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

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

Contact Your illinois mortgage company Today

We Offer illinois home mortgage Loans with best mortgage rates

Get Best Advice from illinois mortgage broker

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

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

Contact Your illinois mortgage company Today

We Offer illinois home mortgage Loans with best mortgage rates

Get Best Advice from illinois mortgage broker

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

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

Contact Your illinois mortgage company Today

We Offer illinois home mortgage Loans with best mortgage rates

Get Best Advice from illinois mortgage broker

The real estate market here in the Chicago area is heating up. Traditionally the Spring market is the most active time of the year for home sales, and as the weather starts warming up here, the market is getting warmer, too. Most of the activity is still in the lower priced category, and first time home buyers are the biggest part of the market now. There are some big reasons why first time home buyers are the focus now. Most importantly, they don’t have a home to sell. I’ve talked to a lot of home owners who would love to move and find a home with more room for their growing family, or a place which meets their needs better than their current home does. But in order to do that, they would have to sell their current home first, and right now that is a hard pill to swallow. Home prices are down, and even if move up home buyers can afford it and can get a great bargain on the larger move up home, psychologically it is tough to admit that the home they have now is worth much less than it was just a few years ago. There is pent up demand, but my guess is that the real estate market won’t really take off again until after the economy is humming again, when interest rates are higher and inflation is in the air. So for all intents and purposes, this is a first time home buyer’s market.

There are some big reasons why first time home buyers are in the market now:

• Home values are down and affordability is up. Much of the activity is focused on short sale and foreclosed properties, and these are coming in at prices we haven’t seen in years. This is a buyer’s market, and buyers have the leverage to get real bargains now.

• Interest rates are low. Mortgage interest rates are bouncing around record lows. This ties into affordability, and if you are able to buy a home at a low price with a low fixed rate mortgage, your cost of home ownership is way down.

• The government is paying first time home buyers to buy homes now. The $8,000 tax credit means that first time home buyers will be able to write off 10% of the value of their new home, up to a maximum of $8,000 if they buy a home before November 31^st of this year. This means that the government is offering a discount for first time home buyers.

• Low down payment mortgage financing is available. FHA is the go to financing for first time home buyers here in the Chicago area. The down payment is 3.5% and if that money is hard to come up with, it can all come from a gift. FHA also allows for a seller credit of up to 6% (you don’t need that much) so the contract can be structured so that the seller is paying for your closing costs. FHA has also increased the maximum loan size it will take on up to $410,000 in Chicago and the surrounding suburbs, so it works for more situations now than it ever has before.

No one knows what will happen with the economy or how quickly the real estate market will recover. Unemployment is still growing, and there is a lot of fear in the air. Some experts that have been right since early on are saying that home prices could fall further. But if you are planning on being in the home for at least five years (and you shouldn’t be buying if you aren’t planning on being there for a while) it is hard to see how this isn’t a great time to buy. As the economy gets back on track, and it will eventually, more home buyers will gain confidence and the real estate market will return to a new type of normal. Over time home prices will increase, and mortgage rates will pop higher. My guess is that a whole lot of people will be kicking themselves for not buying when they had a chance. If you are a first time home buyer, or thinking about becoming one, you have control of the market now.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

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

Contact Your illinois mortgage company Today

We Offer illinois home mortgage Loans with best mortgage rates

Get Best Advice from illinois mortgage broker

There has been a lot of press recently about FHA loans and how the program has been under stress. At the end of February 7.46% of FHA insured loans were  in default or seriously delinquent. There has also been a sharp increase in FHA loans which go into default without the new owner making a single payment, a clear sign of fraud. These are ugly and eye popping numbers. Because of these statistics, I’ve heard commentators state that FHA is a broken program and that FHA is only picking up the worst loans, and setting itself up for failure. I’ve heard others say that FHA is like the sub prime loans of the past and we are making the same bad decisions now that got the mortgage market into a mess before. There is no question that FHA is under stress, but in my opinion it’s not because the standards are too low, the stress is a fact of life in the present economy.

FHA has always filled a need in the market. FHA is a federal program with a mission to increase home ownership for low and middle class families. FHA loans are fully underwritten and the emphasis is on whether the borrowers will be able to afford the home and make the payments in the future. The biggest obstacle to home ownership has always been saving up the down payment required to buy a home, and FHA offered the low down payment loans that made it possible for many first time home buyers to get in on the first rung of the home ownership ladder. FHA wasn’t a big part of the problems that got us into this mess. FHA had lost market share to low down payment conventional options every year up until last year, and was down to about 2% of the loans originated. But that was then, this is now. Conventional guidelines have tightened and price hits added to the point where many otherwise qualified buyers would pay so much more for a conventional loan that FHA is the only option. FHA loans now make up almost 40% of purchase loans. With more buyers who would have otherwise gone conventional forced into FHA, I am seeing more buyers with larger down payments and reserves than the typical cash strapped FHA buyer, and more buyers who have been home owners before, not just the typical first time home buyer. Rather than going down, the quality of FHA loans is actually going up.

With an explosion of new loans in a declining economy, it was a foregone conclusion that FHA would run into problems. But the truth is, this isn’t an FHA problem, it is a mortgage problem. Conventional loan delinquencies are at a record rate and Jumbo loans, which are above the conventional lending limit and made to buyers who are usually well to do, are now showing an increased rate of default. This is all linked to unemployment. As unemployment moves higher, more borrowers who were in good shape before will have trouble paying their loans, and that is exactly what has happened. The cities with the worst FHA default rates, Detroit, Elkhart Indiana and several cities in Florida, are all areas with high unemployment. As the economy recovers and unemployment goes down, this will take off the loan stress and bring the situation back to normal. The first payment defaults are more a result of the explosion in loan volume that FHA has seen. There have always been loan scammers and fraud involved in mortgages. Before it was concentrated in sub prime, now with so many more loans on the books, FHA is the target.

There have been a number of changes over the last year that take away some of the risk on the loans FHA insures:

• The minimum down payment has increased from 3.0% to 3.5%.
• Down Payment Assistance Programs, which were a way for the seller to fund the buyer’s down payment, are now gone.
• FHA cash out refinances have been decreased from 95% loan to value to a maximum cash out of 85%.
• The wholesale lenders have adopted minimum credit standards so that buyers will need at least a 600 credit score to qualify.

There is no doubt that more changes are on the way, and underwriting is likely to get tighter. But there are a lot of advantages to FHA and it is not a loan of last resort, but a loan that is the best option for many borrowers and many situations. These are some reasons you may want to consider FHA financing:

• Competitive rates and fees – FHA is comparably priced to conventional loans, and when you consider price hits, it is often priced better.
• It is the only option left for a low down payment purchase with a minimum investment of 3.5% of the purchase price.
• The entire down payment can come as a gift from a relative.
• With FHA approved condos and FHA spot loans, you can buy a condo at a good rate with a minimum down payment. With conventional guidelines you will need at least 10% down and there will be price hits if your down payment is less than 25%.
• To get the best pricing with a conventional loan you need a 740 credit score, and if your score is below 680 the price hits will make the conventional loan much more expensive.

FHA financing has gotten a bad rap lately, but without FHA as an option a whole lot less homes would be sold and less home buyers would be able to obtain financing.  FHA, along with all loan programs, will be under pressure and defaults are going to be a big problem until unemployment starts to fall. The home market is stressed now, but without FHA to pick up the slack left from tighter conventional guidelines, the housing market would be in even worse condition.

Illinois Mortgage Rates                   First time home buyer loans               

We Lend in All 50 States

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

Contact Your illinois mortgage company Today

We Offer illinois home mortgage Loans with best mortgage rates

Get Best Advice from illinois mortgage broker

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

Here is the table for the Chicago Metro Area:

1 unit $410,000

2 unit $524,850

3 Unit $634,450

4 Unit $788,450

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

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

Illinois Mortgage Rates                   First time home buyer loans               

We Lend in All 50 States

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

Contact Your illinois mortgage company Today

We Offer illinois home mortgage Loans with best mortgage rates

Get Best Advice from illinois mortgage broker

With rates near an all time low, refinancing has become a big thing again. Now, when times are tight, lowering your interest rate and your payment can make a real difference in your family’s budget. Rates are great, but one of the big problems in this market is that a lot of people who could get the most benefit from refinancing their mortgage, won’t be able to. With the slow real estate market property values are down, which means more homes aren’t appraising high enough to qualify for the new loan. Credit standards are more restrictive and you will need to verify all your income and assets. But if you already have an FHA mortgage, none of these factors matter. FHA has one of the easiest and best programs for refinancing your mortgage, the streamlined refinance.

The FHA streamlined refinance is only available for borrowers who currently have an FHA mortgage (if you don’t, you can still refinance into an FHA mortgage, but it will be a fully documented mortgage). Because FHA is a government program, and its mission is to increase home ownership, they have designed this program as a way to make it easier for borrowers who are already paying their mortgage on time to lower their payments without going through the entire qualifying process.

There are two types of FHA streamlined refinance, one where you can add in all your closing costs and pre-paids, but it requires a new appraisal to show you have enough equity to support the new loan amount. The other is an FHA streamlined refinance with no appraisal. This program does not require a new appraisal (which makes a difference if your property value has gone down). You can still add closing costs and escrows into the new mortgage amount, but your new mortgage is capped at the amount of your initial loan.

Here are some of the features of the FHA streamline refinance:

• No credit qualifying. This is not credit score based and it is not even necessary to pull a full credit report. Your mortgage does need to be up to date, and current and we will look at your payment history over the last 12 months.
• No income qualifying. When we take a streamlined application, we don’t even look at your employment, income or debts. The logic behind this is that if you are able to handle your mortgage payments and other debt now, you will not have any trouble when the payment is lowered.
• The mortgage needs to be an FHA loan, and it has to already be insured by FHA (If the lender who made the loan hasn’t gotten the loan insured yet, you will have to wait until it is in their system).
• You can’t receive any cash at the closing.
• In order for the loan to be approved, you will need to show that this loan is helping your situation. This means a reduction in your payment by at least $50 per month.
• The actual closing costs on these loans are low, the FHA commitment fee and title charges are the only costs needed. With most of the streamlines I have done, we have paid these costs through the premium we receive from the lender, so the borrower isn’t paying it directly.
• With FHA there is always an up-front mortgage insurance fee that needs to be paid. Depending on when you bought the home, you may get a refund of a portion of the fee you paid initially. This works on a sliding scale. You will get a large portion of the fee back in the first year, but it is all gone by the end of the third year. If you get a refund it will be applied against the new fee, with the balance financed into the new loan amount.
• One other thing to keep in mind is that you want to close your loan as near the end of the month as possible. FHA, unlike conventional mortgages, charges interest on their payoffs on a monthly basis, not per day. So you will pay the same amount of interest if you close on the first day as you would on the last day. You still have to allow for the 3 day right of rescission, and in a market like this getting a title spot and closing within your lock term is more important.

FHA used to be a major loan option, but it all but disappeared for a number of years as all sorts of low down payment plans came out on the conventional side. With conventional loans tightening, FHA made a resurgence last year. This means that older loans will likely be eligible for streamlines with the appraisal, but most of the newer loans will be doing the loan without the appraisal. Even if there are no closing costs involved, when you close on a loan you will need to set up a new escrow account and pay interest to the end of the month. Some of this will be able to be added in to the new loan amount, but without an appraisal you are capped at the original loan amount. Keep in mind that you will skip your next month’s payment and get the money in your escrow account back from your current lender in the next several weeks after closing, so it will be a wash in the long run, but if you bought with the minimum down payment you will probably need some cash at closing.

The FHA streamlined refinance is a great deal for most borrowers, and a quick and easy way to take advantage of the low rates we can now offer.

Illinois Home Mortgage Rates and News             First time home buyer loans

                               Do you Twitter? For daily mortgage updates, follow me at @PTmortgage

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

Contact Your illinois mortgage company Today

We Offer illinois home mortgage Loans with best mortgage rates

Get Best Advice from illinois mortgage broker

In the mortgage business, there is always anticipation around this time of year as we wait for the new loan limits to be announced. I know, as far as excitement goes this is up there with waiting for the new phone book to come out. But this year the drama was a little more pronounced. The conventional loan limits (the maximum loan that will be insured by Fannie Mae and Freddie Mac,) have stayed the same for the last several years, and with home prices soft the betting was that they would stay the same again this year. And the betting on that count was right. The maximum loan for a single family home here in the Chicago area and throughout most of the country stayed the same at $417,000. In high cost areas (Hawaii and parts of California, mostly) the max loan limit actually went down. Earlier this year loan limits were raised in these high priced areas in order to help the real estate market and take up the slack as many Jumbo lenders stopped making loans. The Max mortgage in the high priced areas was $729,950, after the first of the year it will be going down to $625,500.

The conventional limits as of January 1st will be:

          General                         High-Cost 

1Unit           $417,000                        $625,500

2 Units        $533,850                        $800,775

3 Units        $645,300                        $967,950

4 Units        $801,950                        $1,202,925

The bigger uncertainty and anticipation was what would happen with FHA mortgages. Earlier in the year FHA raised their limits temporarily to $410,000 for a single family home. FHA used to be just a little slice of the mortgage market, but this year, partly because of the increase in loan limits and partly because of tightening conventional standards, FHA has become the number 1 choice for the majority of home buyers. Everyone expected that the FHA loan limits would go down, the question was how much. We now have the answer. Here in the Chicago area the max FHA loan for a single family home will be $365,700. This is based on 115% of the median home price in the area. Nationally the lowest max mortgages will be capped at $271,050 and in high priced area the loans are capped at $625,500 for a single family home.

Here are the FHA limits for the the greater Chicago area which includes Cook County, Dekalb County, Dupage County, Grundy County, Kane County, Kendall County, Lake County, McHenry County and Will County: 

1 Unit        $365,700

2 Units      $468,150

3 Units      $565,900

4 Units      $703,250

In other areas where 115 percent of the median house price is less than 65 percent of the Freddie Mac limit (which includes most of Down State Illinois), the FHA limits are as follows:

1 Unit       $271,050

2 Units      $347,000

3 Units      $419,400

4 Units      $521,250

Here are the limits in higher priced areas:

1 Unit        $625,500

2 Units      $800,775

3 Units      $967,950

4 Units      $1,202,925

If you are looking for a loan in a higher priced area, or if you are thinking FHA and your loan will be above the new limit, you might want to act fast. The old guidelines are good for mortgages that are entered into the system up until the end of the year. After that you will be subject to the new limits. If you have questions on the max mortgage for a specific location, give me a call.

Illinois Mortgage Rates and News                              First time buyer loans

Do you Twitter? For daily mortgage updates, follow me at @PTmortgage

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

Contact Your illinois mortgage company Today

We Offer illinois home mortgage Loans with best mortgage rates

Get Best Advice from illinois mortgage broker

Chicago, Illinois - One of the major differences between FHA loans and conventional loans is how the loans are approved. Conventional loans are almost entirely dependent on the automated approval, that is as long as you put the right information into the computer (Getting the information right is one of the jobs of a good mortgage broker or mortgage banker) and provide the matching documentation, the automated decision will stand. FHA is different. With FHA there are two ways to get your loan approved, through the automated decision, or with an FHA manual underwrite. FHA is also different in that any credit issues that show on your credit report (especially over the last 2 years) will need to be explained. If you already have an automated approval, this is more of a matter of dotting the I’s and crossing the T’s. If you can’t get your FHA loan approved automatically, your credit letter may make the difference in whether or not your loan is approved.

First of all, if you’ve had serious credit problems you need to ask yourself if you really are ready to buy a home. This can be a hard question to answer, but if you have been struggling to pay your bills on time, buying a house is probably not the right decision for you. At the same time, I’ve seen many cases where the borrowers were good credit risks who for one reason or another had a situation that made it hard to pay their bills on time. This is especially true when the problems were caused by circumstances beyond their control, like a job loss or medical emergency. If you are looking to buy make sure you are back on your feet and your finances are under control. Another thing to look for is to see if the problems on your credit report are correct. If there are mistakes on your report and you can show that they are mistakes, you can get the report cleaned up before it is submitted to underwriting.

An FHA letter of explanation is used to explain exactly what happened and to give the underwriter a reason why she (or he) should approve the loan in spite of all the reasons she has to deny it. In other words, this is your opportunity to make your own case for why you are a good credit risk even though you show some credit problems and your scores may be low. Bad things happen to good people. There is a big difference between someone who runs into tough circumstances and has a hard time taking care of their obligations for a while, and someone who just doesn’t bother to pay their bills or who takes on credit without figuring out how they will make the payments. The credit letter of explanation allows you to say in your own words why this was a temporary blip and that you are now ready to take on more credit.

So what are underwriters looking for in your FHA credit letter? In a nutshell, they are looking for 3 things.

1. The problems were a one time event, not a regular pattern. This is especially true if you can show that this happened due to circumstances beyond your control.
2. What did you do when faced with this difficulty? The key here is to explain what you did to get yourself back on track. Have you paid off the debts? Are you on a payment plan? You need to show that the credit problems have now been dealt with and are not a current concern.
3. Why won’t this be a problem in the future? The underwriter is putting her credibility on the line when she approves a loan manually. You need to be able to show what has changed so the problems won’t happen again. Has your income increased? Are your expenses lower now? What in your life has changed for the better that will give the underwriter confidence that she is not making a mistake in approving your loan?

There are a few things to keep in mind when writing your letter:

Authenticity, be yourself. This isn’t an English paper and won’t be graded on spelling or punctuation. Explain what happened just as if you were talking with the underwriter face to face. Don’t try and shorten the explanation. Take as much time as you need to get the story right.

Document everything. If you have a good story to tell, you will also need to show proof to make your case.

So what happens if you don’t fit these guidelines? Most situations fit under the automated approval, even situations which show some rough credit. So if you have some good compensating factors you may be in a better position than you think. But in many cases the best thing you can do is use this as motivation to get your credit back in order and be ready to buy a home down the road.

Here is a series of posts I wrote on how to clean up your credit and increase your credit scores:

How to understand and make the most of your credit score part 1

How to understand and make the most of your credit score - part2

How to understand and make the most of your credit scores -part 3

How to understand and make the most of your credit scores - part 4

Illinois Mortgage Rates and News

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

Contact Your illinois mortgage company Today

We Offer illinois home mortgage Loans with best mortgage rates

Get Best Advice from illinois mortgage broker

For most Chicago area home buyers, the cost of FHA financing is about to go up. For years FHA had a one price fits all policy. As long as you qualified for an FHA mortgage you would get the same terms, whether you had a large down payment or small, and no matter what your credit score was, the mortgage insurance was the same price for all. This policy changed a few months back when FHA adopted a risk based pricing model. Risk based pricing is the idea that those borrowers who are the best credit risks will pay the least, and borrowers who have a riskier credit profile will still be able to get financing, but they will have to pay a higher rate for their mortgage insurance. This short-lived policy is about to change again. As part of the recently passed Housing Bill, starting October 1^st, there will be a one year moratorium on FHA risk based pricing.

The details of this change have now been released, and instead of going back to the old rate schedule, FHA is increasing their mortgage insurance rates across the board. FHA breaks their mortgage insurance premiums into 2 parts. One, the up-front premium which is financed into the mortgage, and two, a monthly premium which is paid for at least the first 5 years of the loan. Here is the new schedule that will be in effect as of October 1^st.

Up-Front MIP -

1.75% - Purchases and Qualifying Refinances
1.5% - Streamlined Refinances
3.0% - FHA Secure (High Risk Delinquent Borrowers)

Monthly MIP – these premiums are divided by 12 and paid each month

0.55% - over 90% LTV
0.50% - less than or equal to 90% LTV

On 15 year loans with LTV > 90%, annual mortgage insurance will be .25% 

On 15 year loans with LTV < 90%, annual mortgage insurance will not be required

What this means is that borrowers with the lowest credit scores and the higher loan to values (less down payment) will be getting a break once this policy starts. But those lower risk borrower’s who used to be conventional buyers, will pay a little more. Conventional loans are getting their own increases, so FHA still has an advantage, but the end result is financing is a little more expensive than it was before.

The new pricing goes into place on October 1^st. Some borrowers will save some money by financing (either through a purchase or a refinance) before then. We are a direct endorsement FHA banker, so we underwrite and fund the loans ourselves. If you need to close quick, we can do it.

Illinois Mortgage Rates and News

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

Contact Your illinois mortgage company Today

We Offer illinois home mortgage Loans with best mortgage rates

Get Best Advice from illinois mortgage broker