The markets had a short week last week with a break for Thanksgiving, but the reports released continue to paint a picture of an economy that is improving in some areas while still in the mire in others. First, the good news. Retail sales fell 0.6% for the week ending November 20, but are a 2.8% higher year-over-year basis. Retailers are optimistic as we head into the Christmas buying season. GDP (Gross domestic product — the total output of goods and services produced in the US) increased at an annual rate of 2.5% in the third quarter, better than the1.7% growth in the second quarter and a real sign that the economy is improving. Initial unemployment claims fell by 34,000 to 407,000 for the week ending November 20. That’s the lowest level (best reading) since July of 2008. Continuing claims also fell. Analysts say the jobs situation is definitely easing, but it will take a much higher level of growth to help get enough jobs back to lower the unemployment rate. We need 100,000 t0 150,000 new jobs each month just to keep up with the new people coming into the job market, and to help those who are long term unemployed now, we will need stronger growth. But this is a sign that we have turned for the better. Now for the bad side. The housing market is still a mess. New home sales fell again in October, an 8% drop from September and the worst October on record. Existing home sales were also off more than expected. The inventory of homes for sale now sits at over a 10 month supply, but this doesn’t include the shadow inventory of foreclosed homes that are not yet on the market. Orders for durable goods — items expected to last three or more years — fell 3.3% in October after a higher than expected increase in September. This figure is volatile from month to month, and it is improving for the year, but this number surprised on the down side.

The biggest story right now may be what is happening in Ireland and the European Union. Ireland took in a $113 billion dollar bail out from the European Union and the International Monetary Fund in order to avoid defaulting on its bonds. This is the second bailout this year for Ireland, they last dipped into the well in May. In exchange for the money to keep afloat, Ireland has to drastically cut spending, a move that is very unpopular with the Irish citizens. Greece got their austerity pill not too long ago, and Spain and Portugal are in line to take their medicine next. The popping of the economic bubble continues to echo throughout the world. The big question here is how this will affect the long term health of the European Union. The European Union formed to have a common currency, the Euro, to compete with the dollar on the world market. It has been a hard mix from the beginning. The Union doesn’t have a central bank, like the Fed, and relies on each country to maintain their economies growth and debt levels on their own. This pits the interests of strong stable countries like Germany, against those of the weaker members. This is just the latest installment, but this story will continue.

So how did all this affect mortgage rates? In the early part of the week mortgage bonds got crushed, and rates are now at their highest level in the last 4 months. But there are some silver linings behind these dark clouds. First, even with the run up, mortgage rates are still near all time lows. Affordability is high and rates are still over a half point lower than they were at a year ago. If you are thinking about buying a new home, the rates today shouldn’t have any impact at all. If you were looking to refinance and missed the lowest rates, there may be a second chance. Some of the most influential bond market analysts think this move was overdone and we are due for a move lower in rates. This again has to do with the reaction to the Fed’s policy of quantitative easing. Though there are signs that the economy is improving, unemployment is still the major problem. We need much stronger growth in order to do anything to bring this down. The risk of inflation is still very low and the Fed minutes released last week showed they were still more concerned with the threat of disinflation. At the end of last week the mortgage bond market improved. If big investors think the worst of the sell off is over, they may be ready to move in to buy more securities at what could be bargain prices.

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 start rate for the next 5 years. 2% cap for next 5 years – so a blended rate over 10 years is no more than 1% over the start rate. Super Jumbos available.

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

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.

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

The Gross Domestic Product (GDP), which is a measure of the total amount of business in our economy, increased at an annual rate of 2.4% in the the second quarter of 2010. Although this is an increase, it is much slower growth than the first quarter (3.7% increase) and less than the 2.7% that economists had forecast. This means that the economy is slowing down.  At this point in the recovery, after so much money in stimulus has been spent by the Federal government, growth should be accelerating. The fact that it isn’t, especially when taken together with other recent reports, puts to rest the idea that we will be getting back to what was considered normal any time soon. In my opinion the reason for this is that the banks are holding onto the money by not making commercial loans that would normally be approved, it’s like they are kinking a hose so water trickles out instead of flowing. But that is another topic. The result of this report is that this morning stocks are down and money is flowing into bonds, including mortgage bonds which determine mortgage rates.

Mortgage rates have been sitting at all time lows, but it looks like this will push them down another level. Mortgage bonds this morning have spiked sharply higher. Mortgage rates haven’t come out yet this morning, but they will be better, and this means the best rates we have ever seen. If you are in a position to refinance your mortgage, this is the time to get serious. Talk with your loan officer and get your documents together. This is an opportunity that will help many borrowers, including those who refinanced last year, save on their payments every month, and we can often do this with no cost to you. If I can help in any way, please give me a call.

Peter Thompson 630-479-6424       

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

Foreclosed properties are one of the biggest factors in the real estate market.  Buying a foreclosed home isn’t for everyone, but if you know what you are looking for, you can find bargains. Foreclosures can come form banks, loan servicers and other entities, and the red tape and bureaucracy involved in getting a purchase together and closed, can make it a rough ride. The lenders have a need to sell, but because they are understaffed, and the loan often has to be approved by someone higher up the food chain, you need to have patience and resolve. But some players have moved further along the curve than others, and have come up with more systematic ways of cleaning out their inventory. Fannie Mae, the biggest buyer of loans in the mortgage after market, has 89,000 homes that are now on their books, and they have worked out a system to help buyers find and finance these properties at terms that work for more home buyers. They have developed the Homepath website where buyers can go to find Fannie Mae foreclosed homes, and the Homepath financing program as a way to offer financing with terms that better fit the unique problems of foreclosed homes.

Homepath financing is only available for specific Fannie Mae foreclosed homes, and you don’t have to use the Homepath financing. It makes sense to compare options. Depending on your situation and the condition of the property, other financing may make more sense. But in many cases the Homepath will be the best option, and it will usually be the easiest way to close on the home. These homes are all available for purchase immediately, and though the listing price is set by Fannie and listed through a broker, you can use your own Realtor and negotiate the price and terms, just like any other listing.

Here are some of the advantages of Homepath financing:

• Financing with as little as 3% down for owner occupants.
• Financing for investors with as little as 10% down. (Investors can finance up to 10 properties.)
• No mortgage insurance required (there are price overlays which increase the rate).
• Fixed rates, ARMs and even interest only loans are available (you will need more equity for interest only loans).
• Fannie Mae allows up to 6% for seller concessions (2% for investors) – make this a part of your offer and it will go a long way toward bringing down the interest rate.
• No appraisals are required, you use the sale price as the value.
• Can be used for primary residences, second homes and as investment properties.
• More lenient credit standards than for other conventional mortgages.
• 3% down payment can come from a gift.
• More relaxed condo documentation and approval requirements.

One thing to keep in mind with Homepath, is that the terms are great, but the price can be high. They start with a base price but with overlays (price hits) the actual price may be much higher. One of the keys to this program is that they allow up to 6% in seller concessions – be sure and ask for all you can get when you make the offer.

Here is the website which lets you search for all the properties eligible, you can break it down so by county, town or zip code to see what is in the area you are most interested in -  http://www.homepath.com/. If you want to see how the financing works, and compare it to other options, give me a call and I can tell you what will work out best.

Peter Thompson                             630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

When I talk with prospective home buyers, one of the biggest surprises is how much it cost to buy a home. Most buyers expect that they will need to come up with a down payment, and with FHA requiring a minimum of 3.5% down (and that can come from a gift), but it is often a shock that there are additional charges they will need to come up with at closing, and in order to even qualify for the mortgage we will need to see that they have the ability to come up with the cash needed to close. Besides the down payment, some of the items you will need to pay for include:

• Bank fees, including the appraisal and credit report, underwriting and processing charges.
• Title charges.
• Transfer taxes. In Chicago the transfer tax is .75% for buyers, or $2,250 on a $300,000 home, so this can be a big item.
• Attorneys fees.
• Home inspection costs.
• The first year’s insurance payment.
• Pre-paid interest and the money to set up your escrow accounts (you will get a tax credit from the seller, which will reduce your costs).

Add these together and you are looking at thousands of extra dollars you will need at closing. Coming up with the down payment and cash needed to close is usually the biggest obstacle to buying a home, especially for first time home buyers. But the good news is that you don’t have to save all this money before you can buy. You can ask the seller to help you buy their home by contributing to your closing costs. We are in a buyer’s market, and with the leverage on the side of the home buyer, this has become a normal and accepted part of many transactions. If you want to make use of a seller credit, you have to ask up front when you are negotiating for the home. From the seller’s perspective this is the same as offering a lower price for the home. Any money that the seller pays out is deducted from the sale price. If the contract for the home is $200,000 and they are paying $3,000 for closing costs and pre-paids, the true sale price is $197,000. So the seller is more interested in how much they are netting, not how the transaction is structured. This applies to short sales and foreclosures, too. I have heard many people say that you can’t ask for seller closing cost credits when buying a distressed property, but that is simply not true. If a closing cost credit will help, ask for it.

FHA allows up to a 6% seller concession (though they have talked of reducing this to 3%) and you can get up to 3% credit on conventional loans. Work out the numbers with your lender beforehand, and have him put together an estimate of closing costs so you know everything you will need to cover at the closing. You can ask for these closing costs either as a dollar amount, or as a percentage of the purchase price. Because there are so many fixed items, the percentage needed will be much higher for lower priced items (bank fees and title charges) then for higher priced homes, so there is no rule of thumb as to what percentage of the sales price you will need. The closing cost credits have to be used at the closing and you can’t get any cash in your pocket from the credit, but you want to make sure that you use it all.

The most common way to use a seller credit is to use it to pay off your closing costs so you don’t need as much cash at the closing. But there are other, more creative ways to use the seller credit, which can work great for specific situations. Sometimes the seller credit can make the difference between buying, and waiting another year. Here are a few ways you can use a seller closing cost credit:

Pay off Up-front MIP  – One of the major costs of an FHA loan is the up-front mortgage insurance premium. This is now 2.25% charge, but it is usually added into the mortgage so you don’t pay it in cash. For most borrowers this is just a cost of doing business and worth the price to take advantage of all the benefits of FHA financing. But if you are only planning on being in the home for a relatively short period of time, it may be an issue. One solution is to use a seller credit to pay off the up-front MIP. By doing this you have in a sense, increased your equity by 2.25%. You will also lower your monthly payment by a bit. One thing to keep in mind is that the premium has to be paid in full or not it all. It can’t be split or reduced.

Buy down the interest rate – You can also use the credit to permanently lower your interest rate. The seller credit will pay for points, or up-front interest charges. Usually 1 point (one percent of the loan amount) will lower your rate by about 1/4 of a point in interest. If you are planning on being in the home long term, this could be a great way to lower your payment and save a lot of money over the course of the loan. This can also be used to help you qualify for a higher amount.

Temporary interest rate buy down – Another option is instead of lowering your payment for the life of the loan, to lower the payment much more in the first few years of the loan. An example of a temporary buy down would be a 2-1 buy down. If current rates are at 5.0%, this buy down would mean that you pay 3.0% for the first year, 4.0 for the 2nd year and then the market rate of 5.0% for the next 28 years. The cost of the buy down is the difference in payments for lower rates you are paying for the first 2 years, paid at closing (this will usually be around 2.5% of the loan amount). There are 2 main advantages of going this route. First, with FHA, you can qualify for the mortgage with the first year’s payment. This is a big advantage if you know that your income will be going up. The other big advantage is flexibility. I am working with a client now who can afford the home priced as it is, but is nervous about the jump in payments compared to their rent. At the same time, they have some expenses that will be dropping off soon, and the spouse is finishing up school so more income will be coming in over the next few years. A temporary buy down is the perfect solution.

Seller tax credits can be a great way to extend your buying power, save money and structure your loan in a way that works best for your needs. If this will help, be sure to work the numbers out ahead of time and negotiate it into the contract.

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

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

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

The Fed Open Market Committee met yesterday and released their report on the health of the economy. The FED meeting report is always looked at as something akin to stone tablets brought down from the mountain, the word from the highest authority. But unlike the stone tablets, the FED meeting reports aren’t clear or direct. Instead, their meaning is wrapped in code, vague and ambiguous so they don’t completely tip their hand as to what their monetary policy will be down the road. This means that financial analysts and FED watchers pour over the statements, looking for any change in wording to see if this signals a change in the FED’s direction. The FED’s mission is to maintain growth and stable employment while vigilantly defending against inflation. With short term rates set at 0-.25% (the rate available from the FED to the biggest banks) the threat of inflation is real. But with unemployment running over 9% (and much higher when underemployed and those who have stopped looking is factored in), and slack throughout the economy, the threat is still over the horizon.

The key wording in the report is that inflation is likely to be subdued for some time, and that they will maintain exceptionally low rates (short term rates, not necessarily mortgage rates) for an extended period of time. This means they aren’t likely to increase their base rates for months, and most likely not before the end of the year.

Here is the full FED statement:

Information received since the Federal Open Market Committee met in March suggests that economic activity has continued to strengthen and that the labor market is beginning to improve. Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. Housing starts have edged up but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

In light of improved functioning of financial markets, the Federal Reserve has closed all but one of the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities; it closed on March 31 for loans backed by all other types of collateral.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly.

Peter Thompson

(630) 479-6424

The home buyer’s tax credit expires at the end of this week. If you don’t have a contract together by then (you have until the end of June to close), you are out of luck for the tax credit. Last November, when the previous tax credit expired, the housing market feel off the edge. At the time the consensus view was that the tax credit hadn’t so much brought new buyers into the market, but had motivated many home buyers who were already planning to buy, to buy earlier than they would have otherwise. Without the tax credit the market floundered, and a month after the tax credit expired it was started up again. That isn’t likely to happen this time. It’s not that the credit hasn’t increased business, it has worked well this time. Home sales last month were the highest in years, and this month will have sizzling numbers, too. But the extra sales have come at a high cost, especially if most of these buyers would have bought any way. For another thing, no one is pushing hard for a new extension. The National Association of Realtors (NAR) was the big force before, and they are silent on the issue now. The congressional sponsors of the bill before have said they won’t try and get it extended. And though the real estate market is still soft, the worry over adding new debt (the government is borrowing to pay for the tax credits they send out) is trumping any additional rebate money now. Many economists have said that the tax credit, while a great deal for the consumer, is inefficient and an expensive way to increase home sales. So in all likelihood, the tax credit will be gone for good after this week.

So the question now, is what happens next? A big portion of the buyers now in the market  are first time home buyers, and though they are looking at all the benefits of buying now (historically low rates, low down payment FHA loans are available and home prices are priced at a big discount over previous years) the tax credit is mentioned as a major incentive. But I don’t think we are going to see the big drop off we did before. There will be a drop off, many of the current buyers moved quicker than they otherwise would have to take advantage of the rebate, but there are some big reasons to expect that home buyers will continue to buy.

Here are some reasons why it is different this time, and why I expect home buyers to continue to buy after the tax credit deadline:

It is the Spring market – Real estate sales are seasonal. Traditionally the market is most active in the Spring and Fall, and drops off to nearly nothing after Thanksgiving. When the last tax credit expired in November, it happened at a time when the market normally chilled. Now is the time when it is usually just starting to heat up. A lot of buyers have moved the timeline ahead this year, but there are a whole lot of others who for one reason or another are just getting started.

The home buyer’s tax credit didn’t seem as urgent this time – There are still a lot of people who could be eligible for the tax credit, who weren’t aware of it, or the deadlines, and a lot of others who figured there was no urgency since it was extended once and it could be extended again. Many of these people will buy a house eventually, but they aren’t motivated enough by the tax credit to rush forward now and buy something that isn’t exactly right for them.

Buyers are looking for bargains – Home buyers are mostly focused on getting a home for a below market price, and this market is dominated by short sales and foreclosures. As a rule, these transactions are more complicated, so it takes longer to get the selling bank’s approval. If your real motivation is to buy a home at a discount price, a relatively small tax credit won’t make a big difference. I know of a lot of buyers who have contracts with sellers now, but are waiting for bank approval, some have been in this waiting game for months. Some of these buyers will get bank approval and be able to close by the June deadline. Others won’t and some will move on to other properties. One thing that could make a big difference is what happens with the rollout of the new HAFFA short sale program. This is the new government program designed to give incentives to both distressed owners and loan servicers to agree to a short sale, and if it is effective it could mean that there will be more short sales and they will happen quicker. I’ll have more on the details of this program soon.

The housing market appears to be bottoming – Fear has kept a lot of potential home buyers on the sidelines. Home prices have dropped a lot over the last few years, but there are buyers waiting on the sidelines who want to buy, but don’t want to come in too early. A recent report showed that homeownership rates were historically low in the 24-35 age range, the age group that is most likely to be first time home buyers. Some of these people are qualified to buy but don’t see owning a home as a good investment now. Others are waiting for the right time to get in. With the end of the tax credit, some home sellers are sure to get a little more motivated. At the right price, there are buyers.

We will see what happens over the next few months, but I don’t expect the sharp decrease in home sales we saw after the end of the last tax credit. It is still a buyers market, and with the conditions right, home buyers will continue to buy.

Thinking of buying but not sure where to start?

First Time Home Buyer Webinar this is a recording of a webinar I did recently which goes over the entire home buying and mortgage process in just under an hour.

Free Home Buyers Guide – From A to Z, everything you need to know about buying a home and getting approved for a loan.

Peter Thompson  630-479-6424

If it weren’t for deadlines nothing would get done. I’m a procrastinator, and I know that I’m not alone. Waiting until the last minute is the American way of life. My kids put off work on major school projects until right before they are due, then complain about how much work they have, and how little time there is to do it. I was the same way when I was in school, and though I try to be more proactive now, I’m often guilty of the same behavior. Today is tax day, and you can bet that the local news will have a segment filmed at the post office with cars lined up bumper to bumper waiting to get in so they can get the April 15^th postmark. I know it will be on because they do this every year. I’m happy to say that I won’t be in that line, but I empathize with those who are. We are a nation of procrastinators.

Another big deadline is coming up at the end of the month. The home buyer’s tax credit expires at the end of April. You don’t have to close on your home in April (you have until June 30^th to get your financing together and close), but you have to a contract to purchase together or you are out of luck. If you aren’t ready to buy there is no reason to rush, but if you are planning on buying but have been dragging your heels, it is time to get your but in gear. Moving fast could mean an extra $8,000 in your pocket (up to $8,000 for first time home buyers, up to $6,500 for move up buyers.

There is still time to get a contract, but if you are starting from scratch, this isn’t going to be easy. If you are just starting out you will need to –

• Talk with a loan officer and get pre-approved for a mortgage.
• Find a good realtor who has time to work with you.
• Narrow down your search to the area and property type that works best for you.
• Find the right property.
• Negotiate a contract that works for both you and the seller.

Can all this be done in 2 weeks? Yes, it happens all the time. Buyers who are relocating and transferring into an area can get all this done in a weekend, if they need to. But it isn’t easy and it’s likely to be stressful. But it can still be rewarding, and procrastinating means more excitement when you get the big job done, with minutes to spare.

Here are some details of the home buyer’s tax credit:

1. The credit is for 10% of the purchase price up to a maximum of $8,000 for first time home buyers and up to $6,500 for qualified move up buyers. This means that if you are a first time home buyer and your purchase is $80,000 or more, the credit will be $8,000.
2. The credit is good for properties that are under contract by April 30^th and you have until the end of June to get the financing together and close.
3. It is now available for first time home buyers (a first time home buyer is anyone who hasn’t owned a home in the last 3 years) and move up buyers who have lived in their home for 5 consecutive years out of the last 8.
4. The home has to be for your primary residence. Second homes and investment properties don’t qualify.
5. This is a true tax credit. As long as you stay in the home at least 3 years, the credit is yours to keep. If you sell before 3 years is up, you may need to pay the credit back.
6. If your tax liability is less than the $8,000 credit ($6,500 for move up buyers), 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 in the current year and get the money back quicker.
7. Income caps apply. They have increased the income caps so more home buyers will now qualify. A single buyer qualifies as long as they earn up to $125,000 per year, and couples are maxed out at $225,000 per year. Higher earning borrowers may get a partial credit, but the amount decreases as their income rises.

If you have any questions, let me know.

Thinking of buying but not sure where to start?

First Time Home Buyer Webinar this is a recording of a webinar I did recently which goes over the entire home buying and mortgage process in just under an hour.

Free Home Buyers Guide – From A to Z, everything you need to know about buying a home and getting approved for a loan.

Peter Thompson 630-479-6424