Welcome to Illinois Mortgage Rates and News week in review for the week ending February 27th 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

The economic news released this week was consistently grim. The nation’s GDP decreased by 6.2%, housing prices fell to new lows and the Government is now the major stockholder for banking giant Citigroup. But bad news has become the norm now. Market data is consistently coming in worse than expected (and the expectations are low) and when revisions come in they are usually lower still. So bad news doesn’t have the same impact on the markets that it used to because a good deal of gloom is already baked into the expectations. That said, markets crave certainty. They want to be able to take data from today and extrapolate it into the future in the form of prices and values. We are certain that the economy is a mess now, but uncertain of what can be done about it and whether any of the governments big plans are going to do anything to help make things right.

In normal times all this news would be bad for stocks (true enough, stocks are at a 12 year low and hovering over a key level of support) and good for bonds, which should drive mortgage rates lower. This is the flight to quality concept, where in times of uncertainty money flows out of the stock market and into the safer havens of treasury bonds and mortgage backed securities. US Government bonds are the gold standard of investments, but traditionally mortgages have gone along for the ride, too. Things are a little more complicated now.

An enormous amount of money needs to be raised to pay for the stimulus plan and the new budget. The government can raise money several different ways. It owns the Treasury which has all the printing presses, so it has the ability to print up whatever currency is needed. But they tried that back in the late 60s and it led to raging inflation which took over a decade to tame. It can sell assets, but there aren’t many buyers for anything right now, and they would have to sell a lot in order to raise the money that is now needed. I have a feeling that selling Alaska back to the Russians wouldn’t be politically popular. That leaves debt, and over the past few weeks the Treasury has been auctioning off a boat load of securities to raise cash. This debt has to be paid back by future generations, and this has been the big concern for treasuries, and by extension mortgage bonds. Rates would be much lower if the market had a better conception of how all this debt is going to be paid back down the road.

In mortgage land, everyone is waiting for March 4^th. This is the date that the details of the Obama mortgage plan are to be released. This plan’s stated goal is to provide a basis to help some slightly underwater home owners, encourage banks to modify loans rather than foreclose, and to make mortgages more affordable, leading to more refinancing which should help stabilize the housing markets. The response to the outline of the plan was positive, but, as the saying goes, the devil is in the details. Again, we get back to uncertainty. If the markets think that the plan is likely to be a success, they will rush in to buy more lower coupon mortgage bonds, insuring lower rates. If it looks like the plan will be a dud, look for mortgage bonds to sell off and rates to head back up again. There is one thing which could bring mortgages rates down for many home owners without a big effort on the part of the government. Fannie Mae and Freddie Mac, the two biggest purchasers of mortgages and the organizations that set the rules that all lenders follow, are now effectively owned by the government. As the housing market has cycled lower they have issued a series of loan level price adjustments (LLPAs), which are price hits for factors which affect the loan risk. These price adjustments make sense in a way, riskier loans should cost more than safer loans. But the concept has been taken so far that many otherwise qualified borrowers are now priced out of the market. It also means that one hand of the government is raising the cost of lending while the other hand is trying to lower rates. Eliminating some of these LLPAs could be a way to lower mortgage rates quickly and easily.

Mortgage rates are slightly higher this week than last. We are still going back and forth in a range, but over the last 2 there have been several times where rates dropped, sometimes only for a short time, into the low point of the range. One strategy many clients are doing now is to start the loan process floating, and to lock in for the most benefit when the rates dip. There is no guaranty that we will dip again, but this strategy has been working well so far. The Fed bought about another $25 billion in mortgage backed securities this week for a total of almost $160 billion in mortgage backed securities out of a goal of $500 billion by the beginning of July. Here is a link to the New York Fed which tracks the Fed’s mortgage bond purchases. This number is updated every Thursday.

Here is what Illinois Home mortgage rates look like today 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 loans 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%     5.366% APR

15 Year fixed Rate         4.875%   4.934% APR

5-1 A.R.M.                       5.125%    5.263% APR

For Jumbo loans over $417,000

7-1 A.R.M.                     5.375%       5.598% APR

30 Year Fixed Rate*       5.875%       6.098% APR

Special Pricing – Available up to $750,000 loan amount, 75% LTV Purchase/70% LTV Refinance – some restrictions apply.

(For smaller Jumbo loans consider breaking your loan into 2 parts – conventional to the limit and a HELOC for the rest.)

FHA LOANS – 3.5% down payment

With 1 point origination fee – 45 day lock

30 year fixed rate         5.25%      6.023% APR

With no origination fee – 45 day lock

30 year fixed rate         5.625%     6.245% APR

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan.

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.

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Last year, as a way to increase financing options and help stabilize the housing market, FHA temporarily increased their lending limits. This, combined with conventional guidelines tightening, meant that FHA quickly became one of the best loan options for most borrowers. The temporary limits expired at the end of the year, and new limits were put in place which lowered the FHA limit to $365,700 for a single family home. This was lower than the temporary limits, but well above what FHA had been before. Now, as part of the recently passed stimulus package, FHA is returning loan amounts to the higher temporary limits for the rest of this year. So effective for loans which are credit approved in calendar year 2009, the max FHA loan amount here in the 6 county Chicago metropolitan area (Cook, Dupage, Lake, Kane, Will and Grundy Counties) is now back to $410,000 for a single family home.

Here is the table for the Chicago Metro Area:

1 unit $410,000

2 unit $524,850

3 Unit $634,450

4 Unit $788,450

The FHA max mortgage is determined on a county wide basis based on the areas median home values. In higher priced areas (mostly California) the max limit extends up to a high of $729,750. The floor in counties where higher limits don’t apply, is $271,050.

Here is a link to the HUD search tool which gives the FHA loan limits by County.

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There are a lot of good reasons why a first time home buyer would want to buy a home now – even when the news is so scary and the economy is in a funk – and I have detailed them before in past posts. We all know the reasons to buy – home values are at fire sale prices, low down payment financing is available, interest rates are low and the government is subsidizing your purchase with an $8,000 first time home buyer credit. These are just a few of the reasons it makes sense to buy now. But buying a home isn’t for everyone, and there are some excellent reasons why you shouldn’t buy a home now. If any of these reasons hit your situation, you might be better served by waiting on the sidelines and continuing to rent for now.

Here are the top 10 reasons NOT to buy a home now:

10. You are worried about losing your job – Unemployment is up, and more and more people are nervous about the safety of their own jobs. If you’ve heard the rumblings in your company about lay offs and down sizing, and you think that your position might be one of the next to go, this probably isn’t the time to buy a new home. Buying a home is a long term commitment and you need to plan for the long run. But if you are uncertain of your own financial future, wait until you have more stability before taking the leap.

9. Your budget is strapped already – I talk regularly with people who are up to their eyeballs with credit card payments and other debt, who decide it is time to buy their first home. The best thing you can do before making the decision to buy a home, is to get your financial house in order. This means pay down those credit cards and work out a budget so you know you will be able to afford the new home without putting yourself in a worse situation.

8. You may be moving soon – Buying a home is a long term commitment (I think I said that before). Transaction costs for real estate are high. It costs a fair amount of money to buy, and a good deal of money to sell. Home buying can be a great investment if you are there long enough to reap the rewards, and your chances of doing well with real estate increase if you plan to be there for a longer time.

7. You are not ready to settle down – This is related to the previous reason, but a different concept. Will buying a house fit in with your lifestyle? Sometimes mobility has advantages. Owning a house can anchor you in to an area, and this is a good thing if you are ready for the stability this brings. But if you are still at a point in life where you want the freedom to be able to move and go in a completely different direction, owning a house can be a problem you don’t need.

6. You are not ready for the responsibilities of being a home owner – Can you handle minor repairs and maintenance yourself, or will you miss calling your landlord when something does go wrong? When the toilet gets clogged in your own home, it is your responsibility to fix it. Expect to spend some time mowing the lawn and shoveling snow (unless you are in a condo or townhome) and changing furnace filters. If you aren’t ready for these responsibilities, it might make sense to rethink whether this is the time for you to buy.

5. Lack of reserves – Things go wrong with houses, usually at the most inappropriate times. Do you have money saved up to handle unexpected surprises? You can buy a home with little or no savings left over, but it makes sense to plan for the unexpected and have some reserves built up too.

4. Home prices could go lower – Conventional wisdom used to be that you can’t go wrong buying real estate. The market over the last few years has shown us that isn’t always true. I think it is safe to say that we are much closer to the bottom of the real estate market than we are to the top. Especially since many first time home buyers are buying short sales or foreclosed properties where the prices have been slashed by the banks who are anxious to get out of a bad investment. But prices could still go lower. It is almost impossible to call the bottom on any market, and if you are planning on being in the home for a while, close to the bottom should work out well. But if you are concerned about buying early you might be better off waiting.

3. Renting may be cheaper – In the long run, owning a home has a lot of financial advantages – tax benefits, equity build up as you pay down your mortgage and hopefully price appreciation among them. But from a pure cash flow perspective, depending on your overall profile, it may be cheaper to rent. You need to consider your tax situation, how long you intend to stay in the home and your overall goals.

2. Renting fits your life style – Owning a home calls for commitment. If the timing isn’t right for you, or if you value the less tied down life style renting affords you, owning a home may be more of a burden than you want to take on.

And the number one reason why you should NOT buy a home now …

1. Owning a home is not the right decision for everyone. Make the decision that is right for you.

Every one of these reasons has a flip side of why it does make sense to buy. The thing is, buying a home isn’t the right decision for everyone, and you need to look at your own situation, life style and goals for the future and decide what works for you. That may mean buying a new home, or it may be best to continue to rent.

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Welcome to Illinois Mortgage Rates and News week in review for the week ending February 20th 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

The markets closed this week with a whiff of panic in the air. Over the last several months, the financial markets have dealt with one crisis after another and gotten used to the fact that Government was now the protector of all our economic interests. In spite of the day to day and week to week chatter, as the troubles spread, affecting the entire global economy, we entered a new normal, and stock prices even rose for a while. Stocks this week fell to their lowest point since the economic crisis began, and they are likely to fall further. The trigger for this was a drop in global stock markets after the Davos Economic conference last week, as the realization took hold that this recession was likely to be longer and deeper than most had expected. Eastern Europe is a basket case and the rest of Europe is in a funk, with exports way down China and Japan are in trouble, and the question becomes who is in a position to pull us out of this?

The other big fear this week was about our banking system and what was to become of the big money center banks. Senate Banking Chairman Chris Dodd used the term nationalization in an interview, and the panic was on. The White House issued a statement on Friday emphasizing their commitment to a private banking system and this calmed the market’s fears by the closing bell. But we are sure to hear more about this in the weeks to come. Nationalization was once unthinkable, and these banks have been considered too big to fail. But over the last weeks voices across the political spectrum, including former Fed Chairmen and free market advocate Alan Greenspan, have said this may be a necessary step if we are to move forward. The Treasury plan to stress test the banks may be a first step in this direction. As their stock prices get beaten down, confidence becomes more and more of a factor. The choices will be for the government to pump more and more money into them to keep them afloat, or to do what they have done with Indy Mac and other failed banks and step in, take control, spin off the toxic assets and re-privatize as soon as possible. It won’t be called nationalization, but the result will be the same.

The other big news this week was the Obama mortgage plan. The plan is designed to help homeowners who are just slight underwater, and those who have a chance of keeping their home if they can modify the terms of their loans. Most critics said this was a good solution, as far as it goes, and it offers incentives to both banks and homeowners to make a modification work instead of pushing the loan into foreclosure where everybody loses. There is the risk of moral hazard, rewarding bad decisions on the part of the homeowner taking out loans they couldn’t afford, but this is by far the lesser evil if it manages to put a floor on foreclosures.

Mortgage rates swung up and down over the course of the week, ending about the same as last week. There was a flight to quality which benefitted both treasury notes and mortgage bonds, and sell offs as new uncertainty arose. Mortgage rates are in a channel right now. If you are planning on refinancing your mortgage and waiting for the right rate, a little patience may be the best strategy. Mortgage rates continue to be volatile and over react to news, both good and bad. A lot of clients are starting the refinance process without locking into a rate. Over the last 2 months the rates have fluctuated in a large range, but there have been several times where rates dropped, sometimes only for a short time, into the low point of the range. If your loan is in process you can lock in for the most benefit at the time. The Fed continues to buy mortgage backed securities in order to try and lower mortgage rates and stabilize the real estate market. The Fed bought about another $19.8 billion in mortgage backed securities this week. As of Thursday they have purchased a total of almost $135 billion in mortgage backed securities out of a goal of $500 billion by the beginning of July. Here is a link to the New York Fed which tracks the Fed’s mortgage bond purchases. This number is updated every Thursday.

Here is what Illinois Home mortgage rates look like today 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 loans 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         4.75%   4.823% APR

5-1 A.R.M.                       5.125%   5.263% APR

For Jumbo loans over $417,000

7-1 A.R.M.                     5.375%       5.598% APR

30 Year Fixed Rate*       5.875%       6.098% APR

Special Pricing – Available up to $750,000 loan amount, 75% LTV Purchase/70% LTV Refinance – some restrictions apply.

(For smaller Jumbo loans consider breaking your loan into 2 parts – conventional to the limit and a HELOC for the rest.)

FHA LOANS – 3.5% down payment

With 1 point origination fee – 45 day lock

30 year fixed rate         5.25%      6.023% APR

With no origination fee – 45 day lock

30 year fixed rate         5.625%     6.245% APR

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan.

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.

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All the economic news is now focused on the Obama administration and what they can do to stabilize the banking system and the housing market. The news is ugly and there is uncertainty in the air as the government seems to have all its fingers in the dike, doing what it can to avert further disaster. This has gone from what was first described as a sub-prime mortgage problem, to a global recession. If you wonder how we got to the point, two recent TV shows give behind the scenes look at two different parts of the crisis.

House of Cards, a CNBC special, details how Wall Street and the mortgage industry came out with riskier and riskier loans as a way to meet the worldwide demand for safe investments. U.S. Real estate was looked at as the safest investment around, and the thought was that prices would continue to increase, so even as the guidelines loosened and more marginal buyers bought homes, with financial alchemy, the underlying asset made even risky buyers safe when pools of mortgages were packaged together. This isn’t anything new for those who have been following the subject, but it lays it all out in one piece, showing how delusion can be contagious when greed is involved.

I found Inside the Meltdown to be more compelling. This is a PBS Frontline program focused on what happened on Wall Street and the White House when it all hit the fan. It covers the shotgun buyout of Bear Stearns, the government takeover of Fannie Mae and Freddie Mac and how the credit system nearly collapsed when Lehman Brothers was allowed to fail. It shows how Treasury Secretary Hank Paulson, a strong free market advocate, turned 180 degrees to the belief that government had to act fast and in a big way. This will all be part of history books in the future, but it is fascinating to watch now.

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Yesterday President Obama signed into law the $787 billion dollar Recovery and Reinvestment Act – the economic stimulus package. This huge bill is a mix of infrastructure spending and focused tax cuts with the goal to get the money into the economy quickly and fill part of the hole left as a result of the deepening credit crunch. Some of the spending will take a long time to be felt, other parts will have an immediate impact. Here is a link to the White House site showing how all the money will be spent : http://www.recovery.gov/.

There is one part of this bill that will affect the real estate market, an alteration of the First Time Home Buyer Tax Credit passed last year. The new bill increases the credit from a maximum of $7,500 to $8,000 and makes it a true credit instead of a no interest loan. This won’t by itself be enough to jump start the real estate market, but if you are a first time home buyer who has been considering buying a new home this year, it should be enough to knock you off the fence and is a major incentive to buy.

Here is how it will work:

1. The credit is for 10% of the purchase price up to a maximum of $8,000. This means that if your purchase is $80,000 or more, the credit will be $8,000.
2. It is available only for first time home buyers. By their definition, a first time home buyer is anyone who hasn’t owned a home in the last 3 years.
3. The home has to be for your primary residence. Second homes and investment properties don’t qualify.
4. This is a true tax credit. The original bill released last year gave buyers a credit the first year, but they had to pay it back over the next 15 years ($500 per year). If they sold their home in that period they would have been liable for the amount of the credit they hadn’t paid back. This new version makes it a true credit as long as you stay in the home at least 3 years. If you sell before 3 years is up, you may need to pay the credit back.
5. If your tax liability is less than the $8,000 credit, you will get the difference as a check back to you. If you have already filed your taxes, you can file an amended tax return in order to take the tax credit this year and get the money back quickly.
6. Income caps apply. A single buyer qualifies as long as they earn up to $75,000 per year, and couples are maxed out at $150,000 per year.
7. This credit applies retroactively from January 1, 2009 to December 1, 2009.

If you are a first time home buyer or are considering buying your first home this year, this is a big incentive to buy now. This should be a great year for first time home buyers anyways. Home prices are down and inventory is high. Many first time buyers are buying foreclosure or short sale properties, and there are definitely deals to be made. Interest rates are also near their lows, and with FHA financing you can still buy with a low down payment. If you are thinking of buying and want to see how much of a mortgage you can qualify for, check with your loan officer or give me a call.

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Welcome to Illinois Mortgage Rates and News week in review for the week ending February 13th 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

There are 3 main players whose actions move the economy, consumers, business and government. Consumers and business are mostly sitting on the sidelines, so it is up to the government to pull the heavy weight of getting the economy moving again. The biggest news this week was all centered on government action, the passage of a huge stimulus bill, and the unveiling of the outline of a new plan to fix the banking system. The stimulus plan which passed both houses and is expected to be signed into law on Monday, was a good news – bad news situation. Most economists agree that we need something big and we need it quickly. The good news is that this plan is big, $787 Billion in the final draft. The bad news is we will have to pay for it, and this is a whole lot of money. Even if this does everything it is supposed to, the economy is not going to rebound over night. The best case scenario calls for an improvement in the economy by sometime next year. Others say we will be in this down draft for years.

The plan for the banks was a much anticipated event, and the expectation was that Treasury Secretary Tim Geitner would lay out a full and detailed plan for what the Obama administration would do to take care of the toxic assets that are the root of the problem. Instead, Geitner gave an outline of a plan without a lot of details. It may make sense to not get too specific when it is not clear what the final solution will be, but the stock market took this as a punt, and all the major indexes dropped (but the bond market soared, bringing mortgage rates). The plan wasn’t detailed, but it did lay out the strategy going forward. The first step will be a stress test on the major banks. So far the government has been approaching the problem with a one size fits all solution. The stress test is a way to determine which banks are sound (or sound enough) and could be saved with an infusion of more cash, and which banks are so far gone they will need to be reorganized. You don’t know how to fix something until you do a full examination and see what exactly is wrong. Part of the problem in our banking system is that there are so many toxic mortgage backed securities in the system, but no one knows exactly the extent of the problem, who owns what. This stress test will find out, but the big question is what happens next? If one of the big banks is insolvent, will the government really close it down and reorganize it? We will find out more soon enough. Other parts of the plan include bringing in private investors to buy the toxic assets and using the Fed to pump more money into the system.

In other economic news consumer sentiment moved lower than expected, again, dropping to 56.2 from last months 61.2. This is looked at as a gauge of how willing consumers are to spend money. On the other hand, retail spending came in higher than expected. So are consumers continuing to buy even as they feel more nervous about their own economic prospects? It appears that way, unless this is all revised lower next month when the full figures come in. Some of the mayor loan servicers including Chase, Wells Fargo and Bank of America have announced a foreclosure moratorium for the next several weeks anticipating the Obama plan.

One part of the stimulus bill altered the First Time Home Buyer Credit and raised the level from $7,500 to $8,000 (This is 10% of the purchase price up to a maximum of $8,000). As originally written, this credit would be taken in the first year but have to be paid back over the next 15 years, so it was more of a no interest loan than a true credit. That has been changed and it is now a full credit as long as you stay in the home for at least 3 years. The credit is good for any first time buyer who buys between January 1^st and December 1^st of this year and is available for singles with income up to $75,000 per year, and married couples with income up to $150,000.

Mortgage rates were EXTRA VOLATILE this week. The week started off with rates heading back up, switched around and headed down to the best rates we have seen in weeks, and then ticked up again on Friday. What this means is that a rate quoted in the morning won’t be the same as what you may get in the afternoon. Also, for those who missed the low rates before, we may be getting another chance, but don’t count on the rates staying down. Mortgage rates are based on activity in the mortgage backed securities markets, and rates can change more than once a day. The best rates may be available for only a matter of hours. The Fed continues to buy mortgage backed securities in order to try and lower mortgage rates and stabilize the real estate market. The Fed bought about another $23 billion in mortgage backed securities this week. As of Thursday they have purchased a total of almost $115 billion in mortgage backed securities out of a goal of $500 billion by the beginning of July. Here is a link to the New York Fed which tracks the Fed’s mortgage bond purchases. This number is updated every Thursday.

Here is what Illinois Home mortgage rates look like today 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 loans 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     4.75%   4.823% APR

5-1 A.R.M.                   5.125%   5.263% APR

For Jumbo loans over $417,000

7-1 A.R.M.                   5.375%       5.598% APR

(For Jumbo loans consider breaking your loan into 2 parts – conventional to the limit and a HELOC for the rest.)

FHA LOANS – 3.5% down payment

With 1 point origination fee – 45 day lock

30 year fixed rate       5.25%      6.023% APR

With no origination fee – 45 day lock

30 year fixed rate       5.625%     6.245% APR

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan.

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.

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(In honor of Valentines Day, here is a repost from last year)

It’s all about commitment. If you are a first time home buyer – that is, if you are thinking about becoming a first time home buyer but you are renting now – this is a big step. You probably have some serious commitment issues.

Renting is a casual fling. You probably like the place you live in now. Maybe it has a pool and a rec-center that you’ve been meaning to use, but never find the time. Maybe it’s in a great location, close to work and in an area with a good night life. For one reason or another, the place has its charms. It was just what you needed when you first moved in. But now… now, it seems constraining. Maybe even childish. You’ve outgrown it.

Not only have you outgrown it, but you have friends who have taken the big step and bought a place of their own. This seems like the grown up thing to do, and you like the idea of having a real place of your own, too. Maybe you envy the little touches they’ve made to personalize their home. You would like to make your home more of a reflection of your personality and taste, but it’s a rental. You can only do so much.

And then there is the money aspect. In the long run, owning your own home is a way to build long term wealth. You know there are tax savings, and maybe you know someone who struggled to come up with the down payment for their first home, and a few years later they had enough equity saved for a big down payment on a new, nicer house. That doesn’t happen when you rent.

But still, there is the commitment issue. Buying a home seems so… permanent. Maybe not permanent for that house, but once you buy a home, you know your days of renting are over. And besides, the market is awful, and it doesn’t make sense to buy when all you hear is bad news. Maybe renting isn’t where you want to be for the rest of your life, but at least you know what to expect.

This could be a great time to buy. Prices are the lowest they’ve been in years, interest rates are low and there are ways to buy a home, even if you don’t have a lot of money. You know there is a great house for you somewhere, the love of your life, maybe. You will know it is right as soon as you see it – love at first sight?  But commitment is a scary thing and you don’t want to make a mistake. So for now, you continue to write rent checks to your landlord.

Still, late at night when all is quiet, do you find yourself looking at home sites on the Internet, or paging through old home listing magazines, wondering what might be?

Happy Valentine’s Day

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This is the time of year when the first wave of tax returns have been filed and refunds are in the mail. Saving up that down payment is the biggest road block to buying a new home for most buyers and it is these tax refunds that make up the bulk of their down payment, and put them in the market to buy a new home. But the down payment is only part of the cash you will need to buy. You will also need to account for closing costs and pre-paid charges. The good thing is, there are ways to buy a home, even if you don’t have all the money saved up.

So how much will it cost you to purchase a home? (If this seems like a lot, don’t despair. There are ways to minimize the cash you need and we will cover them later).

Down payment – This is the biggest item. The program that works best for most first time home buyers (the lowest down payment and easiest qualifying guidelines) is with an FHA mortgage. FHA requires a 3.5% down payment. So if you are buying a home for $200,000, the minimum you will need is $7,000 for the down payment. This doesn’t have to come from your savings. With FHA the entire down payment can come from a gift from a family member.

Bank fees – It costs money to make a loan. Normal bank fees include the application fee you pay up front, which usually includes the cost of the appraisal and credit report, an underwriting fee and a processing fee. Different lenders may name and itemize their fees differently, but expect to pay around $1,000 in lender fees. The amount of fees a lender charges is part of their pricing model, so you will find some lenders who quote low rates, but make up for it by bumping up their fees. Sometimes by a lot. It pays to compare lenders and make sure you aren’t getting stuck with a bunch of unnecessary fees.

Points and origination fees – These are costs of taking out a loan which are sometimes customary, but not usually required. A point is 1% of the loan amount. So if your loan is for $200,000 and you are paying 1 point, this is an additional $2,000 you will need to bring to the table. Points are pre-paid interest, so the more points you pay, the lower your rate should be. Origination fees are usually another name for a point, and this is considered compensation for the lender. Origination fees are common in many markets (not the Chicago area), but in most cases lenders also get paid a yield spread premium from the end investor. Paying a point or origination fee may get you a lower interest rate, but if you are trying to find ways to cut the amount of cash you need, this might be a place to start.

Title charges – Title Insurance insures both you and the lender against any defects in the title. To do this, the title company searches the public records and pulls a history of who has owned the property and determines if there are any unsatisfied liens or judgments which are still owed against the property. They also handle the closing and record all the documents with the county after the close. In the Chicago area, closing related charges on a purchase will typically run around $1,000.

Attorneys fees – In Illinois it is customary to have an attorney handle your closing. They will review your contract, make sure you are protected throughout the process and represent you at the closing. In most cases their biggest function is to explain what you are signing at the closing table. But if there is a problem, they will save you a lot of money in the long run.

Transfer taxes – This is a tax for buying your home. Some towns or municipalities charge the seller, some the buyer. Some like the city of Chicago charge both. This can be an unpleasant surprise if you aren’t expecting this. In Chicago the buyer’s side of the transfer tax is .75%. Using the $200,000 sales price that means $1,500 at closing. Before you finalize your contract, find out who pays the tax and how much it will be.

It also may make sense to get a home inspection. Besides the closing costs, you need to budget for escrows and pre-paid charges. The closing costs are firm charges, these are more book keeping items.

Escrows – In most cases you will need to set up an escrow account to pay your taxes and insurance when they come due. You will need to pay your first year’s insurance up front (condos won’t require home owners insurance), and set up an escrow to pay the taxes and insurance. As part of your mortgage payment you will pay 1/12 of the real estate tax and insurance bills each month. When the payment comes due, the lender will automatically pay it from your escrow account. You need to show that you have enough cash to open the escrow account (2 months of taxes and 2 months of insurance). The tax escrow system actually works to your advantage when you are buying a home. That is because in Illinois taxes are paid in arrears, or after the fact. That means that when you pay your tax bill you are really paying for the prior year. The seller needs to give you a credit for all taxes from the previous year and up to the date of closing for the current year. Your lender will set up the escrow account to make sure there is enough money to pay the taxes when they come due, plus a cushion in case the taxes go up. But whatever is left over in the account goes directly to you and depending on the time of year, this can be substantial. This reduces the money you will need to bring to closing.

Pre paid interest – The mortgage takes effect the day that you close, but you skip a month before the payments start (that means that if you close in March, you will skip your April payment and your first payment comes due May 1^st). To make up for the time between the day you close and the end of the month, you will be charged pre-paid interest for each day.

Added all together, the closing costs and pre-paids add a substantial amount to the cash you will need to close on your home. The good news is that this doesn’t all have to come from your own pocket. We are now in a strong buyer’s market, and this means that a qualified buyer has a lot of leverage when making an offer to a seller. Most of the contracts I am seeing now have the seller contributing to the closing costs. Conventional loans allow up to 3% of the sale price as a seller contribution, and FHA will allow 6%. Here is a breakdown of how to structure a closing cost credit) This tool allows you to use the cash that you do have most effectively, and many times can be the difference between buying, or not. Contributions have to be negotiated up-front, and you may need to trade off on the price in order to make it work.

Another thing to keep in mind is that first time home buyers who purchase before August 31^st will now get an $8,000 tax credit (there are income limits). In the new version of the bill that is expected to be signed next week, this credit won’t have to be paid back. If you have any questions on how to structure your purchase to make this work, or how much you will need with your situation, let me know.

Glen Ellyn Real Estate

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Welcome to Illinois Mortgage Rates and News week in review for the week ending February 6th 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

In a normal month, the most anticipated report and the number with the most potential to move the markets is the employment report for the previous

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month. The amount of jobs gained or lost in the economy is a good indicator of future economic health. The report is never very accurate. It is impossible to accurately forecast how many jobs are lost or gained each month in an economy as big as ours, and it is almost always revised over the following months. But usually if the report is a little better or a little worse than forecast, this will cause huge tremors in the stock and bond markets. Yesterday the employment numbers for January were released and they were expected to be bad. The forecast was for a loss of around 522,000 jobs, a horrific number. The real number was even worse, a loss of 598,000 jobs for the month. Even more sobering, the report revised the 2 previous months downward, showed we are now at a 7.6% unemployment rate and that 3,600,000 jobs have been lost since the recession started 13 months ago — with about half of those losses coming in the last 3 months. So the pace of job loss is accelerating. In a normal month this would have caused the stock market to plunge and the bond market, including mortgage bonds, to soar. That didn’t happen this time. Stocks improved for the day and mortgage bonds sold off at first, but ended the day (and the week) flat. The markets have looked beyond the employment numbers and are focused on other things now.

The major focus this week has been on the fate of the economic stimulus bill now before congress. Last week a version of the bill was passed by the house with no Republican support. This week it looked like it would meet a similar fate in the Senate. As of Friday night it appeared that an agreement was reached with all the Democrats in favor, and 3 Republicans crossing over to get it approved. After the Senate votes this in, the bill will go to a committee where the House and Senate versions will be reconciled, and then voted on again. The Senate version is different from the House version, and the reconciled version will be different still. There are some big incentives for real estate in the current version of the bill (like a $15,000 credit for home buyers, put forth by a Senator who won’t vote for the final bill) but until the final bill is passed and signed into law, there is no telling what will be in the final bill. The one thing for certain is that it will be expensive, at least $800 billion dollars over the next 2 years.

The other big development the markets are waiting for is the announcement on Monday of the new economic plan from the Obama administration. This new plan will address the use of the remaining TARP money as well as new money that will be used to try and save the banking system and find a solution for all the toxic assets. It is doubtful that there are any magic bullets that will fix the system. Also set next week are auctions for $67 billion in treasury bonds to pay for all the new spending programs. So the question is what the markets expect, and how they will react to all the details. Over the last few weeks the markets have traded on the basis that overspending is our biggest problem, which has caused rates to move up. We will find out soon if this is still the biggest worry, or if the deepening recession and the need to get the housing markets moving trumps that fear.

Mortgage rates had moved up sharply over the last several weeks, but this week we are about the same as where we were at the end of last week. The continues to buy mortgage backed securities in order to try and lower mortgage rates and stabilize the real estate market. The Fed bought about $22 billion in mortgage backed securities this. As of Thursday they have purchased $91 billion in mortgage backed securities out of a goal of $500 billion by the beginning of July, almost 1/5 of their goal. Here is a link to the New York Fed which tracks the Fed’s mortgage bond purchases. This number is updated every Thursday.

Here is what Illinois Home mortgage rates look like today 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 loans 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      5.375%    5.499% APR

15 Year fixed Rate     4.875%   4.942% APR

5-1 A.R.M.                   5.125%   5.263% APR

For Jumbo loans over $417,000

7-1 A.R.M.                   5.375%       5.598% APR

(For Jumbo loans consider breaking your loan into 2 parts – conventional to the limit and a HELOC for the rest.)

FHA LOANS – 3.5% down payment

With 1 point origination fee – 45 day lock

30 year fixed rate       5.50%      6.023% APR

With no origination fee – 60 day lock

30 year fixed rate       5.875%     6.245% APR

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan.

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               

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Illinois Home Loans Provider/ Broker. Most respected mortgage bankers in the area.

Find the Maximum FHA Loan Amount in Your Area Here illinois FHA loans

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We Offer illinois home mortgage Loans with best mortgage rates

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