The other day I got a call from a Realtor who was working with some home buyers I had pre-approved for their mortgage. They found the home they wanted to buy and they were ready to submit an offer, but there was just one problem. They were approved for an FHA loan, and the seller (or the listing Realtor) of the home they were interested in, specifically noted that only conventional offers would be considered. This is fairly common, but it is often the wrong advice. So I asked why they wouldn’t consider FHA, and the answer was because the home wouldn’t meet the FHA property guidelines. It turns out that the home is what might be considered a fixer-upper and the home was being sold “as is”. The owner was older and didn’t keep up with the maintenance, so there were a number of issues that would be red flags for an FHA appraisal, including a bad roof, water damage and mold. It is true that the FHA appraiser has to make sure that the property meets its minimum standards. At one time this was a very nit-picky process, but now it is mostly checking for health and safety related items that need to be fixed prior to closing. But the idea that these issues would be okay for a conventional loan is a myth. Conventional appraisers are now holding the property to a similar standard, and physical problems with the property are grounds for rejecting the loan. So getting a conventional loan on this property was not an option either.

If you look back a few years, conventional appraisals were more lenient. With home prices going up, the appraisal was pretty close to automatic, and as long as the value came in fine, a variety of sins were often overlooked. But the world has shifted, and appraisers are now making sure their backsides are covered on everything, and if there are any defects in the property they will be noted. The other big change is that underwriters are treating the appraisal as a key to part of the loan approval (that wasn’t the case when the market was booming and drive-by appraisals were the norm), so if the property condition will add to the risk of the loan, this is a big problem.

Fortunately, there is a solution for this problem – the FHA 203k rehab loan. This program allows buyers to purchase a home which doesn’t meet the property guidelines, and builds the costs of any repairs or improvements into the loan. In many cases this is the only way to finance properties with more serious problems, but it can also be a way to upgrade and build the costs of remodeling into the loan (so you are only putting 3.5% down on the entire amount, not running up your credit cards or taking on another loan after closing).

Here is a quick overview of the FHA 203k rehab loan and how it works:

FHA 203k mortgages are available for owner occupants only – I get calls all the time from investors who want to buy a home and add the costs of repair into the loan. This isn’t going to work for their situation. The idea behind the FHA 203k is that this is a way to improve the housing stock and stabilize neighborhoods. The best way to do this is through home owners who have a vested interest in their own homes.

FHA 203k rehab loans are eligible for most residential property types and can be used for a variety of purposes – This loan can be used to buy and improve 1-4 unit properties, condos, town homes and even qualified mixed use properties. You can use the loan for a whole variety of uses, including:

· Health and safety repairs including any work necessary to meet FHA property compliance

· Work needed to bring the property into compliance with the building codes

· Correcting structural problems and structural alterations and additions

· Remodeling kitchens and baths

· Buying appliances

· Modernize the plumbing, heating, AC and electrical systems

· To put on a new roof, gutters, downspouts

· Painting and redecorating

· Flooring, carpeting and tile

· Anything to enhance energy efficiency

· Luxury items like a new pool are not eligible.

There are 2 types of FHA 203k rehab loans – The Streamlined program is for more minor, non-structural repairs and remodels. This is available for projects under $35,000 (this amount includes a 10% contingency reserve) and can be used for anything that doesn’t change the structure of the property. You can do a lot of work with this limit, and this is the most popular program. The other type of FHA 203k rehab loan is the consultant or full 203k. This can be used for major improvements, including changing the structure of the home, and you can use this for a complete gut rehab. You will need to have an approved HUD consultant to help you with this.

FHA 203ks use the same qualifying guidelines as any other FHA loan – this means 3.5% minimum down payment, more common sense credit qualifying guidelines and all the other consumer friendly features of FHA loans. The pricing on a 203k loan is a little higher than on the regular loans, but much cheaper than any other type of construction financing.

The FHA 203k loan is a single close loan – with conventional construction financing, you need to get two loans, one short term loan to pay or the construction, and an end loan when the project is complete. This means 2 closings and extra fees at each step. With this method you won’t know what your interest rate is until you are finished with the project and ready for the end loan. The FHA 203k is a single close loan, so The FHA 203k is a single close loan, so you know exactly where you are upfront. When you close on an FHA 203k loan, your loan amount is the purchase price plus the cost of improvements. With a streamlined 203k you usually will get half of the rehab money up-front (enough to buy materials and get the job started) and the second draw once all the work has been completed. The full 203k allows up to 4 draws.

The key to success with an FHA 203k is to get a good contractor who understands the program – with most loans we have to approve the borrower and approve the property. With the FHA 203k rehab we also have to approve the contractor and the work that is being done. This is usually where problems show up, when borrowers try to save money by going through someone who might not have the best credentials, but promises to do the work cheap. With the FHA 203k rehab loan, the first step is to pick the contractor and to have him turn in a detailed bid of what work will be done. This bid needs to be detailed, and specific, and break it down by both labor and materials. The appraiser uses this bid to determine what the value of the home will be once the work is completed. The contractor needs to be licensed and insured and be able to offer references showing he has completed similar projects before. If you find someone off of Craigslist who tells you he will do it cheap, but submits the bid on the back of a napkin (I’m not exaggerating, I’ve seen this), it isn’t going to be acceptable and will just draw out the time it takes to get the project together.

FHA 203k loans are available for purchase and refinance – most of these loans are used for purchasing a new home, but with the drop in home prices over the last few years, there are a lot of home owners who can’t sell under the present conditions, but need more room for their growing families. This won’t work for everyone, but in a lot of cases the 203k will be a way to expand their current home and improve the value.

With so many homes foreclosed, short sales, or like the one my clients were looking at, just not maintained well over the years, the FHA 203k mortgage is the best solution. It works for not only homes that need work in order to be able to get financing, but also for homes that need updating or if you want to build the costs of improvements and additions into the cost of the loan.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

After a bad unemployment report, and more trouble out of Europe, mortgage rates are improving. The unemployment numbers while positive on the face, were ugly once you looked at the details. The overall gain was almost all a result of temporary census hiring, and the jobs gained was much lower than expected. Ad  to this more rumblings from Europe, Hungary this time, and the result is a bad day for stocks and a big day for bonds. Confidence in the strength of the recovery is now fading, and the odds of inflation being a threat any time soon, is now close to 0. So mortgage rates are near the best rates we’ve seen over the last year.

Mortgage rates are great, but money is still tight. There are a lot of home owners who would greatly benefit from a refinance, but aren’t able to take advantage of it due to a loss of equity in their homes, or because their situation doesn’t match up to the tighter underwriting criteria that is now standard (you have to prove your income now). At the same time, there are programs which can help those who have lost value in their homes, and there are an awful lot of home owners who could qualify for a loan, and save hundreds of dollars each month, who haven’t taken advantage of a refinance yet. It is worth checking to see if refinancing would work for you and your situation. For those buying a home the situation is better, the price of homes is down so you can afford much more than you could in years past, but you still have to make that first move and make the commitment to buy now. With low prices and low interest rates this could be a great time to buy, but the key is whether the timing is right for you and your personal situation.

Here are the current Chicago 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, best FHA rates assume a 660 Fico score, but loans are available with credit scores as low as 620. Mortgage rates in other states may be slightly different, give me a call and I will give you an accurate quote for your particular situation. 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 will take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

For Jumbo loans over $417,000

*(Another option is to break your Jumbo loan into 2 parts a conventional to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be.)

** (5-5 ARM is fixed for first 5 years, with 2/6 caps it can’t go more than 2% above the statr rate for the next 5 years. )

2% cap for next 5 years

FHA LOANS 3.5% down payment FHA Maximum varies by County

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

FHA 203K Rehab Loans

Call for Quote

VA Veterans Administration 0 Down Loans

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.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

If you are a regular reader of this blog, you’ve probably noticed that it has been pretty quiet here lately. I normally post something two to three times each week, and now it has been about 2 weeks since my last post. I want to assure you that I am alive and well, and that this is a temporary situation and I will be back to my normal schedule in short order. I’ve recently moved to a new company, Prospect Mortgage (I’ll have more on that soon), and between navigating the learning curve with new systems, and dealing with epic volume of new purchase loans, there hasn’t been much free time to post (there’s barely been time to sleep). Now I have my support systems back in place, and I feel comfortable with my new surroundings, so I can breathe again.

Over the next few weeks I will have plenty to talk about. This industry and market is changing constantly, and these changes have a big impact on anyone who is even thinking of buying a new home or refinancing what they have. My goal is to be a valued source of information for anything relating to mortgages and home financing, the housing market and especially how this impacts us here in the Chicago area. There has been a lot of news recently. Here are some of the issues I will be addressing soon:

Mortgage rates are near the lowest rates of the year after everyone, myself included, said that rates were sure to go up.

The first time home buyer credit has expired, and home sales are still strong – this is anecdotal and we won’t know the real trend for months, but it is a positive step.

Distressed homes are still driving the housing market – what effect will the new short sale guidelines have on cleaning up this mess?

How the FHA 203k loan is becoming more mainstream and is now a major benefit for cleaning up the inventory of foreclosed properties.

How the new FHA condo approval process is working, and how condo buyers and sellers can use this to their advantage.

There is a lot to talk about, and I appreciate your patience. Stay tuned, there is plenty more to come.

Peter Thompson

(630) 479-6424