The first step in buying a home in today’s market, is to talk with a good loan officer and find out how much of a mortgage you can qualify for and if there are any obstacles you need to overcome before you will be able to buy. This usually starts out as a short pre-qualification phone call, but before you start looking at homes you need a full pre-approval where you supply all your income and down payment documentation, and have the loan officer run your credit and go through your file with a fine tooth comb to make sure there isn’t anything there that will derail the process down the road. Mortgages are readily available and the mortgage rates are great, but the truth is that each mortgage loan is being scrutinized now like never before. When the housing bubble was heating up, underwriting was too easy. Underwriting is tighter now, and full loan approval means not only meeting the normal guidelines, but also the overlays or additional requirements that each lender now requires. This means that your loan officer needs to keep track of all the changes (and there are lots of changes) to the approval guidelines and know how to fit each borrower to the loan that is best suited for their unique situation. The reality is that this doesn’t always work out the way it is supposed to. A big part of my business now is working with borrowers who thought they were pre-approved to buy a home, but when they got their contract together, they found out they really weren’t approved after all. Now they are under the gun with a tight deadline to buy and having to start over.

In most cases, when you get a mortgage pre-approval, you are strictly dealing with the mortgage loan officer. Approving a mortgage is expensive, and without a property under contract it doesn’t make sense to take support staff away from transactions that are already in process to work on a deal that might never come through. So pre-approvals aren’t fully processed and don’t go through the underwriting process. The process in most mortgage companies is for the loan officer to ask a series of questions, request all the documentation, run your credit report and run all the information through an automated underwriting program to get a conditional or first step approval. When we get an approval with the automated underwriting system (this is either Desktop underwriter or Loan Prospector, Fannie Mae’s and Freddie Mac’s respective systems) the approval is subject to verifying all the information put into the system. In other words, the approval is only as good as the information entered into the system. If your loan officer didn’t ask all the right questions, or put in wrong information into the system, the approval is not going to be valid.

If there are any issues and you know what they are up front, you may have time to fix them and put yourself in a better situation. In today’s lending environment, you want to make sure you are working with someone who has the experience and knowledge to look for the hidden pitfalls, and be able to structure your transaction in a way that will put your situation in the best light. If you are just starting to look for a home and want to see how much you can afford, or if you have already been pre-approved for a mortgage but would like a second opinion, give me a call. I would appreciate the opportunity to help.

Free Home Buyers Guide

You can trust in us to get the job done.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

There is no doubt that we are in a market where the home buyer wields the most power. There is more inventory of homes for sale than qualified buyers, so the buyer has more leverage, which usually means that the buyer can get a better price and terms when negotiating a purchase. This has been the rule, and in a market dominated by foreclosed and distressed properties, I am consistently seeing contracts come in well below the asking price, and usually with the seller paying for some or all of the closing costs. But I am now starting to see an odd new phenomenon – multiple offers on the same property. Multiple offers are usually a sign of a sellers market. A few years back at the height of the real estate boom, as soon as a sign was placed in the yard, a steady stream of buyers were there ready to buy. Homes were selling fast and multiple offers to buy the home were common. Back then, the most attractive homes in the nicer neighborhoods were getting the most interest and generating bidding wars, but nearly everything was selling.

The real estate market today is much different. The average time for a home to sell is much longer, and the focus of buyers now is not necessarily finding the best home in the nicest neighborhood, but finding the best bargain. The properties that are generating multiple offers today are homes that are priced below other similar homes. A lot of times this is a strategy on the listing Realtor’s part to separate their listing from all the others on the market and create an auction atmosphere. By starting out low they can often get more interest from buyers, more bids and with the competition to buy the home can often sell faster and for more than it would otherwise.

If you find a home that is getting a lot of interest and it looks like you will be competing with other buyers, here are some things to think about and tips on how to make the best of the situation:

Is it a short sale, or a foreclosure? These properties are most likely distressed, but there is a big difference between a short sale and a foreclosure. With a foreclosure the bank already owns the home and has agreed to sell at the listing price. A short sale is more complicated. Another way to look at short sales is as pre-foreclosures. The owner is trying to get out of the home and sell it for less than what they owe on the mortgage. This means you have to go through two steps – getting a contract together with the owner, and then having the contract approved by the bank that holds the mortgage. Sometimes short sales are priced too low, and at a point where the bank won’t approve it.

Is this really the right house for you? A funny thing happens when people get involved in a bidding war. Emotion takes over and many buyers are determined to do whatever they can to make the winning bid. If this is the right home for you and the value is there, that can be the right decision. But if you get carried away in the moment and agree to terms that are more than you want, you may regret it when the seller says yes. As the intensity heats up, take a step back and make sure that this is the right home for you.

Have your Realtor put together a market analysis for the home. The property has to be priced well in order to generate excitement, but as buyers compete the asking price may rise significantly above what you start out at. With multiple offers the first bid is often followed by a request that all the bidders come in with their highest and best offer. If you are intent on winning the bidding contest, you may end up paying more than you expected. A good Realtor will help you see what the real value of the home is and what the best strategy is for you to buy, and help you make a decision of if it is better to walk away.

Homes that generate multiple bids are a good sign for the market, but this is still a buyer’s market. As a home buyer you have a lot to choose from. Make sure that the home you buy is the right one for you.

Free Home Buyers Guide

You can trust in us to get the job done.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

In this installment of the Chicago Video Home Buyers Guide, we talk about income qualifying, and how your income is looked at when you apply for a mortgage. This is one of the major factors of qualifying for a loan, and for how much of a mortgage you can afford. Part of this

comes down to income stability, or how likely is your income to continue and how reliably can we predict what you will earn in the future. The other part of this is affordability, or how you can fit the new mortgage into your budget. For this we look at ratios, or comparisons of how much of your gross income will be taken up by the mortgage, and how much of your income it will take to pay off the mortgage and all your other debts.

If I can help in any way, please let me know.

Other videos in this series -

Credit Qualifying and What You Can Do to Improve Your Credit Scores

Pre-Qualification and Mortgage Pre-Approval

Equity build up – How you build value by paying down your mortgage

How leverage and home appreciation will build value over time

The tax benefits of owning your own home

You can trust in us to get the job done right.

Free- Home Buyer’s Guide

Free Mortgage Pre-approval

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

In this installment of the Chicago Video Home Buyers Guide, we talk about credit, and what you need to know when getting a mortgage. With mortgage guidelines tightening, having good

credit is more important now than ever before. That being said, you don’t need to have perfect credit to

get a loan. But you do need to show that if you have had credit problems in the past, these problems are behind you and you have control of your credit now.

In this video I talk about fico scores and what goes into the credit score, and what you can do to improve your credit and raise your credit score. The truth is, you have more control over your credit than you may think. Even if you have had problems in the past, you can improve your credit profile over time.

Here are links to past articles which cover how credit scores are determined, what you can do to improve your credit and how to remove mistakes on your credit report.

How to understand and improve your credit score-part1

How to understand and improve your credit score-part2

How to understand and improve your credit score-part3

How to understand and improve your credit score-part4

If I can help in any way, please let me know.

Other videos in this series -

Pre-Qualification and Mortgage Pre-Approval

Equity build up – How you build value by paying down your mortgage

How leverage and home appreciation will build value over time

The tax benefits of owning your own home

You can trust in us to get the job done right.

Free- Home Buyer’s Guide

Free Mortgage Pre-approval

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

It is a simple fact. Buying a home and getting a mortgage today is much more complicated than it used to be. But in many ways, this is a good thing. A few years back it was a strong sellers market. There were more buyers than sellers and as soon as a new listing appeared in a neighborhood, there was already a line of people waiting to buy. Most homes, if they were in decent condition, received multiple offers to buy, and often sold above the asking price. At that time a good Realtor was someone who was connected to the Realtor community and knew who had the pocket listing that wasn’t on the market yet, so they could help their buyers find a property before it even made it to the Multiple Listing Service. On the mortgage side, nearly anyone with a pulse could get a mortgage, and there were loans available for anyone, regardless of credit, income or even if you had a job. It was too easy to buy a home and to get a mortgage then, but as we now know, this didn’t end well. Needless to say, a lot has changed since then.

The market is much more complicated now, but the flip side of this is that there are more opportunities. Home prices are down, and with so many foreclosures and pre-foreclosures (short sales) on the market you have more homes to choose from than ever before in my lifetime. It is the same on the mortgage side. It is harder to get a mortgage and we will need to make sure that you fit the guidelines and all the Is are dotted and Ts crossed before issuing a mortgage. But with rates near all time lows, and home affordability is the highest it has been in years, so the rewards are high for buying a home now. It makes a lot of sense for many people to buy a home now, but because it is more complicated you need to make sure that you work with experts who are able to advise you about the best ways to proceed and to guide you through to a smooth closing.

Assemble your team of experts

Your Realtor – Finding a good, experienced and knowledgeable Realtor who pays attention to your needs is a necessity now. But experience doesn’t just mean how many homes they have listed or how many homes they have sold. You need to ask your Realtor what her experience has been in today’s market. Does she work with short sales and foreclosures? What is her track record? Buying these properties isn’t for everyone, there are more complications involved and if you set your sites on a short sale it is likely to take longer and may never close. But these distressed properties are a big part of the market now, and you need to see if these are possibilities for you. A good Realtor will tell you all the options and let you know both the pros and cons of each, so you are able to make the right decision. A good Realtor does much more than just show you property. They handle many details and help keep the communication going which helps to insure a smooth transaction.

Your Loan officer – Before you even start seriously looking at homes, you should talk with a good loan officer and get pre-approved for a mortgage. There are still mortgage programs available which fit the needs for most home buyers now, and there is plenty of mortgage money available. But you need to work with someone who is up to date with the current market and regularly closes purchase loans (many loan officers do mostly refinances). The changes in the mortgage industry over the last few years have been astounding. Mortgage guidelines change on a regular basis and keeping up with everything is nearly a full time job. Before you choose a loan officer, talk with them and make sure you feel comfortable with their suggestions. Also, make sure you are comfortable with their communication. Do they make it clear with what your situation is and what you need to do to qualify for a loan and how much of a mortgage you can afford? Do they return emails and phone calls on a timely basis? Good communication throughout the process not only eliminates stress, but makes sure that the approval process moves smoothly and nothing falls between the cracks.

Your Attorney – Here is the Chicago area, the attorney is a key team member in a real estate transaction. In a way, a good real estate attorney is a form of insurance. In most cases, everything goes smoothly and the attorney’s main role is to review the contract at the beginning, protect you through the approval process and explain the documents you sign at the closing. But it is when something unexpected happens that the attorney really saves you money. These major problems don’t happen regularly, but when they do having a good real estate attorney on your side will not only save you money but will help you avoid major problems. Make sure your attorney specializes in real estate. If you get someone who isn’t familiar with real estate they may miss things that are common practice for someone who handles real estate closings regularly.

Putting together a team that you are comfortable with and that is working for you will make all the difference when you buy your home.

Free Home Buyers Guide

You can trust in us to get the job done.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

Here we go again. Following on the heels of Fannie Mae and Freddie Macs mortgage cost increase, as part of the new budget released this week the cost of an FHA mortgage is going up. Again. Last fall FHA tinkered with their fee structure, lowering their Up-Front Mortgage Insurance Premium (UF-MIP is usually added back and rolled into the mortgage) while increasing the annual premium, which is paid as part of your monthly payment. The new increase goes into effect in April and will raise the cost of buying with an FHA mortgage by .25% per year, or a total of 1.15% of the loan amount each year, divided by twelve. So if you are buying a $200,000 home with the minimum 3.5% down payment, this translates into an increase of about $40 in the monthly payment. An extra $40 per month is probably not enough to push most home buyers out of the purchase market, but it is an added cost which will cut down on purchasing power and strain budgets just a little bit more.

You can look at this cost increase as a sign of FHA’s success. A few years back, FHA market share had shrunk to about 2% of the total mortgage market as private lenders (big banks and brokerage houses, mostly) came in with a whole array of loan products available for anyone who had a pulse. When the housing market imploded all these players dropped out of the market or took government bailouts to keep afloat. FHA now has about a 40%  share of the mortgage market because they are the only option left for most home buyers who don’t have a big down payment saved up. By law, FHA has to be self sufficient. The money from their mortgage insurance premium goes into a reserve fund which pays for loans that go bad. Although FHA didn’t have a lot of bad old loans on the books, and they have tightened their underwriting over the last two years to increase their loan quality, the fact that their volume has exploded means that they need more money to shore up the fund against the risk of future defaults.   

The good news is that this keeps FHA solvent. FHA has started sending signals that they are getting more aggressive in some areas. We have come out with a new program to approve home buyers with lower credit scores, and the rumor is that FHA will be coming out with a 203k renovation loan for investors. There is no doubt that FHA’s success is crucial to the recovery in the housing market.The increase in cost is just a price that has to be paid.

Free Home Buyers Guide

You can trust in us to get the job done right.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

“How low of a credit score can I have and still be able to get a mortgage?”

This is a question I hear almost every day. One of the frustrating things for many people trying to buy their first home, has been dealing with old credit problems. Some people consistently have problems with credit, and if you just don’t pay your bills on time (or at all) and if you don’t take credit seriously, buying a home and qualifying for a mortgage is probably not an option. But for many people their credit has been damaged due to isolated life events. Too many people have run into problems over the last few years, often as a result of losing a job, medical issues or other traumatic events. For these people, the real frustrating part is that once their lives are back on track and they are back to paying their bills on time, it is still hard to improve their credit scores. To add insult to injury, mortgage guidelines have continued tightening over the last few years. A few years ago credit scores pegged 620 as the lowest level of good credit, that is, credit scores good enough to qualify for the best rate on a conventional mortgage. Now it takes a Fico score of 740 to get the best terms, and those with scores under 700 should expect higher rates or bigger fees.

FHA is much more common sense in regards to credit. With FHA your whole credit profile is considered and the scores themselves aren’t nearly as much of a focus. FHA underwriters also base their decisions on letters of explanation telling what happened to your credit, why it happened and why it isn’t likely to happen again. FHA is much more common sense, and FHA doesn’t have a minimum credit score that they require. But over the last year almost all of the lenders who fund FHA loans have added overlays (additional requirements) that have raised the required FICO score to a minimum of 640. There might not be much difference in the credit profile between someone with a 640 score and someone with a 629 score. But statistically, credit scores under 640 are much more likely to default on their loans. The sad thing about concentrating on credit scores is that it doesn’t take the human element into effect, and there are people who have scores where the credit is improving, and others with the same scores where the credit is going down. Up until now they have all been looked at the same way if their score was below the 640 minimum. But this is now changing.

Prospect mortgage, the company I work for, has just come out with a new loan program that allows people to buy homes with Fico scores between 580 and 639. In my opinion, this is a huge step in the right direction. This isn’t a new version of sub-prime and it doesn’t mean anyone with a credit score over 580 is now able to get a loan. What it does mean is that those people who have been doing the right things and who can show they are able to afford a home payment  won’t be frozen out simply because their Fico scores came in too low. This program is going back to old school FHA underwriting. In order to qualify for this program, we need to see that even though your credit scores are lower than what is normally called for, you are handling your credit responsibly and whatever caused the problems is all past history. The real key to this loan is affordability. Having a payment that fits in your budget means you aren’t stretching too far, means less stress on your finances, so one of the biggest factors for approval will be showing that both your total mortgage payment and your mortgage payment plus all your other debt, are at comfortable levels. If your payment is going to jump with the new mortgage compared to what you have been paying for rent, we will need to see that you have been saving regularly and that the higher payment won’t be a burden.

This new program is an FHA fixed rate mortgage. Here are some of the features of this new loan:

• Borrowers credit scores between 580-639.

• Available for purchase loans only.

• 3.5% down payment.

• All the funds for closing can come from a gift.

• Available for single family homes, townhomes, condos and 2 unit buildings (rental income can’t be used to qualify).

• Ratios (this is to show affordability) are 31% of income cam be used for the housing payment and 43% of income can go toward the housing payment plus all other debt. These ratios can be increased if there are at leas 2 compensating factors.

• Can apply 2 years after a chapter 7 bankruptcy discharge – 12 months after chapter 13.

• 2 months reserves required (based on 2 times the full mortgage payment).

• Home buyer counseling is required.

The rates on this program are higher than for conventional FHA mortgages because of the higher risk. This program won’t help everyone, but it will help a lot of people buy a home now. If you are looking to buy a home but worried that your credit will hold you back (or a Realtor working with clients who have had problems in the past), give me a call.

Free Home Buyers Guide

You can trust in us to get the job done right.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

In this installment of the Chicago Video Home Buyers Guide, we talk about what is involved with starting a mortgage pre-approval. Getting approved for a mortgage is the first step in buying a home. Knowing

how much of a payment you can afford, and how much cash you will need to close allows you to set your sites on a home that is within your price range and your budget. Mortgage guidelines have tightened over the last few years, and knowing what is involved, and what you can do to put yourself in the best position, can make the difference between being able to buy a new home, and continuing to rent. As part of a free mortgage pre-approval, a good loan officer will not only tell you what you can afford and what the best way to buy will be, but can also offer advice that will help you meet your long term financial goals.

The Chicago Video Home Buyers Guide will be released one segment at a time over the next few months. If this segment is helpful, please pass it on to friends or others who are thinking of buying their own home. Let me know your thoughts. Thanks for watching.

Other videos in this series -

Equity build up – How you build value by paying down your mortgage

How leverage and home appreciation will build value over time

The tax benefits of owning your own home

You can trust in us to get the job done right.

Free- Home Buyer’s Guide

Free Mortgage Pre-approval

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

In this installment of the Chicago Video Home Buyers Guide, we go over the tax advantages of owning your own home. The government encourages owning your own home and real estate is treated differently from every other

purchase. When you buy a home, you get to write off the amount you pay for mortgage interest as well as the amount you pay for real estate taxes. This means that the government is, in a sense helping you pay for your home, and you can afford a higher mortgage payment than the equivalent rental payment. Combined with other financial advantages of buying a home, this is a strong incentive to buy, and makes real estate more affordable.

The Chicago Video Home Buyers Guide will be released one segment at a time over the next few months. If this segment is helpful, please pass it on to friends or others who are thinking of buying their own home. Let me know your thoughts. Thanks for watching.

Other videos in this series -

Equity build up – How you build value by paying down your mortgage

How leverage and home appreciation will build value over time

Free- Home Buyer’s Guide

You can trust in us to get the job done right.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

There are a lot of good reasons to buy a home now. Affordability is the highest it has been in over a decade, interest rates are still near all time lows, home prices are selling for a big discount, mortgages are available with low down payments and realistic qualifying guidelines, there is a huge inventory of homes to choose from and with it being such a strong buyers market, seller concessions (the seller paying for closing costs and such) are now the norm. As I have written regularly, if you don’t own a home, now is a great time to buy one. Let’s add one more big reason to the list. Hedge fund billionaire John Paulson, a noted contrarian and one of the first investors to bet against sub-prime mortgages at the height of the housing bubble,  says that homes are now a screaming buy and the price of housing will soar in the coming years. At a recent speech, Paulson said:

“If you don’t own a home buy one,” Paulson recommended; ” if you  own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home.”

Paulson isn’t urging you to buy based on affordability, his contention is that we are on the road to hyper-inflation. The Fed, through quantitative easing, is pumping up the money supply as they fight what they see as the most important concern, the risk of deflation. With unemployment high and home prices low, the Fed is trying to create a very low positive inflation which will prompt the banks to get more aggressive in lending their funds, which is needed to get the economy back on track. Paulson is convinced that the Fed will overshoot, and expects that we will have double digit inflation by 2012. He is putting big bets on gold, and has started a housing recovery fund.

In order to see why this may be a big deal, a little history is needed. John Paulson was one of a handful of big investors who called the housing bubble and made fortunes because of it. He was a middle level hedge fund operator, primarily dealing with distressed companies, when in 2006 he started making big bets against sub-prime mortgages and the overall housing market. When the housing market tanked, he clocked in a profit for his firm of $15 billion dollars, which is considered the biggest trade ever.

Being right then doesn’t mean he will be right this time. But it doesn’t take hyper-inflation to make real estate a strong investment (let alone a great place to live in). Slow and steady appreciation builds wealth over time, and you have to live somewhere. There are a whole lot of uncertainties in the economy now, and we will have to see how this all plays out. But history shows that the best time to buy something is when it is cheap and most people are scared to buy it. Homes fit that category now. So whether you are buying your first home, a second , third or are going to lend the down payment to a relative so they can buy, if you need a mortgage, give me a call.

Desplaines Illinois property management

Free- Home Buyer’s Guide

You can trust in us to get the job done right.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages