Welcome to Illinois Mortgage Rates and News week in review for the week ending June 26th, 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

If you are a regular reader of this blog, you may have noticed that I’ve missed the last two market updates. I took a much needed vacation and for the first time in years was almost completely cut off from the news of the economy and world events. So the past week has been spent catching up, both at work and with the news of the day. In a way, not that much has changed since I left. The markets are still bouncing around and the economy is showing some rays of sun amid the gloom. The biggest change is with mortgage rates. When I left rates had risen to their highest point in the last six months as investors speculated that the economy was over the worst and poised for a dramatic recovery. We may be over the worst of the crisis, but the odds of a dramatic upturn are fading fast, and investor sentiment is turning from euphoric to cautious. Inflation is the biggest enemy of bond yields, and as the risk of inflation spiking soon disappears (with unemployment still rising inflation can’t take hold), mortgage rates are improving. Mortgage rates have already recovered about half the losses of the last month.

This week the World Bank downgraded the growth estimate for the global economy and expects the economy to shrink by 2.9% for the year and called the global economy unusually uncertain. The announcement from Fed meeting on Tuesday and Wednesday, the most anticipated release of the week, maintained the same bias they had before. While the wording was slightly changed from their previous release, they maintain their emphasis on keeping rates low to help the housing market, and discounted the risk of inflation while stating they are prepared to fight inflation if the situation changes. CPI and PPI release showed that inflation levels are tame and not a threat any time soon. The biggest game changer may have been the release of initial jobless claims. The Labor Department reported that 627,000 people filed for benefits this past week, making this the 21^st consecutive week where jobless claims were above 600,000. There won’t be a substantial recovery until the employment rebounds, and this shows we are still a ways from stabilization. Not surprisingly, this who are employed are saving more instead of spending. The American savings rate hit a 16 year high this week. This all contributed to the move lower for mortgage rates, and if this trend holds, we should see some more improvement over the next few weeks.

In other mortgage related news, HUD released a new mortgagee letter last week regarding FHA condo approvals. FHA has been the best option for most condo buyers with down payments of 10% or less, but even with the FHA spot condo approval process a lot of properties have been ineligible for FHA financing. This new program will open up the process and allow a lot of previously excluded properties to now offer FHA financing. It doesn’t go into effect until October 1^st, but this should be a great and needed boost for the condo market. I will write more about this in the next few days.

The purchase market is still alive and well as a result of low prices, still affordable mortgage rates and the $8,000 first time home buyer’s tax credit. The tax credit is a big incentive to buy now, and it only applies for those purchases that close before December 1^st of this year. If you are in the market for a home and fit the criteria for the credit, make sure you allow enough time to buy and close before the expiration date. The clock is ticking. Here are the current Illinois Home mortgage rates 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%     5.397% APR

15 Year fixed Rate             4.75%      4.848% APR

5-1 A.R.M.                         4.50%        4.672% APR

For Jumbo loans over $417,000

30 Year Fixed Rate*          6.75%       6.897%

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              5.25%      5.879% APR

With no origination fee – 45 day lock

30 year fixed rate              5.50%      5.863% 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%      5.248%  

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

The big event for those following mortgage interest rates and the factors which make them move, was the release of the Federal Open market Committee’s statement following the end of their two day meeting today. Any Fed meeting is always a big event, but this one loomed larger than most. Over the last month mortgage interest rates have jumped nearly a full point (before settling down some over the last week) and putting an end to the refinance boom that had been chugging along since last December. The higher mortgage rates haven’t been enough to derail the purchase market, which has been driven by first time home buyers and helped along with an $8,000 government rebate. But the fear has been that if rates get much higher the purchase market will crash and the housing market will take another direct hit. All the experts agree that in order for the economy to improve, the housing market has to get better. Over the last few months there have been signs that housing is stabilizing, but with unemployment increasing this recovery is fragile. The Fed strategy has been to pump money into mortgage backed securities in order to keep rates low, but that was before inflation fears caused the bond market to melt down. So, all eyes were on the Fed to see what they were going to say, and what side they would come down on as to what our biggest problem was, inflation or the economic slowdown.

The Fed is famous for not giving much away. They don’t make their statements in normal English but a convoluted form that might be called Fedese (Fedlish?). All the phrases are spun in a way to make interpreting their absolute meaning difficult. This means that you can interpret the statement differently depending on what your initial preconceptions are, and what you think is going to happen in the near future. This time was no different and the Fed gave a little something for everyone. This was shown convincingly after the statement was released when the mortgage bond mark improved quickly, then sold off just as quickly before finally ending the day exactly where it started.

The way I read the tea leaves, the Fed has made a decision to keep rates low, and though the worst of the down turn appears to be over, they still have work to do. Here are some items taken from their statement which suggest that they are trying to bring rates down and that mortgage rates should remain low:

• The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. – They aren’t raising rates now, and they don’t intend to at any time in the near future.
• To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. - They will continue to buy both mortgage backed securities and treasuries in an effort to keep rates low.
• Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. - The economy is better, but we aren’t out of the woods yet.
• The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time. – Inflation may be a problem down the road, but they have bigger problems now.

But this is just my reading of the statement. What matters is how the markets will read the tea leaves and if they collectively think the Fed is misplacing their responsibilities and inflation is still the bigger problem, rates could rise again no matter what the Fed tries to do. We will know more over the next few weeks as this all sorts out.

Here is the full FOMC press release statement:

Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

It costs a lot of money to buy a home. For most first time home buyers, coming up with the down payment is the biggest challenge, and even the low 3.5% down payment that FHA requires can be a big hurdle to buying (Here are some ways to get together the down payment). But getting the money together for the down payment is only part of the problem. In addition to the down payment there are a lot of other costs you will need to come up with at the closing. Some of the items you will need to pay for include:

Bank fees, including the appraisal and credit report, underwriting and processing charges.

Title charges.

Transfer taxes. In Chicago the transfer tax is .75% for buyers, or $2,250 on a $300,000 home, so this can be a big item.

Attorneys fees and home inspection costs.

The first year’s insurance payment.

Pre-paid interest,  and the money to set up your escrow accounts.

The truth is, real estate is a high cost transaction. It can cost thousands of dollars in addition to the closing costs to buy your first home. You will get tax credits from the seller (for whatever taxes he hasn’t paid up through the date of closing) which will reduce your cash needed, and if you are a first time home buyer you can claim your $8,000 credit after you close. But what happens if you are ready to buy now, but your pockets are empty and your wallet is still a little light? There are ways to buy with no money out of your pocket for closing costs, but you need to plan ahead.

One way is to ask the seller to pay for your closing costs through a seller concession. This used to be rare, but over the last two years, with a real buyer’s market in real estate, this has become much more common. You need to ask for this concession as part of your initial negotiation, once you have a signed contract and agreed to price and terms, it is too late. Most conventional loan programs allow the seller to contribute up to 3% of the value toward the buyer’s costs, and with FHA you can get a 6% seller concession. Work out the numbers with your lender beforehand, and have him put together a Good Faith Estimate so you know everything you will need to cover at the closing. You can ask for these closing costs either as a dollar amount, or as a percentage of the purchase price. Because there are so many fixed items, the percentage needed will be much higher for lower priced items (bank fees and title charges) then for higher priced homes, so there is no rule of thumb as to what percentage of the sales price you will need. Once you know how much cash you are going to need, you can ask that the seller to pay that amount at the closing. From the seller’s standpoint, this is part of the price. Any money that he pays out is deducted from the sale price. If the contract for the home is $200,000 and they are paying $3,000 for closing costs and pre-paids, the true sale price is $197,000. They are most interested in how much they will net after all expenses, how they get there isn’t as important.

When your Realtor writes up the contract, have them insert the phrase – “________ (dollar amount or percentage of the sale price) seller credit will be applied toward closing costs and pre-paids”. This gives you the most flexibility with structuring the transaction.

You can’t walk away from the closing with any extra money, so make sure you have a use for all the money you get as a concession. One of the great things about this program is that you can use it in different ways. Not only can you pay for the normal closing costs, but you can also use a seller concession to pay for points to lower your interest rate, or for more creative financing options like an interest rate buy-down. Remember though, the seller is looking at this based on how much they will net from the sale, but the appraiser is basing the value on the contract sale price. So it will need to appraise out at the full contract price.

Another way to pay for closing costs is through a lender credit. This is more common with illinois Mortgage Refinancing than it is with purchases, but it is a great option in some situations. As a mortgage banker, I can offer loans in a variety of price and cost variations. For people who are strapped for cash, it is possible to offer a slightly higher interest rate, but use some of the premium to pay for the loan costs. Whether this will work for you depends on your whole situation. But it is an option, and one more way to reduce the cash you need to close.

Illinois Mortgage Rates and News

(This is an update of a previous blog post)

The one question I am asked more frequently than any other is, What is your rate? This is a great question because you obviously want the lowest rate, but it’s a question that is impossible to answer. First of all, the rate will depend on what type of loan you are getting, whether you want to pay extra money in points and fees to get the best rate (which is what happens with the low rates you see in ads). Even if you were comparing apples to apples and making sure the loans are priced the same way, you can’t compare mortgage rates without without taking into account all the factors in your personal situation which go into pricing a loan. When  a lender takes on a new mortgage their goal is to minimize their risk and make sure that they are getting paid for the risks they are accepting. Some loan characteristics increase the chance that the borrower will default on their loan, costing the lender money. Over the last year Fannie Mae and Freddie Mac, the buyers of most conventional loans, have instituted a whole new series of price hits called LLPAs or loan level price adjustments, based on situations they consider more risky. This means that loans that fit into these situations will cost more than other loans. These price hits can be paid as extra fees at closing, or by increasing the rate on the loan.

Here are some of the things that factor into the price of a loan, and how I price out my Illinois Mortgage Rates:

Credit scores – Fico scores are a measure of how likely a borrower is to pay back the loan. It used to be that if you qualified for a conventional loan (a loan that was eligible for purchase by Fannie Mae or Freddie Mac) your pricing would be the same whether your score was in the low 600s or the high 800s. If you didn’t meet these guidelines you could still get a mortgage at a higher rate, but these were considered Alt-A or sub prime loans. Now you will need a score above 780 to get the best interest rate and if your score is below 680 the price hits will be substantial (if your score is below 680 you may be better off with an FHA loan). In order to quote an accurate mortgage interest rate, we need to know your Fico score first. This makes it all the more crucial to review your credit and work on any problems before you are ready to apply for a loan.

Loan type – Even when comparing 30 year fixed rate loans, there are a whole variety of programs available, each to meet specific needs. The pricing changes based on the loan type. Conventional loans (Fannie and Freddie) are good up to $417,000 for a single family home. If your loan is above that you would most likely look at a Jumbo loan. Jumbo mortgages are not able to be sold to Fannie Mae and Freddie Mac and they are priced much higher. If you qualify best for an FHA loan, the pricing would be different.

LTV and CLTV – This means the Loan to Value and the Combined Loan to Value, or how much is the mortgage compared to the value of your home, and how much if you include any other mortgages on that home. This is another way of stating how much equity you have in your home – the higher the equity, the lower the loan to value. And the less equity you have, the higher the risk is to the lender. This is tied in with your credit score, and if you are buying with a lower down payment, this could make a big difference in your rate.  Are you buying with a second mortgage added on? In the past this has been a great way to buy with less money down and avoid mortgage insurance. It is harder to do in many cases now, and you may pay more on your first mortgage if you have a second loan attached.

Loan purpose – Are you buying a home or refinancing? If you are refinancing your home and taking cash out, it would cost you more if your loan to value is greater than 70% (less than 30% equity). A purchase or a rate term refinance would be priced the same.

Occupancy – Is this your primary residence, a second home or an investment property? You get the best rates and fees for your primary residence. Second home loans are often the same, but in some cases they can be slightly higher. Investment property is looked at as a riskier type of loan and investors are more likely to walk away from a bad investment, than home owners are on their homes. So there are higher rates and fees when you buy non-owner occupied or investment homes.

Type of property – Mortgages for single family homes are are priced better than loans for two, three or four unit homes. In one of the biggest changes, you will pay more if you buy a condo with less than a 25% down payment.  (Here is more information on Chicago condo loans)

Loan amount – On conventional loans, pricing is usually better for larger loans. It costs the same to process and close a small loan as it does for a larger mortgage. Because of this the pricing improves on loans over $200,000. On the other side, loans under $100,000 have increased fees, and the fees go higher as the loan price drops.

Property location – There are some areas in the city of Chicago and in the Chicago suburbs that are considered target areas. These neighborhoods are targeted for redevelopment and banks are encouraged to lend in these areas – more than encouraged, they have to have to lend a certain amount in low income areas or they could face big problems with the federal government. Because of this pricing in these areas is better. The original idea here was to offer more homes for low and moderate income borrowers. Often the areas marked for redevelopment are the hot areas where prices are rising. Make sure your loan officer checks to see if you are in a CRA or targeted area.

Buying out of state the pricing can be different, too. I specialize Illinois Mortgages, but also close loans in most states. The wholesale lenders have different rates for each state.

Length of the rate lock – You will get better pricing for a 15 day rate lock than if you locked your rate in for 60 days. The longer the rate is locked in for, the greater the risk to the lender, so they pass the cost of hedging the loan on to you.

Escrows – Mortgages are usually priced so that the end lender will hold your escrows for taxes and insurance, collect 1/12^th of the payment from you every month and pay the bills when they come due. Many borrowers want to pay these bills themselves and earn the interest on their money until the bills come due. You can do this if you meet certain guidelines, but it will cost you. Most lenders charge a quarter point fee if you waive your escrows. On a $300,000 loan this is an extra cost of $750.

Pre-payment penalty – If you know you aren’t going to be moving or refinancing for a while, you can sometimes get a lower rate by agreeing to pay a pre-payment penalty. This will lower your costs, but it also handcuffs you into staying in the mortgage. If you end up moving or refinancing before the time expires, it could cost you a lot.

These are some of the things that factor into the rate and cost of a mortgage. Even bigger though is how the loan fits your needs and what you qualify for best. It doesn’t make any sense to shop the rate on a conventional mortgage if you can only qualify for FHA. Also, make sure you look at the bigger picture, not only the interest rate but the costs of the loan and how the financing works for your personal situation.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

Are you in the market to buy a home this year? The first step to buying a home is to see how you best qualify for a mortgage. This means you need to be pre-qualified, or pre-approved for a mortgage. Both terms are different levels of the same thing. With both, you are sharing your financial information with a mortgage loan officer, and they are helping you figure out how much of a home you can afford to buy, and what the best program is for your needs. I often start with a mortgage pre-qualification, which is usually just a conversation over the phone. I often start out the conversation by saying, we are going to play a game of 20 questions (sometimes it turns out to be more). The idea is that I will ask you everything about your jobs and financial situation, your future plans and goals. My questions are designed to find out all I can about a potential home buyer’s income, credit and assets. By going into depth, I am looking for both opportunities and red flags. If a red flag pops up and I see a problem of some sort, I will ask more questions to make sure I have the full story. Sometimes things that look like major problems can be easily solved with a little foresight. The other part of what I am doing is narrowing down the options, and figuring out what loan programs you can qualify for, and what programs would work best for you, both now and down the road.

Once I have had this pre-qualification conversation, I generally have a pretty good idea of whether you are ready to buy, or not. But to make sure, it makes sense to take the next step, mortgage pre-approval. This is especially important now when mortgage guidelines are changing on a regular basis. A mortgage pre-approval means we are investigating further, and approving you for a mortgage before you find a property. This means I will need to have the right documentation. Depending on your situation and the loan program you are applying for, we may need more or less, but typically we’ll need to see at least the following:

• W2s for the last 2 years (full tax returns if you are self employed).
• Your pay stubs for the last 30 days.
• Full bank statements for the last 2 months, along with statements from any retirement or stock accounts.

Once I have your documentation, I will run your credit, and put all the information into our automated underwriting system. With most loan programs, the underwriting system has become the key factor in loan approval. The underwriting software is set up based on Fannie Mae and Freddie Mac or FHA guidelines depending on what is best for your situation, and takes into account the same factors that a human underwriter would consider. Years ago, it could take a week or more to get a pre-approval. Now I can usually do it with a single phone call, and have a preliminary answer for you within an hour.

There are times when we need to go a step further and have the underwriter sign off on the loan, but in most cases this approval is what you need for the first step. One thing to keep in mind is that the approval is only as good as the person asking the questions. Garbage in, garbage out. So make sure that you work with someone who knows enough to ask the right questions and understands your full situation, as well as the current mortgage guidelines.

If you are just starting your home search, be sure to get your free copy of The Real World Home Buyer’s Guide – what you need to know in order to buy your home and get the mortgage that’s right for you.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

The purchase market has been picking up steam over the last few months.Most of the activity is with new buyers coming in to buy their first home (they have a great advantage, not having a home to sell) and a good portion of what they are buying is the distressed properties, short sales and foreclosures, which are weighing down the market. Recently Fed Chairman Bernanke said that he saw signs that the real estate market is bottoming out and stabilizing. We won’t know if that is the case until after the fact, but there is no doubt that the market is buzzing now. Here are some of the reasons you should (especially if you are a first time home buyer) buy a home now:

$8,000 first time home buyer tax credit – This is one of the biggest reasons for home buyers to buy now rather than waiting. If you are a first time home buyer (or haven’t owned a home in the last 3 years) the government will pay you up to $8,000 for buying a home now. The credit will be for 10% of the purchase price up to $8,000 and you can get the credit this year by amending your tax return after the closing. There are some income caps, so this won’t work for everyone, but if you qualify, the first time home buyer tax credit is a great incentive to buy.

Selection – There are homes in the market in all areas and all price ranges. With more houses on the market you can pick and choose and find the home you want. It wasn’t so long ago that buyers were jumping on new listings as they came onto the market, even if the home wasn’t exactly what they were looking for. You can pick and choose, now.

It’s a buyer’s market – Again, the best time to buy is when most people want to sell. If you buy now you can get a lot more house for your money, and you have a lot more negotiating power.

Interest rates are low – Chicago mortgage rates have bumped up recently, but are still near their all time lows. Low mortgage rates means your mortgage payment takes you a lot farther than it did before. We’re not that far off of the all time lows we hit several years back. It is smart to take advantage of the low mortgage rates while they are still available.

Great financing is available – There’s a lot of talk about how the problems in the mortgage market have made it harder for borrowers to get financing. Some programs have been cut out, and guidelines are tougher than they were before. But there is still a lot of mortgage money available, including options for low down payment, and FHA is a great way for first time home buyers to buy that first home.

Tax savings – Buying a home is one of the best ways to save money on taxes. Your mortgage interest, real estate taxes and in many cases mortgage insurance are all tax deductible. If you are a first time home buyer this means that after-tax, you can pay a lot more for a mortgage payment than you pay for rent.

Appreciation – This might not seem like the best reason to buy, with prices stagnating and falling in some areas, but in the long run, home prices always move up. There is a lot of pessimism in the real estate market today, but even the most pessimistic are bullish in the long run.

Equity build up – As you pay down your mortgage you build up equity in your home. Most people don’t even think of this because it is so gradual, but every mortgage payment (as long as it is an amortizing loan) pays a little less interest and a little more principal. In a way owning a home is a form of forced savings.

Rents are rising – Buying a home means you can fix your mortgage payment, at least the principal and interest portion. Rents are projected to rise this year and over time.

Those are the hard financial reasons for buying a home now, but there are other good reasons to buy now:

You need more room – Has your family has grown, and you are bursting at the seams? You need a new place to put all your stuff? If you have needs that you’ve been putting off, this could be the right time to buy and take advantage of the buyers market.

Control – If you own your home, you can do what you want to with it. Have a dog? Not a problem. Want to plant a garden? Go for it. Want to paint stripes on the walls? Paint your heart out, it’s your home and you are in control.

Pride of ownership – There is a big difference between renting a place and having a home of your own.

It’s the American Dream – Not only that, but buying a new home gives you a reason to throw a house warming party.

These are some reasons for buying now, but buying isn’t the right course for everyone. Buying a home is a long-term investment. If you can’t afford to hold on for the long run, you might be better off renting.

Illinois Mortgage Rates and News

More information for first time home buyers:

First Time Home Buyers Loan : Tax Benefits Make Real Estate a Smart Investment for Chicago Area First Time Home Buyers

Welcome to Illinois Mortgage Rates and News week in review for the week ending June 5th, 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

Schools out, summer is here, and mortgage rates are jumping. Mortgage rates are now at the highest point since last November, before the Fed stepped in and started buying mortgage backed securities in an attempt to lower mortgage rates and get the economy moving. Over the last 2 weeks there has been a mind shift in the financial markets. The biggest worry before was of the economy grinding to a complete halt. The markets bigger concern now is that the economy is growing too fast, and that the government is spending too much. The situation is similar to one of those optical illusions which look one way until you shift your perception, and then a different image forms and you can’t see it any other way. Like the Witch which becomes a beautiful lady, once your mind has made that shift, it’s hard to see the other picture the way you did before.

Several things have happened this week which give weight to this new view of the economy. Consumer confidence has improved, the ISM index, a measure of purchasing strength, came in higher than expected though still low. But the big shift this week was in employment. The unemployment report is the biggest report released each month. When more people are employed that means they have money to spend which keeps the economy active. More unemployment means not only less money to spend, but more fear from those who are still employed wondering if they are next. Since the last quarter of last year, when the financial crisis started, employment has been cliff diving. Each month this year has shown an extra five or six hundred thousand people newly unemployed. This month was projected as slightly better but more of the same and expectations were that the number would be around 525,000 jobs lost. When the number was released at 345,000, much better than expected, the fixed income markets sold off and mortgage rates jumped again.

But the employment report is a kind of an illusion itself. The 345,000 jobs lost was much better than expected, but in an economy which needs an additional 150,000 jobs created just to keep up with population growth, this is still a miserable number. And even though this number was better than expected, the unemployment rate rose by a half percent to 9.4%, the highest it has been since 1983. Even this number is understating the real situation and including discouraged workers and the underemployed the real rate is at 16.4%. Part of this is a result of the 2 surveys using different methods for figuring their data, and it is likely that the numbers will be revised for the worse next month. Still, the question is, how can such a bleak employment situation be grounds for optimism on the economy and fears that we are growing too fast? Is the economy really moving ahead, or are we just past the panic part, and now experiencing a severe recession, but not the worst that was expected before? At the beginning of the crisis, it was described as being like we were a ball which rolled off a table, and we were in a free fall. That feeling is gone now. The news is still bad, but there isn’t that what happens next panic we had before, wondering if we would ever stop falling. The ball has hit the floor now and this is a bounce. The bond market is saying that we are going to bounce back too high and too fast.

It looks like we are over the worst and this is obviously good news. But I’m skeptical that we are in any danger of overheating any time soon. Unemployment is still going to be a big problem for a while. GM and Chrysler have just announced a whole range of cutbacks in their factories, dealerships and management. We are just getting a whole new crop of college grads coming into the work place now and prospects for them are slim. Anecdotally, this doesn’t feel like fast recovery. I’ve talked to 2 friends this week who own small businesses. One has, for the first time in the 15 years he’s been in business, laid people off this week. Another is holding off on lay offs, but they haven’t paid themselves a thing over the last 2 months to keep everyone employed. I went out to dinner last week at a popular restaurant, and there were empty seats at 7:30 on a Saturday night. When we left, the place was nearly empty. These are just anecdotes, not data, but this makes me think we have a ways to go before we start worrying about inflation.

Fed Chairman Ben Bernanke is in a tough situation now. Fed buying has been the engine that has kept mortgage rates low for most of this year. With the bond market in revolt, and treasury rates spiking, the Fed buying isn’t enough to make a difference. Two of the Fed presidents in speeches this week hinted that we may need to hike interest rates some time to cool things down. On the other hand, Bernanke is a student of the depression, and I doubt that rate hikes will be coming any time soon. The dilemma is that we are seeing improvement, but if the economy is going to be functioning at a sustainable level consumers have to lead the way. That will be hard as long as the housing market is still in the sick ward. Home sales have picked up, but there is still too much inventory on the market, and foreclosure are going to grow as long as the unemployment rate stays high. If rates stay high, this will knock the housing market down another notch, which will then do the same to the general economy. Low mortgage rates are a key part of the recovery plan, and the Fed doesn’t want to see the half a trillion dollars they’ve already used turn out to be wasted money. The Fed will continue to do what it can to bring mortgage rates down and keep them low. But for this to work, the market needs to have another shift in thinking. The picture looks a lot like a beautiful girl now, but one bad report and the Witch face pop out again.

For now, the refinance market is dead, but with low prices and an $8,000 first time home buyer’s tax credit the purchase market is still heating up. 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              5.625%     5.739% APR

15 Year fixed Rate             5.00%      4.136% APR

5-1 A.R.M.                         4.75%        4.850% 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              5.25%      5.879% APR

With no origination fee – 45 day lock

30 year fixed rate              5.50%      5.863% 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            5.375%      5.548%  

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

There has been a lot of news lately about the $8,000 first time home buyer tax credit, and a lot of disappointed home buyers when the news was released that you won’t be able to use the credit as part of your minimum down payment. I get calls every day from renters who want to buy a home now, and many of them are well qualified for an FHA mortgage here in Chicago Illinois based on their income and credit situation, but they fall short when it comes to having saved up enough money for the down payment and closing costs. Saving cash is always a struggle, and the no money down loans have all disappeared. So if you want to buy a home, you will need to come up with some cash. For many wannabe first time home buyers this is a cruel twist. Once they buy the home the government will give them a check for $8,000. But now, when they need it most, they can’t get a thing. But with a little creativity and ingenuity, there are ways to come up with the cash to close without resorting to loan sharks or placing your hopes on lottery tickets.

Here are some ways to accumulate cash now, when you need it most:

1. Gift from a relative. With FHA, your entire down payment can come as a gift from a relative. Maybe you don’t have any one relative with the means to give a big gift, but you can ask several relatives for several smaller gifts? We will need to document the gift showing a paper trail of the money from the gift donor to you. We show this as a gift, and the gift letter states that this isn’t a loan and there is no expectation that it will be repaid. At the same time, when you have closed on your loan and the government sends you your $8,000 check, if you want to show your gratitude to someone by giving them some money, that is entirely up to you (And the truth is, it happens all the time).
2. Use your 401k or IRA. Do you have any money in a 401k retirement account? How about an IRA? You don’t want to use your retirement savings unless you have to, but for many first time home buyers this is the best option for funds. Most 401k plans allow you to borrow against up to half your savings in order to purchase a home and doing this means you will pay yourself back and keep the savings intact. Another option is to cash in the 401k or IRA. Doing this means you are getting rid of the retirement savings, which is a problem down the road and you may have to pay taxes on the money you withdraw. There is usually a 10% penalty when you withdraw your funds, though that doesn’t apply if you are a first time buyer using the funds to pay for the purchase of a first home (up to $10,000). One way to get around the taxes and penalties is by paying the money back within 60 days (once you have the $8,000 credit). Make sure to talk with an accountant before you make a decision on this.
3. Sell something – If you’re like most people, you probably have more stuff than you know what to do with, and if you are willing to part with some of it, this could be the basis for a down payment. This could be a car or a motorcycle, a musical instrument or collectables like baseball cards or comic books. Check out EBay and Craigslist. Have a garage sale. This by itself might not be enough for your down payment, but combined with other strategies it could bridge the gap.
4. Change your withholding rate.  Do you normally get a tax refund at the end of the year? Why wait until next year to tap into it? You can change your W9 form at work so that you are claiming more deductions, which means they will withhold less taxes out of your paycheck each pay period. If you put aside the extra money in your check toward your down payment, your savings will grow much quicker. Changing the withholding means you will be ringing up a big tax liability, but this should be more than covered by the tax credit. Make sure you readjust the withholding rate later so you don’t get burned on your taxes next year.
5. Seller credits. You can’t use a seller credit for the down payment, but you can (and it is common in this market) negotiate for the seller to pay for your closing costs and pre-paids so the only money you need to come up with is the 3.5% for the down payment. Make sure you talk with your loan officer before making the offer, so they can put together a good faith estimate showing all the cash you will need, and the correct phrasing will have to be inserted into the contract. With FHA you can get up to 6% of the purchase price credited back for your costs, but the only reason you will need that much is if you have a very small loan amount or are paying points to bring down the interest rate.
6. Lender credits. Again, this can’t be used for the down payment, but if you can’t get the money for closing costs from the seller, you may be able to get it from the lender. As mortgage brokers and mortgage bankers, our compensation often comes in the form of a yield spread premium. This means that the wholesale mortgage companies pay us for bringing them loans. If you are willing to pay a higher interest rate, your lender can use some of the premium to pay for your closing costs. This is something that is commonly used for refinances, but it could be used for your purchase, too. Ask your loan officer if this is an option.
7. Look deep. You may have money you don’t even know about. A few years back I found out I had money from a closed out bank account I never knew about. Check on the Cash Dash site (in Illinois) to see if you have money there. Check other ways too. Do you have savings bonds you’ve never cashed in? Or maybe you have an insurance policy with a cash value? Coming up with a down payment will take more than looking for coins between the cushions, but you may have money you haven’t even considered.
8. Get serious with your savings. If your life depended on it and you absolutely had to come up with a certain amount of money by a certain date, could you do it? If buying a home is a goal, and getting it done on time pays you an extra $8,000 you have a real incentive to get serious about saving. Think of what things you can do without to increase your savings. Maybe it is kicking a Starbucks habit, or canceling your cable. There are usually ways most of us could cut our spending if we needed to.

Each of these on its own may help, but combine several of these ideas, scrounge around and get creative, and you might be surprised that you are closer to coming up with the down payment than you think, and closer to owning a home of your own.

There are lots of ways to buy without having a lot of cash. Use your imagination and you can come up with some more ways to come up with the down payment.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States