Welcome to Illinois Mortgage Rates and News week in review for the week ending May 29nd, 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

If you paid attention to the financial news last week, the biggest story was of GM and how it was on the way to bankruptcy next week. But the bigger story this week was under reported in the main stream press, the bond market revolt which sent mortgage rates sharply higher on Wednesday. I wrote last week that volatility is returning to the mortgage rate market. Over the last several months the mortgage backed securities market has taken its cue from the Fed, and with heavy Fed buying of mortgage backed bonds and other debt, mortgage rates have dropped to historic lows and have stayed within a predictable range for the last several months. Last week we felt rumblings, little tremors in the financial markets. This week we had the earthquake. The government has been spending money at an unprecedented pace to fund the stimulus programs, 2 wars, and bail outs everywhere you look. Without government spending our economy would be frozen because the banks still aren’t lending and everyone else is afraid to spend. But in order to fund the spending, the government is taking on huge debt and printing more money, and both of which could lead to bigger problems over time, and this led to a breakdown in the bond market which fed into a panic selling route where the market lost 260 basis points in one day and over 400 for the week and mortgage rates rose over a ½ a point on Wednesday. The market recovered a good part of the losses by the end of the week, but we are now in new territory and it will take some time to see what happens next.

There are 2 schools of thought about where we are and what our real problems are. One, as the Fed and Obama administration have put forth, is that we need to do whatever is needed to get the economy back on track, and though inflation may be a problem down the road, we have bigger issues near term. The idea here is that with the implosion of the banking system, a housing market that is still searching for bottom and high and growing unemployment, inflation has no place to take root, but the threat of deflation is still a possibility. If we have a huge hole, you need to fill it up before you start worrying about how high a hill you will build. One of the worries is that foreign investors like China, which holds over a trillion dollars of our debt, will stop buying our debt. This may happen, but it won’t be any time soon. China’s fate is closely intertwined with ours. We are their biggest market for exports, which has been the basis of their growth, and if they stopped buying our debt that would destroy the value of the debt they now hold. They will complain, but it is in their interest to get us up and moving as quickly as possible. Treasury Secretary Geitner is making a trip their this week, and this is sure to be one of the big items on the agenda.

The other school of thought is based on looking back at what has happened in the past when government spending was too high compared to our GNP (gross national product). This idea says that there is no free lunch, and if we continue to spend at such a high rate, we will have to raise taxes on everyone, bringing down the economy, and inflation will spike to a point which will make life miserable. This school of thought says if we don’t reign in spending now we will be in for a long period of slow growth and inflation, much worse than what we are dealing with now. When the economy was tanking, this wasn’t as much of a fear, but now with the economy showing some signs of stabilizing, fear is setting in.

No one knows what will happen in the future or which school of thought will win out. The Fed still has ¾ of a trillion dollars set aside to buy back mortgage backed securities to keep rates low. But if no one believes they can do what they need to, then it really won’t matter. At the same time, a lot of the inflation view is based on the thought that the economy has turned a corner and we are starting to head up in a fast recovery. If we see some bad economic reports and the green shoots turn out to be weeds, we could be right back in the range we were in before. The bond market (and mortgage rates) had a big recovery near the end of the week, so it’s clear that the market was over sold. In order for the economy to recover rates have to stay low. The question now is if this is a warning of what could come before we head back to the same pattern we were in before, or if this is the new reality, and now matter how much the government wants to keep rates low, the market will demand a higher premium. I don’t think we are out of the woods yet, and there is reason to think we aren’t finished with the low rates yet. But if you are planning on buying a new home, or refinancing your current mortgage, this might be a wake up call. Take advantage of the opportunities when you can. They won’t last forever.

In other news, the highly anticipated plan for how the $8,000 first home buyers tax credit was released. After a big buildup with the expectation that this would allow the credit to be used up front for the buyer’s down payment … phbbbbt … bupkis … nothing. Or at least nothing that is going to bring anyone new into the market. The new rules (details again to follow) will let first time home buyers take a loan against the tax credit to use as additional down payment after they have already made their minimum 3.5% FHA down payment, or they can use it to pay for closing costs. But this is a solution without a problem. The home buyers looking to grab on to the first rung of the home ownership ladder aren’t worried about making extra down payment (which won’t save a lot off their monthly payment) and if they are short funds for closing costs they can negotiate for the seller to pay a credit toward their closing costs. Without a big need for what this new program will offer, I doubt that we will see the lenders and other parties make the effort to put together the infrastructure needed to make this work. Someone is going to have to make the 2^nd mortgages secured against the tax credits, but with low demand, I don’t see a big move toward getting this together soon. If you are other wise well qualified and were hoping to become a first time home buyer this year, your best option is to call all your friendly relatives and see if you can get a gift for the down payment. Once you have bought and closed on your home you will be able to amend your tax return and take the tax credit this year, so you will get the credit back as a check a few weeks after you close.

Mortgage rates moved around a lot, but ended about the same as where they ended last week. 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 and FHA rates are based on the highest conforming loan amounts, which give the best pricing. Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me (Illinois mortgage company) and I’ll take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

30 year fixed rate              5.25%     5.349% APR

15 Year fixed Rate             4.75%      4.836% APR

5-1 A.R.M.                         4.375%       4.473% APR

For Jumbo loans over $417,000

30 Year Fixed Rate*          5.875%       6.057%

*Special pricing based on 75% LTV for purchase, 680 and above FICO single family homes up to $750,000 loan amount – pre-payment penalty applies.

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

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

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

With 1 point origination fee – 45 day lock

30 year fixed rate              5.00%      5.479% APR

With no origination fee – 45 day lock

30 year fixed rate              5.25%      5.463% APR

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

VA Veterans Administration 0 Down Loans

With 1 point origination fee – 45 day lock

30 Year Fixed Rate            5.00%      5.478%  

Call for information on no-cost VA Streamlined Refinances

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

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Expectations mean a lot. HUD Secretary Shaun Donovan released more details today on the eagerly waited for plan on how first time home buyers will be able to use the $8,000 tax credit, but this is looking like a big disappointment. Donovan made big news a couple of weeks back when he announced (pre-maturely) that FHA would allow the credit to be monetized and turned into a second mortgage so that first time home buyers could use it as part of their down payment. Saving up for the down payment has always been the biggest hurdle to buying a new home. The real estate community (it was first announced in front of a Realtor’s convention) went nuts when this was first announced. If other wise qualified home buyers could use this tax credit as part of their down payment, it would be a big shot in the arm for the purchase market in general. The next day HUD started walking back some of the promises. FHA put up a mortgagee letter stating how the program was intended to work, and then took it down the same day. The details that were supposed to come out within the week, didn’t come out. Now, a few weeks later, the program is being rolled out again, but the most important part is missing. The $8,000 tax credit will be allowed for use as part of an FHA mortgage (as a 2nd mortgage secured against the tax credit – details to come) but they can only use it to pay for closing costs or to increase their down payment after they have already invested the minimum 3.5%.

This is a nice enough feature, but not anything that will bring extra buyers into the market. Those who have the 3.5% down payment already saved are in a good position to buy already. It is common now for buyers to negotiate for the sellers to pay their closing costs as part of the contract, so a first time buyer can often buy with just enough of their own money to pay for the down payment. With FHA it is acceptable to buy with the entire down payment coming from a gift from a relative and it’s common knowledge that many of these gifts are expected to be paid back at some point. My guess is that a lot more first time home buyers will tap into the parental bank account to buy their first home, and then pay the money back after filing an adjusted tax return so they can get the return back a few weeks after closing. So the end result is they are still buying with no money down, but this way the bridge loan is kept in the family. But if you don’t have a rich uncle, and mom and dad are tapped out, you are still on the sidelines.

The idea behind this program was to get more new buyers in the market. The way this is coming out, that’s not going to happen. The First Time Home Buyer Credit is a great deal and it is helping a lot of new buyers take the plunge and get into home ownership now instead of waiting. But in order for it to work you will need to have your down payment saved up, or know someone who is welling to gift you the money.

Here is how the first time home buyer tax credit works:

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.

Illinois Mortgage Rates                   First time home buyer loans  

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For the traders in the mortgage backed securities markets yesterday, it had to feel like the sky was falling. Mortgage backed securities lost over 200 ticks  today – a huge and ugly move – and over 300 points in the last week. Mortgage rates move up and down based on what is happening in the mortgage backed securities markets, so when mortgage bonds get blasted like they did today, mortgage rates pop up, too. Rates have risen sharply in the last week, and are now about ¾ of a point higher in rate then they were last week. So what happened to rile the market so much? Is the sky really falling and are the low mortgage rates gone for good?

For most of this year mortgage rates have been in a low, low range. There has been some volatility, but most of this year has been stable to the point of being predictable. The reason for the predictability is because the Federal reserve has made it their mission to drive mortgage rates down and keep them low. They initially committed $500 billion to buying mortgage backed securities, but when the market started to look past the Fed buying and worrying about what would happen when they left the market (after they had spent a fraction of what they had committed at the time) the Fed stepped in and raised the limit, throwing an additional $750 billion into the pot (for a total of $1.25 Trillion). The Fed has been the big gorilla in the market, and over the last months the market has been nearly as calm as glass. So what changed over the last week? Two things. Investors started worrying about all the debt that the country was taking on to pay for all the new spending, and bond guru Bill Gross, the head of bond giant Pimco, said that it was likely the US would be downgraded from its AAA credit rating.

Since Gross made this comment last Thursday, the markets have seen nothing but pain. But this was the same person who just a few months back was predicting that mortgage rates were headed down to 4.0% (the market liked those comments) and his firm is working with the government to make a market for some of the toxic mortgage bonds taken on as a result of bank bailouts. As Pimco has huge positions in bonds of all types, you wonder how his comments effected his own bottom line? This prediction is basically saying that the United States is now insolvent, so it doesn’t matter how much the Fed is willing to spend to keep rates low, because the Fed, and the US government, is now irrelevant and won’t be able to keep rates low no matter how much they try. Just the thought of this is scary and bond traders have responded with outright panic. Our financial picture does look grim, but I think it may be a little early to be writing any obituaries for the financial power of the United States (or for low mortgage rates for that matter).

The bond holders (mortgage backed securities are a type of bond) worry isn’t that the US won’t be able to pay the debts. The government has a printing press they can crank up at any time, so they will be able to pay. But if they print more money to do so that means the dollars are worth less (inflation) so the return goes down. We are taking on debt at an alarming rate, and inflation is a worry. But in the past, the times we’ve had the most inflation problems were boom times, when values were moving up. Right now we’ve had a huge loss of value in everything from home values to the stock market to most commodities. Unemployment is growing and according to the last Fed minutes, deflation is still a possibility. Foreign countries (think China) own a big part of our national debt, and if they see us as insolvent they are likely to pull their money out and invest elsewhere. But where else can they go? Europe is in worse shape than we are, and as bad a hit as we have taken, the United States is still the largest economy in the world by a big margin. Our economy is also the biggest consumer for Chinese goods, so as much as they might like to disengage and pull away from us with their debt, this would cost their economy more. There is an old saying that if you owe the bank a few thousand dollars you have a problem; if you owe them a million dollars, the bank has a problem. Add a whole lot more zeros to that and you have the Chinese (and other foreign investors) view of our current situation. We are all intertwined, and like it or not, they have a vested interest in our success.

We’ve seen meltdowns like this in the past, and after the initial panic buyers start coming back in to the market. The Fed still has a lot of money to invest in mortgage bonds, and their goal is still to keep rates low. With most of the sellers already out of the market, their buying will have a bigger impact. The Fed, and the Obama administration, will have to address the investor’s fears in some way and I would guess that there are high level meetings about this going on now. No one knows what will happen in the future, but I wouldn’t be surprised to see rates drop back down close to their prior range over the next few weeks. If you didn’t pull the trigger on a refinance, the best rates are now gone. But you may still get another crack at them later. If rates drop again, be prepared to act.

(Update: As I am finishing this post, mortgage bonds are already starting to rally and making up some of yesterday’s losses.)

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

Welcome to Illinois Mortgage Rates and News week in review for the week ending May 22nd, 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

Mortgage rate volatility has returned with a vengeance. For the last several months mortgage rates have moved up and down in a range so even it has become predictable. Mortgage rates have gone up and down in this range (sometimes in the same day), and every move has been accompanied by some news which was credited with moving the market in that direction. But over this time the Fed has been a stabilizing influence. They’ve committed $1.25 trillion to buy mortgage backed securities to keep rates low, and so far their plan has worked flawlessly. But this week new fears are in the market and the worry is that it is going to be different this time. Mortgage bonds were near the best part of their rang on Wednesday after the minutes of the last Fed Open Market Committee were released and showed that the Fed has discussed extending their mortgage buying program if necessary, and renewing their goal of keeping rates low. But the best rates didn’t last long. On Thursday the mood of the markets shifted and both Treasuries and mortgage backed securities got blasted, sending mortgage rates higher (though mortgage bond yields are near the high end of the range, mortgage rates haven’t gotten hit nearly as bad). So the question now is, is this just more noise and we are still in the same range, or is it different this time, and rates are now poised to rise?

The big fear in the markets now is that the government has borrowed so much that we are at the risk of insolvency. Great Britain was warned on Thursday that their recent run up in debt put them at risk of a cut in their AAA credit rating. If Britain is in trouble, how can we be in any better shape? Since this whole economic meltdown started, the US has kicked both its spending and borrowing up into the stratosphere. The dollar got decimated on the world market and Treasury bills got whacked again. Everything is based on faith. If global investors lose faith in the long term strength of the United States, we are all in a world of hurt. The Fed is sure to step in with a new batch of buying, but what if it doesn’t matter? This is possible, but two things make me think this is a little premature and the fear will die down soon. For one thing, this happened right before a long weekend, and with many traders taking extended weekends, trading was light. Volatility increases with light trading volume, so we could go right back to where we were after the weekend is over and everyone gets back to work. The other reason this may be just another blip on the screen is that we as a country may be in bad shape, but so is everyone else. If they don’t invest in the United States, where will they put their money? The truth is, there are no other real options. We’ll know more later this week. Another round of Treasury auctions are scheduled for this week, adding more debt. Expect the Fed to do something before the auctions to show that they still own the mortgage market.

The big news last week was the announcement that the first time home buyer tax credit would be monetized and available for use as down payments on FHA loans. At the time, HUD Secretary Shaun Donovan said details would be released the following week (this week). The week is over and there is still nothing concrete. As I said at the time, this will take a while before we actually see this put in place and it looks like they got ahead of themselves by announcing this now before the plan was ready. Details will have to be worked out on how this program can work with FHA guidelines, how the lenders will incorporate it into their underwriting and closing processes and who will actually make the loans (based on the tax refunds) and how these loans will be secured. There is a lot to be done before this program is rolled out, but I expect this will be a major factor in the market once it is in place. We don’t have news yet, but the bets are that this program will be going forward and is likely to help a lot more first time home buyers buy homes now.

Mortgage rates moved around a lot, but ended about the same as where they ended last week. 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 and FHA rates are based on the highest conforming loan amounts, which give the best pricing. Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me (Illinois mortgage company) and I’ll take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

30 year fixed rate              4.875%     5.069% APR

15 Year fixed Rate             4.50%      4.663% APR

5-1 A.R.M.                         4.25%        4.386% APR

For Jumbo loans over $417,000

30 Year Fixed Rate*          5.875%       6.057%

*Best rates are based on 70% LTV, 760 and above FICO single family homes.

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

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

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

With 1 point origination fee – 45 day lock

30 year fixed rate              4.75%      5.339% APR

With no origination fee – 45 day lock

30 year fixed rate              5.00%      5.523% APR

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

VA Veterans Administration 0 Down Loans

With 1 point origination fee – 45 day lock

30 Year Fixed Rate            5.00%      5.478%  

Call for information on no-cost VA Streamlined Refinances

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

Enjoy your memorial day and have a great long weekend.

Illinois Mortgage Rates                   First time home buyer loans  

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Free- First Time Home Buyer’s Guide

I’ve been saying it a lot lately, this is the year of the first time home buyer. The stars have aligned in a way that makes buying a home now more affordable than it has been in years. Not only are home prices the lowest they have been in a long, long time, but mortgage rates are down at levels we haven’t seen since the fifties (when your grandparents were buying their first homes). Combine that with FHA financing where you can still buy with a low down payment (and sometimes no money out of your own pocket) and an $8,000 tax credit when you buy, and this is a great time to be buying your first home. That said, it is also a scary time to buy. The news on the economy is bleak, and the entire mortgage and real estate market has gone through a whole tsunami of changes. You’ve probably heard that it is harder to qualify for a mortgage now. It’s true that the easy loans of the past are gone and good FICO scores are now more important than ever. The loan process is more complicated and if you don’t know what you are doing it is easy to make mistakes. But, if you know what to look for and how the process works, buying a home will be a lot less stressful and you will know what to do to save yourself money. That is why I wrote The Real World Home Buyer’s Guide.

First of all, this is a free guide. Not only is it free, but I’m not asking for your email address or phone number. Click on the link (or the image of the book) and it takes you right to a PDF of the E-book, which you can print out or save to your desk top. My philosophy has always been to help educate clients and I’ve found that most people are hungry for good solid information that helps them meet their goals. That is how I’ve approached this blog, and it is the same idea behind this home buyer’s guide. I tried to make this guide as complete as possible. It covers everything from the advantages of buying a home, to what happens at the closing. Because it is so thorough, it is a long report – 55 pages. I know that some people will read it all straight through, others will skip to the parts that answer their specific questions. Either way it is a resource, and something that every potential home buyer should have.

Some of the information covered in this 55 page, free guide includes:

· Why owning  your own home is a big step toward taking control of your finances.

· How to get the best deal – good market or bad.

· How your credit score affects your home buying options, and ways to raise your credit score.

. A breakdown of what loan programs are available, and what is best for first time home buyers.

. A primer on FHA – which is now the hottest loan on the market.

· How to use Government Grants that are guaranteed to save you thousands of dollars.

· Things to avoid after being pre-qualified for a mortgage.

· What you need to know when choosing your Realtor.

· What to ask for when negotiating your purchase to save thousands in closing costs.

· How you can still buy a home with no money down and no money out of your pocket.

· The best ways to protect yourself from being taken when shopping for a loan.

This guide covers everything you need to know about searching for a home and getting a mortgage, and the information is current and up to date. If you are even thinking about buying a new home this will help.

Free- First Time Home Buyer’s Guide

On Line Mortgage Pre-approval

Welcome to Illinois Mortgage Rates and News week in review for the week ending May 15th, 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

The data released this week mostly confirms that the economy is still slowing, but not as fast as before. Retail sales numbers were quite a bit worse than expected, though not surprising when you consider how many people who have lost their jobs in the last year. Industrial production numbers were down, but not as much as expected and much better than last month’s figures. The Consumer Sentiment Index went up a touch, showing that people are feeling a little more optimistic about the future. Inflation gauges PPI and CPI (Producer and consumer price indexes) came in a little hotter than expected. CPI base rate was at 0% for the month, showing no inflation, as expected. The core rate however, which excludes volatile food and energy costs, came in .3% higher. Inflation may be building, but this is just as likely to be a blip in the numbers. Until the economy is back on track inflation will just be a secondary issue.

The big news in the mortgage and real estate markets this week was the announcement by HUD Secretary Shaun Donovan that the $8,000 first time home buyer tax credit would be allowed for use as a down payment on FHA mortgages. He promised more details by next week, but if this comes through as projected, it will be a big boost to the housing market. First time home buyers have been the bulk of the purchase market all year. The biggest obstacle to buying a new home has always been coming up with the down payment, and even the FHA 3.5% minimum down payment can be a big barrier to many potential buyers. Monetizing the $8,000 tax credit will be enough to cover or supplement the down payment for many renters who have been on the side, trying to figure out how they could take advantage of the low home prices and low mortgage rates which make homes more affordable than they have been in years. The housing market can’t recover until the excess inventory of foreclosures and short sales are absorbed. The new buyers are going for the bargains, and this will help the entire market recover over time. The danger is that by allowing this credit to be used up front, it will send another wave of unqualified buyers into the market, meaning more foreclosures down the road. I don’t buy into this view. FHA mortgages are fully underwritten and the borrowers have to qualify by income and credit standards. Even without a large down payment, buying a first home is a big commitment and buyers don’t take it lightly. Many of the first time home buyers are already buying with gifts (with FHA the down payment can all be a gift), many of which, I’m sure will be paid back after the buyer gets the credit back (by filing an amended tax return). Foreclosure and distressed loans are more linked to job losses and the value of their homes (people who can afford their payments only walk away when their homes are deep under water).

There are a lot of details that need to be worked out before this program is up and running. Right now the tax credit isn’t available until after the home is closed. This means that the borrowers need to have the money at closing, but can apply for the credit right after the close. The plan is to allow a bridge loan against the tax credit so more borrowers have the money when they need it most. This presents several problems, though:

• Who will make these loans?

• How will the lenders fit this into their approval and closing processes?

• How can they fit the program into FHA guidelines?

The lenders themselves aren’t likely to make these loans. They aren’t equipped to handle the details. It is likely that non-profit organizations will be the ones to fill in the gap, but they will be starting from scratch, so it may take some time to get the programs approved and in place. Once there is a mechanism for these bridge loans, the lenders will have to decide how they will treat them. Lately they have been picking and choosing which programs to take on, going along with some and ignoring others or adding on extra cost overlays, making the programs more expensive. So they will have to both come on board with the spirit of the program, and set up the procedures of how they will accept these credit loans. This again will take time. The other obstacle is how they will do this so it fits FHA guidelines. You can file your tax return now and get a loan from the tax preparer for the return (at a high interest rate) so you can use the money right away, but this isn’t eligible for use by FHA. These tax credit loans are essentially the same thing. Some kind of patch will need to be worked into the guidelines to allow this. Since the policy is something the administration wants, and it will be good for the housing market in general, they will find a way to make this work. But don’t expect this to happen right away. I’ll post more details on this program as they come out.

This was a good week for mortgage rates. Mortgage rates improved 4 days in a row before ending the week on an off note. So we are now solidly back in the range we’ve been bouncing back and forth in over the last months. For some people low mortgage rates are starting to get boring. When rates first dived last December, there was a real frenzy to jump in and take advantage of the low rates by refinancing at a much lower rate. Mortgage rates are still in the all time low range, but the urgency to refinance isn’t the same, even for borrowers who could save a lot. Rates have been predictable lately, and it is likely that, with some ups and downs, rates will be in a good range for a while. But at some point rates will go up. If a refinance would help you now, don’t put it off for too long.

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 and FHA rates are based on the highest conforming loan amounts, which give the best pricing. Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me (Illinois mortgage company) and I’ll take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

30 year fixed rate              4.875%     5.069% APR

15 Year fixed Rate             4.50%      4.663% APR

5-1 A.R.M.                        4.25%        4.386% APR

For Jumbo loans over $417,000

30 Year Fixed Rate*          5.875%       6.057%

*Best rates are based on 70% LTV, 760 and above FICO single family homes.

7-1 A.R.M.                         5.25%       5.343% APR

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

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

With 1 point origination fee – 45 day lock

30 year fixed rate              4.75%      5.339% APR

With no origination fee – 45 day lock

30 year fixed rate              5.00%      5.523% APR

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

VA Veterans Administration 0 Down Loans

With 1 point origination fee – 45 day lock

30 Year Fixed Rate           5.00%     5.178%  

Call for information on no-cost VA Streamlined Refinances

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

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

Shaun Donovan, the Secretary of Housing and Urban Development (HUD), dropped a bomb shell in a speech to the National Association of Realtors today. HUD, the administrator of FHA will soon allow the $8,000 first time home buyer credit to be “monetized” and used as a down payment on FHA mortgages. I’ve been saying for a while that this is going to be the year of the first time home buyer. With a combination of the lowest home prices in years, historically low mortgage rates, and the $8,000 first time home buyer tax credit, all the stars were aligned for this to be a huge year, and it has started out strong. But this should kick it into overdrive. The biggest obstacle to buying a first home has always been saving up the down payment. FHA allows a 3.5% down payment, and that has been a great way for many borrowers to make the step into home ownership. But even that has been a big hurdle for many other wise well qualified buyers. This move will mean that borrowers can buy with effectively no do down payment up to around $230,000, and having an extra $8,000 to go toward a down payment will help a lot of people bridge the gap between what they have saved (or can get as a gift) and what they will need to get into the home. With FHA you can use seller credits to pay the closing costs, so the amount of cash coming out of your pocket will be low.

The details of the program will be released next week, but the program will allow FHA approved lenders to monetize the tax credit through a short term bridge loan. This means the home buyer will be able to use the credit as funds at the closing table and won’t have to wait until after closing to get the money. Don’t expect this to be ready to go by next week. Once HUD releases the details each FHA lender will need to determine how they are going to incorporate this into their approval and closing process.  This means a process of how they will verify that the borrowers are eligible for the credit and a way to make sure that they (or more likely who ever is making the loan) will get the money from the credit paid directly to them from the government. It will require some tweaking to see how they will make this work and still fall within the FHA guidelines. My guess is that these are just details that will be worked out. This may take a little longer before everyone comes on board, but the announcement was made, so they will find a way to get this accomplished. This will be a huge incentive for first time home buyers to make their move now.

Here is how the first time home buyer tax credit works:

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.

Keep in mind that there is an expiration date to this tax credit. You have to buy the home and close by December 1^st of this year, which gives you about 6 ½ months to get it done. With record low mortgage rates and affordable home prices there is already a strong incentive to buy. If you want to see how much of a loan you qualify for, or what the best way would be for you to afford a home, give me a call.

Update 05/27/2009 – So far, no new details. FHA posted a mortgagee letter about the program, but took it down the same day. It appears that this was announced prematurely, and they are still scrambling to put the details of how it will work together. But the word is that it is still going to happen. Stay tuned, and check back in later. As soon as I have news on this program I will post it here.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

What is Needed for Conventional and FHA condo approval

If you are in the market to buy a condo here in the Chicago area, you’ve probably figured out that financing it may be a problem. It used to be that condos were treated like every other property. If you qualified for financing, there were loans available. That’s not necessarily the case now. As a result of the housing downturn and the mortgage mess, financing has become harder to get for all properties, but condos have been hit the hardest. A lot of this is due to condos being too successful. Condos fit the life style that works best for many homeowners, especially singles and couples who want prime living space but don’t want to spend their time mowing the lawn and shoveling snow. Demand for condos was so high, both here in Chicago and throughout the nation, that it led to a boom in new condo construction and conversions. Over the last 2 years thousands of new condo units have come onto the market, even as the market has softened. Financing was too easy during the boom years, but now the cycle is reversing and guidelines are being tightened to the point where many condo complexes will not be able to get financing, even for the most qualified buyers.

Here are some of the changes we’ve seen in the last year that make financing for condos harder to come by:

• All the mortgage insurance companies instituted declining market policies which meant that in most cases 10% is the minimum down payment you can buy with on a conventional loan.
• Loan level price adjustments (price hits) were added so that in order to get the best pricing you would need to have a 25% down payment. With less than a 25% down payment there will be an extra .75% charge which means either higher costs or a higher rate.
• Fannie Mae and Freddie Mac have made several changes on how they look at condos, but the latest change may have the biggest impact. The pre-sale requirements have been raised from 51% to 70%. This means that new condo developments now must have 70% of their units sold and closed before they are able to take advantage of conventional financing. In the past there were plenty of banks and private lenders who would take on these loans for their own portfolios. But with the banking crisis this money has all but dried up.

Combined, these changes are likely to make a lot of newer projects unsalable. You can have the best amenities and the best location in the market, but if financing isn’t available there are only so many cash buyers. Over time the lending rules will ease up and financing for newer projects will be available again. But by then some of these new projects will be long gone or converted into rental units. The condo market is being divided into two classes, properties that can be financed and those that can’t. For those properties that can be financed, there are two options, Conventional and FHA.

Conventional condo financing

Conventional financing is for those loans that conform to Fannie Mae and Freddie Mac guidelines. This means loans of up to $417,000 (for higher loan amounts Jumbo loans are available, but they will still follow conventional guidelines) and is for well qualified borrowers with good credit scores. A year or two back, there was financing available for any new condo, even if you were the first buyer in the project. That has changed, but for most newer projects conventional financing is still the only option (though some newer projects have portfolio financing available). In order to qualify for conventional financing, we will need to approve both the borrower and the condo project itself. Borrower guidelines are tougher with condos because they look at this as a layering of risk. If you plan on putting down less than a 20% down payment you will need to have mortgage insurance, and mortgage insurance is tighter on condos than on single family homes. The mortgage insurance guidelines have changed along with everything else, and most buyers will need at least a 10% down payment to qualify (we do have an option for 5% down for the most qualified buyers).

In order for the loan to be approved, the condo building also has to go through an approval process. One of the first things I do when I get a new condo contract, is send out a condo questionnaire to the management company or home owners association. The completed questionnaire gives a quick picture of the financial condition of the project. Some of the things they look for are:

• How many units are in the project?
• How many are completed?
• How many are sold and closed?
• How many units are owned by investors?
• Is the project complete?
• When was the home owners association formed?
• What percentage of the owners are behind on their association dues?
• Is the project adequately insured?
• Is the association party to any law suits?

If any of these answers raise more questions, then further research will be done to make sure the project conforms to the guidelines. The appraisal and a review of the condo declarations and by-laws is also part of the condo approval process.

Conventional financing is the best option if you are putting down a large down payment, have excellent credit and are buying a building which meets all the new guidelines. Conventional guidelines are now set up so that the best borrowers will still be in fine shape, but for most borrowers, and especially first time home buyers, if they are able to buy with a conventional loan it will cost them a lot more than it would have before.

This is part of the reason that FHA has become such a big factor in condo financing.

FHA condo financing

FHA is a government program designed to help more people buy homes and more borrowers will qualify with FHA financing than with conventional. It is a low down payment (3.5% down) program and the credit standards are much looser. Because it doesn’t have the price hits that conventional now does, the mortgage rates are better, too. Anyone who is putting less than 20% down should compare both options and see which loan is better for them. Like conventional, we will need to approve both the borrower and the condominium project.

There are two ways that a condo can be FHA approved. The first way is if the developer or home owner’s association applied for and was granted a project approval. This means that FHA has already done all the checking and the project is ready to go. Here is a link to the site which tells whether a project is approved, or not:

FHA Condo Search Tool

This tool is just a starting point. You can search a number of different ways, but the results aren’t always up to date, and if you don’t have the search exactly right you might not find it, even if the property is approved. But it is a good starting point.

One problem with FHA approvals is that most of what you will find are older properties. When the market was booming, FHA was looked at as too old school, and there were conventional options with no down payment where the borrowers (and the developer) didn’t have to go through the extra paperwork that FHA required. So most of the approvals will be older, more established (and usually without the amenities most buyers are looking for) buildings which went through the process some time back, or newer properties that have just gone through it. The good thing is that there is another option, the FHA spot approval.

FHA condo spot approvals

FHA spot loans are a way to make FHA loans available to home buyers in well run condo projects even if they haven’t gone through the full approval process. The difference here is that these loans are for the individual unit, not the whole building. This is a huge advantage because a good portion of the condos that are eligible for conventional financing also meet the FHA spot approval guidelines. If you have a minimum down payment, or if your credit scores are below 700, this is the only way you will be able to buy a condo. If you are putting 10% to 15% down, this is still likely to be the least expensive way to go.

FHA spot loans won’t work for all situations. They are only an option for properties which have already sold out or are nearly there, and have shown that they have the financial resources to continue to perform well in the future. From the FHA guidelines, here is what is need to approve a spot loan:

• The condominium project must be complete, including all common areas and facilities.
• Control of the common areas must have been turned over to the homeowners
• association for at least one year.
• The owners association must provide evidence that the project has the appropriate
• hazard, liability and flood insurance.
• Individual units in the project must be owned fee simple. The project’s legal documents must provide for undivided ownership of common areas by unit owners.
• The project’s documents should not place any legal restrictions on conveyance. Any provisions that seek to limit the free transferability of title is unacceptable. Such restrictions include rights of first refusal and restrictive covenants.
• At least 90% of the units in the project must have been sold.
• At least 51% of the units in the project must be owner occupied.
• No single entity may own more than 10% of the units in a project. The 10% restriction does not apply when the ownership of less than three units would disqualify an otherwise eligible project. The Department recognized that the 10% cap on the number of units that may secure FHA insured mortgages in a given project can place a small regime at a disadvantage, since only a few units will invoke the limit. Accordingly, a two tiered system was established. For condominium projects having more than 30 units, no more than 10% of the units may have FHA insured loans at any given time.
• Condominium projects consisting of 30 units or less, can have up to 20% of the units encumbered by FHA insured mortgages under the spot loan rule.

The biggest hang up for many buildings is the first right of refusal. This was standard language in many associations, and it is still the norm in many areas. Some condo associations are taking the steps to remove this language so that their units are more marketable, which adds value to the entire project, but it takes time and their are legal costs to get this done.

The process for approving an FHA spot loan is similar to conventional condo approval. The mortgage lender (that’s me) needs to gather the documentation and prove that the unit meets the FHA guidelines. We do this through the condo questionnaire, the property appraisal and by reviewing the condo decs and by-laws. Once we have everything together we submit the package to the underwriter, along with all the borrowers documentation, and this becomes part of the loan approval. The FHA spot approval takes a little more time and some extra documentation, but for many people it is the best, and some times the only, way to buy a condo.

The fact is, there are too many properties that are too new or have issues which make them ineligible for any financing. It is going to take some time for the market to sort itself out. But there are options for home buyers, and with a little persistence condo financing is readily available.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

Welcome to Illinois Mortgage Rates and News week in review for the week ending May 8th, 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

Conventional wisdom is crossing the tipping point and the consensus is that the economy is past the danger point and we have hit the bottom. Much of conventional wisdom is now a step ahead of that and figuring if we are at the bottom now, a quick recovery is on the way. Two big things happened this week which gave weight to that opinion, the results of the stress tests on the 19^th biggest banks were released, and the unemployment numbers came in better than expected. As always, the news was a little more nuanced than the headlines showed, but optimism is creeping in.

The stress test results came out this week, and the good news was that everyone passed. The bad news was that half of the banks need more capital, either through sales to private investors or through more government financing (TARP money). The idea behind the stress test was to see what would happen and if the banks would still be operational if the economy got even worse. Like a cardiac stress test where they put you on a treadmill and kick up the pace until you are at the point of exhaustion and your heart is pounding, this stress test was supposed to put the banks under a worst case scenario. Only it now appears that these were closer to open book tests than a real final exam. The banks negotiated terms with the Treasury Department on how the test would be conducted, and over how much capital they would need in order to pass the test. So the results might not be quite as good as hoped for. In order for the economy to move higher the big banks need to get back to their primary role of lending money. Right now the banks are showing profits by borrowing at 0% interest and lending at much higher rates. But they aren’t taking any risks and only making the safest of loans. They may be able to get back to normal while feasting on fat margins, but until they start opening their lending windows wider the economy will continue to limp along.

The other big news was the unemployment report released on Friday. The results showed 539,000 jobs lost in April, much better than the 600,000 that was forecast, and considerably better than the last several months where losses were in the high 600,000 range each month. In fact, this was the best job report over the last 6 months. But the only way you could say this was a good report is by comparing it to prior months. Grading on a curve this looks like an A, but by the numbers it is still a failing grade. The best thing you can say about this is that the rate of job loss is slowing down. Then again, maybe not. Last month’s report was adjusted down, and this report is looking better because 60,000 new jobs were temporary workers hired by the government for the census next year. The economy has lost about 5.7 million jobs over the last year, so any sign of slowing job losses is good news.

The economy may be due for a positive bump. Companies have been aggressively cutting jobs and inventories down to the bone. Consumers have largely been doing without anything they don’t really need. But at some point things wear out, or pent up demand wins out over frugality and people will start buying things again. When that happens because companies are operating so lean, we may see a quick surge of growth as new orders come in, and have to be filled at the factory level since no one has any inventory anymore. With all the money being pumped into the economy over the last months we are sure to see some positive momentum, but we won’t know whether this is a blip or a trend until after the fact.

So what does all this mean for the direction of mortgage interest rates? Mortgage rates move mostly based on activity in the mortgage backed securities markets, but they tend to follow the lead of Treasury bills, debt guaranteed by the US government, which has always been considered the gold standard of safety. Treasuries have been getting killed over the last few weeks. This is partly a result of the optimistic mood in the markets (optimism means money flows out of bonds and into stocks) and partly because the government is borrowing so much money (through new Treasury auctions) and more supply means inflation is lurking somewhere over the horizon. Treasury yields have spiked higher over this time, but mortgage rates haven’t been hit nearly as bad. The big reason for this is that the Fed is holding up the mortgage market with a promise to buy $1.25 trillion in mortgages, of which they have already bought over $400 billion. They still have a tremendous amount of purchasing power, and so far, they have kept rates much lower than they would other wise be. But have we reached the end of the line earlier than expected? If the markets are expecting a fast recovery, and inflation, they’ll look past the Fed’s buying period, and mortgage rates will rise. This is possible, but most experts aren’t predicting a fast recovery. It is more likely that we will bump along the bottom, and as confidence returns there will be gradual growth. The markets are anxious for this to be over, but with high unemployment and consumers who are more prone to save what they have than go on a new spending spree, the recovery may be slow. Markets seldom move in straight lines. Sentiment changes and there are always blips, both higher and lower. Rates may go higher for a time, but in my opinion, the only way we can have a sustainable recovery is through an improvement in the housing market and for that to happen mortgage rates have to stay low. The government wants low mortgage rates, and they are doing every thing they can to make this happen. They may not be successful, but I wouldn’t bet against them.

In the real estate market, purchases are suddenly hot. For the first time in months I am seeing more new purchases than new refinances. With low mortgage rates and low home prices this is a great time for anyone to buy. But it is an especially good time to buy if you are a first time home buyer (and most of the new buyers are). The first time home buyer credit means that qualified buyers get up to an $8,000 first time home buyers tax credit from the government and Uncle Sam is subsidizing your new home. Refinancing is still a great benefit and there are an awful lot of people who qualify for lower payments who haven’t made the move yet. The new DU Refi Plus program is continuing to roll out enhancements, so more people will be able to take advantage of this program, even if their home values have decreased.

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 and FHA rates are based on the highest conforming loan amounts, which give the best pricing. Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me (Illinois mortgage company) and I’ll take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

30 year fixed rate              5.00%     5.159% APR

15 Year fixed Rate             4.75%     5.895% APR

5-1 A.R.M.                        4.25%        4.386% APR

For Jumbo loans over $417,000

30 Year Fixed Rate*          5.875%       6.057%

*Best rates are based on 70% LTV, 760 and above FICO single family homes.

7-1 A.R.M.                         5.25%       5.343% APR

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

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

With 1 point origination fee – 45 day lock

30 year fixed rate              4.75%      5.339% APR

With no origination fee – 45 day lock

30 year fixed rate              5.00%      5.523% APR

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

VA Veterans Administration 0 Down Loans

With 1 point origination fee – 45 day lock

30 Year Fixed Rate           5.00%     5.178%  

Call for information on no-cost VA Streamlined Refinances

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

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

In congressional testimony yesterday, Fed Chairmen Ben Bernanke said that there are signs that the recession is easing and that the economy is likely to start growing again by the end of this year. In other statements he has talked about “green shoots”, signs of life sprouting up through a barren landscape. One of the green shoots he mentioned specifically was that the real estate market is starting to pick up steam. I can attest to that. Here in the Chicago area the purchase market is suddenly active, and for the first time in ages I am seeing multiple contracts, bidding wars, on the same property. Most of the buyers out there are buying a home for the first time, and a good percentage of what they are buying are short sale or foreclosed homes, so this won’t likely translate into a full blown market recovery any time soon. But these are clearly green shoots. There are some big reasons why first time home buyers are getting into the game now. Property values have come way down, and new buyers can get in at bargain prices. Financing is available through FHA with a low down payment, and that makes it easier for buyers to afford their first home. But a lot of the activity is being spurred directly by Fed action and government incentives. The $8,000 tax credit is a big win for anyone who can qualify, and the biggest incentive may be that interest rates are now at the lowest point since the 1950s. This has helped not just home buyers, but any home owner who has a home and is able to lower their payments with a mortgage refinance. These low mortgage rates have been a big factor in allowing these green shoots to sprout, but there will be an expiration date on these low rates, and at some point rates will head higher.

In normal times mortgage rates are determined primarily by what happens on the mortgage backed securities markets. Mortgage backed securities are pools of bonds backed by home mortgages, and the market was made up of a number of regular market participants including wholesale lenders who would use the market to hedge their rates, and investors who looked at mortgage bonds as safe long term investments. For a long time this was a smoothly operating machine, and by matching up buyers and sellers it kept mortgage rates consistently low compared to other types of bonds. When the whole toxic mortgage mess exploded, this market was thrown for a big loop, and for most of last year we were seeing crazy volatility. It wasn’t uncommon to see interest rates swing by ¼ point in a single day. Mortgage rates were trending up and with the economy in a tailspin, real estate values headed lower. In order for the economy to improve, the real estate market had to stabilize, and home owners and home buyers had to have confidence in the market again. In December, Fed Chairman Bernanke announced a plan to lower mortgage rates by having the Fed buy mortgages directly. The initial announcement called for buying $500 billion in mortgages, but it has since been extended to a total of $1.25 trillion. Since the announcement, the Fed has been the most active buyer in the market, and all the other market players have gotten adjusted to their presence. We still have some volatility, but overall, mortgage rates have consistently moved back and forth in a fairly predictable trend, and even the high points are much lower than they would otherwise be.

With low mortgage rates the Fed has allowed these green shoots to spring up, not just in the real estate market but throughout the economy. When homeowners refinance they have more money in their pocket, and they are more willing to spend it on other things. This increases confidence and sends positive ripples throughout the economy. But the question is, what happens when the Fed stops laying on the fertilizer? So far they have bought just over $400 billion in bonds, and have a lot of purchasing power left. But if the green shoots start spreading and the economy picks up, the Fed is likely to take themselves out of the picture. At some point they will stop buying mortgage bonds and leave the market on it’s own. They won’t do this before the economy, and the mortgage market have stabilized, but when they do leave one thing is certain – mortgage rates will move up. Maybe by a lot. So this is the time to take advantage of the lowest mortgage rates in our lifetime. If you are thinking of buying a new home, or refinancing your current mortgage, don’t wait to long. These rates do have an expiration date stamped on them, and it could be sooner than you think.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States