Last Chance to Buy a Chicago Area Home with No Money Down – FHA Loans with Down Payment Assistance Are About to Disappear
31st July 2008
One of the provisions of the recently signed Housing Bill, was the elimination of the Down Payment Assistance Programs (DPAs) like Ameridream and 
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Nehemiah. These programs were a legal loop hole which allowed sellers, in a round about way, to fund the buyer’s down payment and allow them use an FHA loan to buy with no down payment from their own pockets. The DPAs have been a great deal for home buyers who didn’t have extra cash saved up for a down payment, and it’s been a great deal for home sellers because they brought in home buyers who otherwise wouldn’t have been able to buy a home. The down side has been that FHA has linked the DPAs to a higher default rate, and they’ve been trying to shut them down for years. Ameridream and Nehemiah contest the default figures, and claim that the defaults are more a function of fraudulent loans than problems with the down payment programs. Their claim is that administered properly, this is one of the best ways to bring low and moderate income buyers into homeownership and they have helped hundreds of thousands of families get their piece of the American dream. The DPAs have fought off court challenges and evaded death in the past, but it looks like this time it’s for real.
My experience lines up with the DPAs. The toughest part of qualifying for a mortgage has always been saving up the money for a down payment. I know that I’ve helped lots of otherwise well qualified buyers who without this program would have been out of the home market entirely. I also know that most of these buyers continue to pay their mortgages on time, and some of the buyer’s who started off with this program have gone on to use the equity they’ve built up to buy bigger homes – just like those homeowners who started out with large down payments. I’ve also known people who bought with larger down payments but ended up having financial problems down the road. I think most mortgage defaults are based on traumatic events like job loss, medical problems and divorce, than the size of their original down payment.
Another thing I’ve been seeing lately, now that FHA has increased their loan limits here in the Chicago area, is buyers using FHA and DPAs to buy up into a move up home. I have two clients I am working with now who are selling their homes, but because of the softness in the real estate market they need to bring money to closing in order to pay off their current mortgage and closing costs. With no money for a down payment they would be frozen out of buying. The DPAs allow them to start over again and not have to become renters again. Having a hefty down payment is always preferred, but this seems like a tough time to take otherwise good buyers out of the housing market.
So if you are looking to buy a home but you are short the down payment, this might be your last chance to buy. The new housing bill goes into effect on October 1st. . This means you need to buy a home and close on it by September 31st or you are out of luck. With 2 months this is plenty of time to find a home and to get a mortgage, but you need to act fast. If you are thinking of buying a new home here in the Chicago area or throughout Illinois, give me a call and we can go over your situation and get you pre-approved. You can still buy with no money down, but the train is pulling out of the station and you will have to act fast.
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mortgage backed securities markets is which battle should we be fighting, recession or inflation. The answer changes from day to day, and mortgage rates continue to be wildly volatile. We had three days where mortgage rates went down, two where they went up and the week ended with mortgage rates getting worse, but slightly better than where we were at the end of last week.
to sell and selling for much less that they would have just a year or two ago. Many of the Realtors I speak with are still making their adjustments to the new market and trying to find new ways to generate a paycheck. I met with one Realtor last week who offered me the chance to get in on the ground floor of a multi-level marketing program he was considering. But the market isn’t bad for everyone. As two news stories from last week show, with a little bit of luck and ingenuity real estate is still a winner.
The other story was much closer to home, in Lake Bluff, Illinois. This story concerns another real estate developer, George Michael, who was intent on finding ways to lower the costs on his property. One of the biggest costs associated with real estate is real estate taxes. According to the 
the rest of the week mortgage bonds got demolished and fixed mortgage interest rates rose about 3/8s of a point to the highest they have been all year. Mortgage bonds got hammered even as some of the factors that had been responsible for the recent rise in rates seem to be turning. Oil prices fell sharply this week down to $128 per barrel, the dollar strengthened, the Government announced a plan (sort of) to 
This may be wishful thinking. Coming a week after Indy Mac failed, and days after the potential bail out of Fannie and Freddie was announced, the market may be getting ahead of itself. Merrill Lynch announced another $9.7 billion in credit write downs which says that the credit crunch is still not over. With home prices down and less access to the home equity, we are seeing a reverse of the wealth effect. People feel poorer and they are less likely to spend money if they don’t have to. The stimulus checks have mostly been spent, and this kept the economy out of an official recession, but the pop is now gone. The stock market had a great week, but my guess is that fear will set in again over the next few weeks, and the pattern will reverse itself with money flowing out of stocks and into bonds. I expect that rates will come back down again in the coming weeks.
condos on the market than at any time over the last several years this is a great time to buy. This means there is more of a selection to choose from, and the competition is bringing condo prices down. This is a great time to buy a new condo, but changes in the mortgage market have made financing condominiums harder than it used to be. Mortgage guidelines have gotten much tougher and mortgage insurance companies are even tougher. Fannie Mae and Freddie Mac have junked their declining market policy, but the mortgage insurance companies have kept the policies intact. What this means is that in declining markets the mortgage insurance companies require an extra 5% down payment in order to take on the loan, so if you were going to put down 5%, you would now need to have 10% for a down payment. Chicago and the entire Chicago area are now listed as declining real estate markets. The net result is that if you are going to buy condo anywhere in the Chicago area, and you are going for conventional financing, you may need a 10% down payment.
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were on the edge of insolvency. Not just the mortgage market but our entire economy are dependent on the health of these organizations. It’s always been assumed that the government would do whatever was necessary to keep them afloat. The question was more a matter of what they would do to support them, whether the stock would remain solvent and who would foot the cost.
Stearns. If left to fail on its own, it was feared that this would set off a panic that could shake our financial system to its core. Since then we’ve been told that the worst was over, and even though the housing market was still a mess, our economic foundations were strong. This week the bullet we missed with Bear Stearns is looking like a pea from a pea shooter, and we have a nuclear missile headed our way (Where is Superman when we need him?) The stock of Fannie Mae and Freddie Mac, the two pillars of our mortgage finance system, dived this week as the loss of liquidity pushed these giants toward insolvency. Both stocks lost about 45% of their value this week and are down about 90% in the last year. With the stock prices this low there is no way they can raise the cash they need to continue operating in the markets. If the worst comes to pass, this means 2 possibilities: a bailout where the government funds the organizations, or a receivership or complete government takeover. 
Everyone agrees that Fannie Mae and Freddie Mac are too big to fail. If it gets to that point the government will surely step in and do what is necessary to keep the mortgage market going. But the question then becomes how would they do this? The debt is so huge (even backed by the homes supporting all those mortgages) that it would be equal to almost ½ our current national debt. After the panic first started, Fed officials, Treasury Secretary Paulson and statements from both Fannie and Freddie assured everyone that there was no crisis. But a panic is a panic. The market calmed down a little Friday afternoon, but this will come back as an issue. Maybe this coming week, maybe later. We are still in a severe credit crunch this fear only tightens it another notch. What it means for consumers is that conventional mortgages are likely to continue their trend of becoming harder to qualify for and more expensive for those who can qualify. On the good side, there is almost no chance that the Fed will hike rates any time soon. 
was set for a nice smooth transaction. When the financing date in the contract came due the buyer still didn’t have loan approval, so they requested an extension. She was assured that the borrower was great and the appraisal came in right where it needed to be. There were just a few small details to take care of and loan approval would be forthcoming. 10 days later when the extension was up, they still didn’t have a loan approval. The loan officer was vague about what the problems were, but promised that it was nothing serious and with a little more time everything would be fine. By this time the Realtor was nervous and the seller was a basket case. But in for a penny, in for a pound, they agreed to a second extension rather than put the property back on the market. You can guess where this story is going. The second financing extension came and went with no loan approval. Now the loan officer isn’t answering his phone and all the calls to his company end up in voice mail and no one is returning phone calls. Many home buyers think of mortgage financing as a commodity, but this Realtor knows that isn’t true.
really kicks in. I like the parades, festivals, barbeques and fireworks. And this holiday is all about freedom, something we take for granted but it is good to be reminded of what we have, and what we could lose if we don’t pay attention. That being said here is the breakdown of what happened to affect mortgage rates this week.