your case, include the documentation, but you are not required to show proof. Once the credit repository gets this, they are required to investigate it within a reasonable amount of time (30days), and if they can’t prove that the information is correct, they have to remove it from your report.

To investigate the disputed item, the repositories send a form to your original creditor asking for further information. At this point a 3 things can happen:

    1. If the creditor fills out the form and sends it back stating that the information is correct, the credit repository will reject your dispute, and the item will remain on your report.
    2. If they agree with you that the item is incorrect, it will obviously be removed.
    3. In many cases the creditor simply doesn’t respond. If they don’t respond by sending the form back within the 30 day time period the credit repository is required by law to remove this item from your credit report. They are also required to notify the other repositories that the item is incorrect and they too are required to delete it from their files.

It’s possible to clean up problem spots on your credit using this approach, but you will need to be disciplined about following through, and it may take several attempts before you see any progress. It is also common for an item to be removed, and then show up again later, so you need to monitor your credit on a regular basis.

You’ve probably seen ads for companies that claim they can fix bad credit. These companies use this same method but most charge huge up-front fees, and if you don’t know who you’re dealing with, you could spend a lot of money and end up with no change in your credit.

If you have had credit problems, the best thing you can do is to first bring all your debts current and make sure you continue to pay your bills on time. Taking action to fix mistakes will help you raise your credit score and help you to qualify for a mortgage.

Illinois Mortgage Rates and News

Peter Thompson is illinois Mortgage Broker



Contact illinois Mortgage Company Today !









Posted in Credit, First Time Home Buyers | 3 Comments »

How to Understand and Make the Most of Your Credit Scores - Part 3 -Ten Ways to Raise your Fico Scores

12th December 2007

Chicago, IL - The first installment of this series, How to Understand and Make the Most Of Your Credit Scores , gave an overview of how credit works and how your credit affects your ability to qualify for a mortgage. The second installment  covered Fico scores, one of the biggest factors in qualifying for a loan. This installment will go over some tips on how to manage your credit and raise your overall scores.

Your Fico score is broken down into 5 major categories, and each of these has up to 100 different factors that make up your over all credit score. To make it more confusing, the actual formula that goes into the credit scoring system is a trade secret, and it changes regularly based on loan performance. With all the changes in the mortgage market you can be sure that it is being tweaked regularly, and tightening up in ways we don’t know about yet.

There have been all sorts of schemes for raising your Fico scores. Some were barely legal but widely used. One of these was the practice of being put on someone else’s credit card as an authorized user - in effect, borrowing their good credit to raise your score. There were people who made thousands of dollars per month by allowing people with poor credit to use their credit history (but not letting them actually use the credit cards). It took a while, but Fico figured out this scheme and it no longer works.

Still, there are some ways you can use your credit that are proven to increase your Fico score and build a better credit rating.

Understanding your Chicago, IL credit report, credit reports in Chicago Il Top 10 Ways You Can Use Credit effectively and Raise Your Fico Score:

  1. 1. This probably goes without saying, but the biggest thing you can do to improve your credit is to pay your bills on time. If you’ve have had problems, you need to get your accounts current and keep them current. Recent history matters most, so time will work wonders toward improving your Fico score and credit profile.
  2. 2. Monitor each of your accounts, and make sure you keep your credit card balances well below your credit limit. Your Fico score will improve if you drop your balance below 50% of your max credit limit, and it will improve again when you are below 30%. If you are over your credit limit it can kill your score because not only do you have a high balance, but you are now in technical default.
  3. If you have mistakes or inaccuracies in your report, dispute them. You can work with your creditor and try to get them to fix what they are reporting, or you can go directly to the repositories and contest the items with them. (I’ll cover how to do this later.)
  4. Credit scoring systems want to see that you use credit regularly, but use it wisely. You will get more value for using credit cards monthly and paying them off at the end of the month then you will if you have credit lines which you never touch.
  5. Closing unused credit cards won’t increase your score. If you are planning on taking out a mortgage soon, and you want the most benefit, keep those old lines open.  In the short term closing accounts takes away their history and reduces your total available credit limit and it can actually make your score drop. (On the other hand, closing accounts might make a lot of sense from a security and financial planning standpoint. But don’t do it if you are planning to apply for a loan soon.)
  6. Don’t accept pre-approved offers you get in the mail. If you are like me, you could fill a recycling bin with letters from lenders saying you have been pre-approved for financing. They say you are pre-approved, but if you apply the first thing they will do is run your credit report.
  7. Only apply for new credit when you actually need it, and you know you can afford it. Requesting new credit (inquiries) will lower your Fico score more if your credit isn’t so hot to start with than it will if your credit is stellar.
  8. Make sure you don’t open a lot of accounts too quickly. New accounts will lower your average account age, and this can hurt your score.
  9. If you’ve had a bankruptcy or credit problems in the past, you will need to re-establish your credit history. You may need to start with a pledged account, that is, a credit line with a credit limit fixed to the amount you have on deposit with the bank. Over time you will be able to get more credit offers. It can be hard to reestablish credit, but opening new accounts and paying them off on time will help you in the long term.
  10. If you have old collection accounts on your report, don’t pay them off until you consult with your loan officer. If a collection is old it may not be a big factor in your score. When you pay it off it shows new activity on that bad account and can lower your score temporarily. The underwriter may require that you pay off the collection before closing, but doing it then will not affect your approval.

The key to good credit is to not take on more debt than you can handle. Being aware of your credit use and making sure you use credit responsibly goes a long way toward increasing your Fico scores and putting yourself in a great position. But what happens if you have mistakes in your past that are holding you back now? We will cover that in the next post.

The other parts of this series are:

How To Understand and Make the Most of Your Credit –Part 1 - An overview of credit.

How To Understand and Make the Most of Your Credit –Part 2 - What makes up your Fico score.

How To Understand and Make the Most of Your Credit - Part 4 - Fixing Mistakes and Credit Repair

Illinois Mortgage Rates and News

Technorati Tags: ,,,,

Peter Thompson is illinois Mortgage Broker



Contact illinois Mortgage Company Today !









Posted in Credit, First Time Home Buyers | 1 Comment »

Fed Cuts Rates by .25% - Mortgage Rates Continue on Roller Coaster Ride

11th December 2007

As expected, the Fed cut both the Discount and Fed Funds rate by .25% today. The big hitters on Wall Street were hoping for a half a point cut, so stocks took a dive as soon as the news was announced. The cut in the discount rate will mean that banks will lower the Prime Rate by .25%. So this cut will give consumers with home equity loans and some credit cards immediate relief.

How will this affect mortgage rates? The Fed can only change short term rates. Mortgage rates change based on activity in the mortgage backed securities market. Rates there have been extremely volatile over the last week, going from a 2 year low early last week, then jumping nearly 3/8ths of a point higher over the last several days. Usually mortgage bonds sell off before the Fed meets. Today they started strong and got stronger after the Fed announcement. This means that mortgage rates are better today and will probably go lower in the days ahead.

But don’t expect this to last. We are on a roller coaster, and there will be more ups, downs and sharp curves ahead.

Illinois mortgage Rates and News.

Technorati Tags: ,,,

Peter Thompson is illinois Mortgage Broker



Contact illinois Mortgage Company Today !









Posted in Miscellaneous | 2 Comments »

How to Understand and Make the Most of Your Credit Score – 2

10th December 2007

Chicago, IL - The first installment of this series,  How to Understand and Make the Most of Your Credit Score – 1,  gave an overview of the credit system, and how good credit is more important than ever before for qualifying for a loan and getting the best interest rate. This installment we will go over Fico scores, one of the biggest factors in qualifying for a loan.

Credit repair in Chicago IL,Understanding your Chicago Illinois credit reportYour credit report contains a good deal of information but most lenders focus on one feature, the FICO score. The name FICO is short for Fair Isaac Company, the firm that developed it. Actually, there are 3 FICO scores, one from each repository, but we generally use the middle score. This score is a computer model that weighs the overall risk in your credit profile. The idea behind credit scoring is to measure the likelihood of a customer’s defaulting on a loan.

Credit scoring goes a long way toward taking the human out of the approval process and making the system more automatic. There are some big advantages to this. Because of credit scoring you can go to the local mall, apply for a credit card and automatically be approved for financing. It works the same way with mortgages. This is how we can offer same day full pre-approvals.

Fico scores range from a low of 350 to a high of 850 (the higher the better), but it’s rare to see scores at either extreme. Most people’s scores are in the 600s and 700s. Mortgage approval depends on other factors besides credit, but a high credit score will go a long way toward helping your situation. With risk based scoring you will need a score over 680 to get the best rates and pricing. If you are in the low to middle 600 range there are still options. If your credit score is below 620, you will have a harder time getting approved and the interest rate will be higher. The options available for those with scores below 600 are slim. Not so long ago Sub-prime mortgages filled this niche. Now your best option is to work on improving your score early.

Because your credit score is so critical to qualifying, it is important to check your credit early in the process, before you’re ready to even start looking for a home. This way if there are mistakes or problems, you have time to work on the credit and improve your scores.

There are five major factors that make up your credit score. These major factors are broken down into hundreds sub-factors, and how you measure up against all these factors is boiled down into your score. One thing to be aware of is that formula for the scoring changes regularly. This is meant as a way to measure the risk of default, so if new risk items show up in their reports, you can bet that the scoring will change. Lately I’ve seen scores vary more than usual, so my guess is they are adjusting the formula at the same time they are tightening the Mortgage Credit in Chicago Il, undersatnding credit in Chicago Illinoisunderwriting.

Here are the 5 factors, listed in order of importance:

Payment History: 35% impact. This seems obvious, but if you pay your bills on time it helps your score. Late payments, judgments and charge-offs can kill your score. If you miss a large payment it will hurt your score more than if you miss a low payment. Late payments from the last 2 years are more of a problem than older delinquencies.

Outstanding Credit Balances: 30% impact. This is a surprise for many people. You can have a perfect credit history and still have a poor score if your balances are too high. What they’re looking for here is how many accounts do you have open, and how high the balances are on the accounts. If you owe a lot of money on a lot of accounts, this is a risk that, in the future, you’re more likely to make your payments late, or not at all.

Your outstanding balance compared to your available credit limit is the issue here. If you are near your max credit limit it hurts your score. If you go over the max limit your score will take a big dive, because now not only is your balance too high, but you are now considered in default of the loan.

The less available credit you use the better. It helps your score if you spread your debt around several cards. Your score improves if you drop your balance below 50% of your limit, and it is best if you use no more than 30% of your available credit limit.

Credit History: 15% impact. How long have you had credit established? How long has it each account been established? And how long has it been since you’ve used the credit line? If you have a long history this will help your score.

Type of Credit: 10% impact. You lose points if you have nothing but credit cards. A mix of auto loans, credit cards, and a mortgage is ideal.

Inquiries: 10% impact. Every time you apply for credit it shows as an inquiry in the credit repository. Inquiries can lower your score because applying for more credit means you may be taking on new debt.

The credit report shows the number of inquiries that have been made on your credit history within the last twelve months. Each inquiry can cost as little as 2 points, and as many as 50 points against your score. If your credit score is high, the inquiry won’t affect you much at all. But if your credit score is lower, new credit is looked at as a big problem, and can bring your score down by as much as 50 points.

Also, if you’re about to buy a car or apply for a mortgage and have your credit run several times, make sure you do it all at once. It only counts as one inquiry if they’re all done in a 14 day period.

These scores are calculated by a computer that’s not taking any personal factors into consideration. When a credit report is generated, it’s simply a snapshot of your credit profile for that particular moment in time. Scores change, sometimes by large amounts in a short period of time. To make sure you don’t have a problem when you’re ready to buy, it’s important to have a loan officer review your credit and make sure you are on the right track.

I’ll have more tips on how to best use your credit in the next installment here at Illinois mortgage rates and news.

Here are the other installments in this series:

Part 1 - How our Credit System Works

Part 3 - 10 Ways to Raise Your Fico Scores and Improve Your Credit

Part 4 - Fixing Mistakes and Cleaning Your Credit Report

Illinois Mortgage Rates and News

Technorati Tags: ,,,

Peter Thompson is illinois Mortgage Broker



Contact illinois Mortgage Company Today !









Posted in Credit, First Time Home Buyers, Understanding Credit | 2 Comments »

Chicago, IL Mortgage - How to Understand and Make the Most of Your Credit Score - Part 1

9th December 2007

Chicago, IL - Your credit profile has always been a big factor in qualifying for a loan, but with loan quality problems in the mortgage industry the underwriting is becoming increasingly tight. One recent change is Fannie Mae and Freddie Mac’s move to risk based pricing. This means those with credit scores that used to be considered good but not outstanding will need to pay more for their mortgage. The private mortgage insurance companies have taken on similar policies. These changes mean that good credit is more important than ever before for both qualifying for a mortgage, and getting a mortgage for the lowest rate and cost.How to understand and improve your Fico credit score, Chicago Illinois

Part of my mission here at Illinois Mortgage Rates and News is consumer education. Credit can be a confusing topic. Most people think that all they need to do is pay their bills on time. But good credit is much more than that. In order to understand and improve your credit profile you need to know how the credit system works and how to use it to your advantage. This is a big topic, so I’m going to break this topic up into several posts. I will cover how the credit system works, how banks and mortgage companies look at your credit, what goes into your FICO scores and how to fix mistakes and problems in your credit rating.

It’s hard to function in America without good credit. Good credit is not just about buying things, either. Have you applied for a new job lately? Many employers are now running applicant’s credit before hiring. Auto and home insurance rates are tied to credit scores, too. But if you want to get a mortgage at the best terms, good credit is crucial.

That doesn’t mean you’re out of luck if you have a few late payments on your record. Your overall credit pattern is the key, not just isolated incidents. And even if you have had serious problems in the past, there are still ways you can buy.

Your credit record is compiled by 3 companies, Equifax, Experian and Trans Union. These companies are called credit repositories. Their business is to gather information from financial institutions and businesses throughout the country and then sell this compiled information back to the retailers and banks so they can use it as a basis for their credit decisions. Each repository does this independently of the others, so your credit profile and scores will be slightly different with each. If you are applying for credit at Home Depot or Best Buy, they will usually only pull from one repository. When we run a mortgage credit report we pull a tri-merged report which draws from all 3 credit repositories.

Understanding credit and How to improve your Fico credit score, Chicago ILlinoisYour credit report is a record of all the credit you’ve built up over your lifetime. (Is this the real permanent record your teachers warned you about back in school?) Your credit report gives a list of all the accounts you have now, as well as all the accounts you have closed. It shows the balance of each account, the credit limit, your payment history showing late payments as 30, 60, 90 or over 90 days late, and any past due balance you still owe, when the account was opened and when it last showed activity. It also shows a record of bankruptcies, judgments, and foreclosures you may have had.

Back in 1992 when I first got into the mortgage business, all this credit information was underwritten manually by a mortgage underwriter. The underwriter would base their loan decision on how well the borrower conformed to established credit guidelines. There were guidelines, but it came down to a judgment call on the level of risk the loan carried, and some underwriter’s would accept more risk than others.

The underwriter still reviews the credit, but much of the decision is now based more on credit scores and automated underwriting decisions. Still, it is all about risk. In the next installment I will talk about credit scoring and FICO scores, how they measure risk and what you can do to show yourself in the best light.

If you are even thinking about getting a loan, the first thing you need do is get a copy of your credit report and see what it has to say. I will go over this in depth later, but if you want to see your credit on your own, there are a couple of ways to get a copy of your report. By law, each repository has to give you a free copy of your credit report once each year. You can get the reports at annualcreditreport.com. These reports will give you all the data of the report, but they won’t give you the credit score. To get the scores you will need to pay. You can also order a copy of each from the repository websites, or you can get them all for a fee at Myfico.com.

In the next post here at Illinois Mortgage Rates and News, I will cover more on credit scoring and what goes into the FICO score.

Here are the other installments in this series:

Part 2 - Fico Scores and How They Work

Part 3 - 10 Ways to Raise Your Fico Scores and Improve Your Credit

Part 4 - Fixing Mistakes and Cleaning Your Credit Report

Illinois Mortgage Rates and News

Technorati Tags: ,,,

Peter Thompson is illinois Mortgage Broker



Contact illinois Mortgage Company Today !









Posted in Credit, First Time Home Buyers, Understanding Credit | 2 Comments »

Illinois Mortgage Rate Weekly Update

7th December 2007

One of the features of this blog will be to give a weekly update on what is happening with the mortgage market and how the news and technical factors affect mortgage interest rates. Let me say right up front that I am not an economist, and I am not an expert on the financial markets. What I am is an Illinois mortgage guy who follows the markets closely. I’ve been around long enough to form some opinions and these are my opinions.

This was a wild week if you follow mortgage interest rates. The week started out with the stock market in a funk and mortgage rates dropping below 6% to their lowest levels in over two years. The phones were ringing and champagne corks were flying in mortgage offices all over the country. The week ended with rates jumping back up and the mortgage euphoria fading.

The big news this week was the sub-prime bail out plan put forward by the Bush  administration. This plan called for a freeze on the interest rates for some borrowers in order to keep them out of foreclosure. The administration claims that this plan will help up to 1 million homeowners. I’ve seen other estimates claiming the numbers will be under 300,000. Either way this is a step in the right direction if it helps some people keep their homes and continue paying on their loans. But in my opinion this is a drop in the bucket, a band aid on a bullet wound. It won’t make enough of a dent to change anything, and we will need more fixes later on.

That is my opinion. The stock market disagreed with me. Based on where investors bet their money, they expect the credit crunch to be over in short order. When the bail out plan was announced on Thursday the stock market took off like a rocket and mortgage bonds tanked. This morning mortgage bonds losses deepened after the jobs report came out showing slightly higher job creation than the low level that was forecast. Mortgage bonds started the day bad, and it got worse from there.

Next week the Fed meets on the 11th. It is expected that they will lower rates, it is unclear by how much. Expect more roller coaster action to continue. 

Here is what rates look like at the end of today for an A+ borrower on a 30 day rate lock with 0 points  (Keep in mind there are dozens of factors which effect mortgage rates and you ability to be approved for a loan. These include your credit score, the loan to value, the loan amount, your documentation type and on and on. This is meant more as a gauge of where we are from week to week. Give me a call and I’ll be happy to give you a quote for your personal situation):

Conventional loans up to $417,000 

30 year fixed rate    6.125%    6.183% APR

15 year fixed rate    5.625%    5.705% APR

5-1 A.R.M.               5.875%    6.483% APR

For Jumbo loans over $417,000

30 year fixed rate    6.875%    6.904% APR

7-1 A.R.M.               6.375%    6.591% APR

FHA LOANS up to $270,200 with 1 point origination fee

30 year fixed rate    5.875%    6.094% APR

These are only a few of the hundreds of programs available. Rates change regularly. On a day like this the rate quoted in the morning may not be there by the afternoon. This is one of the reasons I recommend locking in your interest rates.

This is how mortgage bonds have performed over the last month.

Technorati Tags: ,,,

Peter Thompson is illinois Mortgage Broker



Contact illinois Mortgage Company Today !









Posted in Illinois Mortgage Rate Weekly Update | No Comments »

Despite What You’ve Heard, Mortgage Companies are Still in the Business of Lending Money

5th December 2007

With rates having dropped, I’ve been on the phone a lot lately calling past clients and letting them know that with the lower rates they had a chance to save some money. One of my calls was to a client I’ve known for years. I helped him with his mortgage when he first moved to the Chicago area, I helped him refinance a few times since then and another mortgage when his family moved to a new home. We talked some and I told him about the rates and why this was a good time to lock in to a lower rate.

His answer surprised me. Based on the news he’d heard, he didn’t want to go through all the bother of a refinance. He was under the impression that he might not qualify for a loan, and that banks weren’t lending much money now anyways. This, mind you, was from an A+ borrower, a dream client. He makes great money, carries little debt, has top credit scores and a ton of equity in his home.

I think this says a lot about perceptions and how they can affect the market. When things were riding high the perception was that everyone could own their dream house. I’m pretty sure I got a few calls from hobos who were ready to settle down and buy their McMansion. Now the market has shifted and fear is the dominant emotion.

Times are tight, but lenders are in the business to make money, and they do this by making new mortgages. The guidelines have changed and the underwriters may be a little more careful than they were before, but a good borrower is always going to be able to get a loan. I don’t see that changing anytime soon.

Peter Thompson is illinois Mortgage Broker



Contact illinois Mortgage Company Today !









Posted in Miscellaneous | 1 Comment »

In the Mortgage Business, Christmas is Coming Early this Year

4th December 2007

After a year that was more naughty than nice, Santa dropped in early for the real estate and mortgage industry. Mortgage rates fell to their lowest point in the last few years today.

It’s been quite a while since we were quoting rates below six percent and my office nearly buzzed with activity. Phones were ringing, people talked and laughed and it felt down right festive. It’s easier to be in a holiday mood when there is a prospect of a paycheck after Christmas.

Here in Illinois we had our first big snow today, too. Christmas lights are up around the neighborhoods and with the new snow it looks like something you’d see on a calendar.

If you are in need of financing, Christmas came early for you, too. If you bought over the last few years, chances are your rate now is higher, and it may make sense to refinance. If you have a home equity loan with a balance, or credit card debts you would like to pay down, it might make sense to refinance. If you have an adjustable rate mortgage that will be re adjusting soon, or if you have an option a.r.m, it really might make sense to refinance.

Rates are low now, but the experts are divided over which way rates will go. One school of thought is that the economy is weak and the Fed will need to continue to lower the discount rate and this will drive mortgage interest rates ever lower. The other way to look at it is that the Fed will lower the rates, but this will spur on inflation and weaken the dollar, which mean that mortgage rates have to move up.

Mortgage rates may get better, or they may get worse. But they are a bargain now. My thinking here at Illinois Mortgage Rates and News, is that this is a great time to lock in and and take advantage of where we are now, before our gift turns to coal.

. 

Peter Thompson is illinois Mortgage Broker



Contact illinois Mortgage Company Today !









Posted in Miscellaneous | No Comments »

Risk Based Financing - For Many, Loans are about to Get More Expensive

4th December 2007

Chicago, IL -Mortgage interest rates dropped sharply over the last week. Conventional fixed rates are now in the fives, their lowest point in the last several years. This is big news for consumers. Anyone who bought a home in the last few years should look at what they are paying now and see if it makes sense to refinance their mortgage. Anyone who is in an adjustable rate loan or has a second mortgage or credit card debts they want to consolidate should be breathing a big sigh of relief. This is a chance to bail out and lock in to the lowest rates we’ve seen in a long time.

Risk based financing, Illinois mortgage rates - mortgage rates in Chicago With rates this low, we in the mortgage industry should be doing the happy dance. The phone is ringing again and those bare pipelines are starting to fill. It is great to be in another mini re-fi boom, but there are dark clouds on the horizon. Even as rates go down, mortgages are about to get more expensive for many consumers.

There is a new change in the mortgage market that will affect anyone who is looking for financing, whether for a purchase or a refinance. It is called Risk Based Financing, the idea that those borrowers with the best credit scores will be able to get mortgages at the best rates, and those with lower credit scores will have to pay more. This isn’t talking about Sub-prime loans or loans for people with bad credit. The people affected by this change are borrowers with credit scores good enough to qualify for Fannie Mae and Freddie Mac based conventional financing.

This concept has been talked about for years, but it is only now with the real estate market soft and foreclosures rising that it is going into effect. Or more to the point, it’s only going into effect now when the big mortgage players are taking it on the chin for all the bad loans they wrote when credit was easy. Freddie Mac and Fannie Mae, the 2 largest purchasers of mortgage loans, will put this in place for all loans they buy as of March 2008. This means that all the wholesale lenders will react to the change by pricing it into their rates sooner. Some already have. Chase Mortgage, one of the largest wholesale lenders changed to a risk based pricing model for loans locked last week. All the other wholesale lenders will follow suit in short order. The pricing hit will be based on the borrower’s Illinois Mortgage rates- best rates on Chicago mortgagescredit score and their loan to value, that is, how much equity they have in their home. Those with lower scores and not much equity (first time home buyers?) will be hit hardest.

Risk based financing  means that good credit is more important now than ever before. If you are thinking about buying a new home soon, or if you’ve been putting off that refinance because you thought rates would drop lower, you might be surprised that things have changed. The best thing they can do is review your credit early and address any problems now. Here at Illinois Mortgage Rates and News I will have more information about credit and ways to improve it in the coming weeks.

 

Update - To learn more about credit and how to improve your credit scores, here is a series I put together.

Understanding the credit system

What makes up your Fico credit score

10 Ways to improve your Fico score

How to fix mistakes on your credit report and rebuild your credit

Illinois Mortgage Rates

Technorati Tags: ,,,

Peter Thompson is illinois Mortgage Broker



Contact illinois Mortgage Company Today !









Posted in Economics and Trends, Mortgage Programs | 4 Comments »

Breaking it Up can Help You Save Money on Your Illinois Jumbo Loan

3rd December 2007

Chicago, IL -The Jumbo loan was an unintended victim of the sub-prime tsunami that hit the mortgage market back in August. When the sub-prime market tanked it wasn’t really that surprising. I know I shook my head in wonder at some of the loans that we approved. It doesn’t take a genius to know that lending money to a borrower with no money down, stated income and spotty credit is higher on the risk scale than some of Evil Knievel’s jumps. Illinois Jumobo loans, jumbo loans in chicago, chicago jumbo home loans

Jumbo loans are different. Jumbo mortgages are loans above the lending limit of Fannie Mae and Freddie Mac, the two biggest buyers of loans in the mortgage aftermarket. This means anything above $417,000 for a single family home in Illinois and throughout the continental US. Jumbo mortgages are slightly riskier than conforming loans (those eligible for Fannie and Freddie purchase). It is the old eggs in one basket theory - if you are an investor you have less risk of losing your principal by carrying four $200,000 loans than if you have one loan for $800,000. Because the risk is slightly higher the pricing was slightly higher than conventional loans. But the truth is that jumbo mortgages have a lower default rate than conforming mortgages.

Before the mortgage meltdown the premium for getting a jumbo loan was low – in most cases about a quarter of a point higher than conforming loans. After the mortgage meltdown anything that wasn’t conforming was toxic. Overnight the jumbo market virtually disappeared. Lenders have now come back into the market, but the pricing on jumbos is much higher than conforming loans. Right now the difference is a full point higher.

So what can you do if you need financing and you are in the jumbo price range? You have a few options. The biggest price differences are with fixed rate loans. But if you are willing to take a little more risk and go with a long-term adjustable rate mortgage, the spread gets much thinner. A 7 year ARM, a loan with a fixed rate for the first 7 years, is priced much more aggressively than a jumbo fixed rate. You are taking a chance if you expect that you will stay in the house longer than 7 years and you think that this is as low as rates will go in that time, but over all this isn’t a bad bet. Seven years is a long time and if you still want a fixed rate you can always refinance later.

Illinois jumbo loans, jumbo loans in the Chicago area, Chicago jumbo loansAnother option is to break the loan into 2 parts, a first and a second mortgage. This works best if you are in the lower range of jumbo mortgages. Here is how this works. Let’s say that you are buying a home for $700,000 with a 20% down payment and financing $560,000. Let’s say that the interest rate for a 30 year fixed rate on this loan amount is 6.75%. That means a payment of $3,632 per month.

This is how it looks if you break the mortgage in two. The first mortgage would be at the conforming limit, $417,000. Let’s say the rate here is 5.75%. That gives you a payment of $2,433 per month. The amount left over, $143,000, goes into the second mortgage. The rate on the second is higher, say 7.5% for a fixed rate. This means a payment of $998 per month. Add the two payments together and you get a total payment of $3,432 – a savings of $200 each month compared to taking out a single jumbo loan.

The savings lessen as the second loan gets higher, but this is  a great strategy and and one worth exploring. If you are looking to buy ahome and get a jumbo loan in Chicago, the Chicago area, throughout Illinois or throughout the country and want to run some numbers contact me here at Illinois Mortgage Rates and News. Jumbo rates should improve and get closer to the conventional rates over time, but until that happens this is a great way to save money

Illinois Mortgage Rates and News

Updated 06-29-2008

Technorati Tags: ,,,

Peter Thompson is illinois Mortgage Broker



Contact illinois Mortgage Company Today !









Posted in Mortgage Programs, Shopping for a Mortgage | 1 Comment »

« Previous Entries
Next Entries »