With mortgage rates at all time lows, it makes a lot of sense to fix in your rate and refinance at what may turn out to be the lowest real rates ever. Getting a fixed rate mortgage makes a whole lot of sense for any one who is pretty sure that they will be in their home for a long time. But even now, even with fixed rates as low as they are, fixed rate mortgages aren’t the right choice for everyone. Adjustable Rate Mortgages (ARMs) are priced even lower, and though you are taking on some extra risk, they are the best choice for many. The question is, when does it make sense to go with an adjustable rate mortgage. ARMs are structured in different ways, but the most popular, and safest ARMs are the longer term adjustables which are fixed for a period of time before adjusting. Most ARMs amortize, or pay down, over 30 years, just like the most popular fixed rates. The difference is that the rate is only fixed in for a specific period of time, and then it floats, up or down based on what is happening in the market. The time that the rate is fixed in can be as short as one year, or as long as 10 years. The rates are usually lowest for the shortest periods because you are taking on more risk that the loan will be higher if mortgage rates increase. When you are looking at ARMs, you want to get the lowest total cost for the time you plan on being in the home (or the mortgage). Taking a 1 year or even a 3 year ARM rarely makes sense in a market like this. But a longer term may be a great deal. The 7-1 ARM (fixed for the first 7 years then adjusts once a year after that) is over 1/2 a point less than a comparable 30 year fixed rate mortgage. If you don’t plan to stay with your mortgage forever, this could save you thousands of dollars over the life of the loan.

Questions to ask to see if an Adjustable Rate Mortgage is the right choice for you:

How long do you think you will be in the home?  A lot of this has to do with where you are in life, and what you expect to happen in the future. Are you a single income now, but expect to have a spouse working down the road? Do you expect to out grow this home as your family grows? Do you expect to be transferred or are going to need to move out of the area at some point? Or maybe you are at the other end of the spectrum and have kids who are finishing up with school and are thinking about downsizing in the future. The key is that if you have a good understanding of your future needs, and you really don’t expect to be in the home past a certain point, an ARM may be the right choice.

Is your income steady, declining, or likely to go higher? Are you a single income now, but expect to have a spouse working down the road? Are you in a job where you know that your income will be higher as time goes by? If you feel confident that your income will rise, an adjustable could be a good way to go. On the other hand, if your income is likely to be topped out and you don’t expect raises of more than the cost of living in the future, you are better served by going with a fixed rate where you will know the payment is going to stay affordable, even if you are there longer than expected and interest rates jump.

Do you have extra money coming in that you can use to pay down the mortgage? I’ve worked with borrowers who get get bonus as a substantial amount of their compensation. If you are getting a smaller monthly payment, but a big check once or twice a year, it may be easier to keep the monthly payment small and then pay extra toward the mortgage when you get these big checks. ARMs fit in well here (Interest only mortgages are sometimes appropriate, too). Everyone’s circumstances are different. The best approach is to match your needs to the loan that is most appropriate for you.

What is your risk tolerance? Will you be able to sleep at night if rates do move higher? With mortgage rates at all time lows, we know that rates have to go up, the only question is when, and how much. If your circumstances change, and it looks like you will need to stay in the mortgage longer than you planned, is this going to add to your stress? There are safety features built in, but if you are still in the loan when the payment adjusts, it could be a big jump. You will have saved a lot of money up to that point, but unless you used the savings as part of an investment plan, you need to be ready for the higher payment. Consider your risk level and temperament before choosing an ARM. There are a lot of people who would benefit financially from and adjustable rate loan, who still are better off taking on a fixed rate loan.

The other thing to keep in mind when deciding which loan is right for you, is that the future doesn’t always turn out like we expect. There are a lot of homeowners now who are stuck in homes too small for their needs because they can’t afford to sell and buy a new home with the market conditions now. For most home buyers who took on ARMS years ago, their adjusted rates have fallen as the ARMs came due. That probably won’t happen in the future, but if you match up your real needs and an accurate estimate of what your situation will be over the years you plan to be in the home, an Adjustable Rate Mortgage can save you a lot.

Peter Thompson 630-479-6424       

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

Mortgage rates have dropped to all time lows. What used to be looked at as super low interest rates (in the mid or even low 5s), are now considered high. You may be able to lower your payment by a lot, often with no closing costs. For homeowners that are able to take advantage of the lower rates, this can mean big savings over time. With home prices lower and tougher qualifying requirements, refinancing is tougher than it used to be. But there are still a number of mortgage programs which make it easier to refinance now. One of the easiest and most beneficial loans available is the FHA Streamline Refinance.

FHA Streamline Refinance Loans

The FHA Streamline Refinance loan program is only available if you already have an FHA mortgage on on your home (Refinancing into a new FHA loan can make sense for a lot of other reasons, including adding improvements to your home and being able to use cash out to consolidate debts, but for these you need to do a fully documented mortgage). The advantage of this loan is that you can take on the new lower rates with out having to go through the full qualifying process, you usually don’t need an appraisal (which is a major headache with refinances today) and we can often structure this so you aren’t paying any closing costs (we pay the closing costs with a slightly higher rate). You will need to have some cash at closing to set up the new escrow accounts (to pay for your property taxes and home owners insurance) but you will get whatever money is in your escrow account with your current lender back after closing, so it will end up as a wash. If you have enough equity in the home, you may be able to add the escrows into the loan amount and come to closing with no cash at all, but we would need a new appraisal for this to work.

Here are some of the basic requirements of an FHA streamlined refinance:

• The loan must be FHA insured and you have to have made at least 6 payments on the Loan. If the loan is less than a year old, you can’t have any 30 day or more late payments. If the loan is older you need to be up to date on the payments with no more than one late payment in the last 12 months.
• The refinance has to be for your benefit. We need to lower the payment by at least 5%.
• We need to verify that you have enough cash to close the loan (this means enough money in a bank account to pay for the new escrow account and any other cash you may need).
• We need to show that you are employed and have income coming in. We don’t need to do a full underwriting of your income.
• You may be able to change the loan program (if you have an adjustable rate loan you may be able to go to a fixed rate, and visa versa) but we need to make sure that there is a real benefit attached. If you want to shorten your loan term we may need to do a full qualification.
• You can add a spouse or some one else to title without having to go through the full approval process. If you want to delete a borrower we will need more documentation.

Here is the documentation I will usually need for an FHA Streamline Refinance:

• I will need several items from your closing package, including a copy of our HUD1 closing statement, the Note and it makes it easier if I have a copy of your application.
• A current paystub showing you are employed.
• A bank statement showing you have enough cash to close.
• Proof of your Social Security number – this can either be a copy of your social security card or your W2 from last year.
• A copy of your mortgage statement.
• The name and phone number of your insurance agent.

If you have an FHA loan now, this could be a great way to save money. Give me a call and in a short conversation I can let you know how this will work for you, and put together a written estimate.

Peter Thompson                              630-479-6424

Chicago FHA Mortgage Rates          First time home buyer loans

Chicago Mortgage Company

Free Mortgage Pre-approval

We live in interesting times. Over the last several years we have seen a series of refinance booms as rates dropped to what had previously been unthinkable rates. Each time rates dropped we were sure they couldn’t go any lower. But here we are again, and mortgage rates are the lowest they have been since they’ve been keeping track of mortgage rates. The reason for the drop in rates is due to fear of softness in the economy, and this isn’t good news. But when you , if you can save money by refinancing your mortgage this could help by lowering your monthly payment or cutting years off your loan and paying your house off early.

Why should you consider refinancing?

• You can lower your interest rate and payments.
• You can shorten your loan term and pay your mortgage off early.
• You can take cash out for home improvements, college expenses, investments, or whatever your needs may be.
• You can restructure your debts with a refinance to get rid of your high interest credit card balances and save hundreds of dollars per month.
• If you bought with a low down payment, you can often refinance to get rid of mortgage insurance or your higher rate second mortgage.

• You can get rid of an adjustable mortgage and lock in to a fixed rate.

These are just a few reasons you may want to take on a new mortgage. It is important, though, to make sure you know why you are refinancing and that it is really in your best interest. Refinancing isn’t the slam dunk easy transaction it was a few years ago. With home prices down this makes it harder for some homes to appraise out where they need to be, and mortgage guidelines are tighter than they were before, too.  But there are programs which make it easier to refinance even if you don’t have a lot of equity (or even no equity) in your home.

The FHA Streamline Refinance -This is available only if you already have an FHA mortgage. This is still the easiest and most inexpensive mortgage around. If you can lower your rate an payment you can refinance without a new appraisal and roll some of your costs into the new loan.

Fannie Mae and Freddie Mac Home Affordable (Obama Refinance) – With these programs you can lower your mortgage rate even if your home value has gone down, and mortgage insurance will be based on what it was when you originally took on the loan (so if you didn’t have it then, you won’t have it now).

And of course, if you have been in your home for a while and have equity built up, you will have a lot of options to refinance in a way that best meets your long term needs. The big question then, is when does it make sense to refinance your mortgage? Refinancing can make a lot of sense if you are lowering your rate and payment without having to pay a lot up front. The more you have to pay to close the loan, the longer it will take for the lower mortgage payments to pay off the higher cost of getting the loan. This can still make sense if you are sure that you will be in the home for a long time, and you want to lock in the lowest rates. But too often the lowest rate isn’t the best value.

Mortgage pay Back – When does it make sense to refinance?

If you are thinking of refinancing your mortgage, you should always do a break even or pay back calculation. For this you need to know 3 things:

1. How much will you save by refinancing?
2. How much will it cost to refinance?
3. How long do you think you will stay in the home, and with this mortgage?

The first step is to determine how much you will save. For an example, if you now have a mortgage with a $200,000 balance and a 5.50% interest rate., your mortgage payment is about $1,135 per month. Now, if current rates are at 4.75% (this is only an example.  Call me if you want a personal quote) the new mortgage payment would be $1,043 per month. The lower rate means a savings of almost $92 each month. This is a great savings, especially when you look at it over the life of the loan, But does it make sense to refinance? Maybe. We still need to know more, though.

The next step is to find out how much it will cost to refinance. This is where it can get confusing. If you have spent any time on the Internet, you’ve seen lots of ads for mortgage companies claiming they offer the lowest rates. But low rates don’t mean a thing if you don’t look at the closing costs too. I’ve seen closing costs differ by as much as $6,000, so this is something that can make a huge difference. Closing costs include title fees, the cost of the appraisal and bank charges as well as points – which are upfront financing charges.

The difference in closing costs can make a big difference in whether the loan makes sense, or not. If you are paying $1,500 in total closing costs, it will take you a little over a year to payback the closing costs with the $92 savings from your new rate.  After that, every payment you make will be a true savings. But if that same loan cost $6,000 to close, then it would take over 5 years before you would get any benefit at all from refinancing. So the lowest rate isn’t always the best deal.

The last question, is how long you do you expect to be in your home and in the mortgage. If you plan to stay in the home for at least 10 years, then paying more to get a better rate might be the best strategy, especially if you think (like I do) that rates are about as low as they will ever go. But most people don’t stay in their home forever. If you aren’t sure how long you will stay in your home, you might be better served by getting a loan with lower closing costs. Even though the rate and payment may be a little higher, your savings will come much quicker.

No/Cost Illinois Mortgage Refinance

We can take this idea one step further. When rates are down, the biggest obstacle to homeowners lowering their payments and taking advantage of the low rates is the cost of refinancing. The more that the loan costs, the longer you will need to be in the new loan before refinancing makes sense. So if a loan costs a lot up-front, it takes a big improvement in the rates before it is worth doing. On the other hand, if there are no costs at all, a small reduction in the rates can save you a lot of money over time.

With a no-cost refinance we use the yield spread premium (the money that the wholesale or end lenders pay us to bring them the loan) to pay for the closing costs. When I price loans I have several different options. Every day the lenders we deal with send us new price sheets. These sheets have matrices which allow us (the mortgage banker or broker) to price the loan in different ways. It is common in the Chicago area to price a loan to show no points or origination fees, but with the customer paying the normal costs at closing. If someone wants a lower rate, I can price it so that they pay more money up-front (points) and get a lower interest rate. We can also do it the other way, offering you a slightly higher interest rate (where the lender pays us a higher premium) and we can use part of this premium to cover all your closing costs.

Here is how it works. If you have a mortgage with a balance of $250,000 and an interest rate of 5.75%, your loan would have a monthly payment of $1,458 for principal and interest. If rates drop. and you are able to refinance at 4.50%, your new payment will be $1,267, for a savings of $191 per month.

In order to do the loan with no closing costs, we raise the rate a little to cover the costs. How much the rate increases depends on the size of the loan, but in most cases the loan will be just an 1/8 or 1/4 point higher. So with our example, if you could refinance at 4.50% with closing costs, the rate would be 4.625% with no closing costs. So the payment now goes up to  $1,285 per month, or $17 per month higher. The monthly savings are lower, but with no closing costs , you have no investment in the mortgage at all. This works especially well for people who don’t plan on being in their home or their mortgage forever.

No-cost refinances work best when the loan amount is higher. In many cases we can do a no-cost refinance for the same rate as other companies are doing full cost loans. Smaller loans, those under $150,000 are harder to do without any cost. The smaller the loan the higher the interest rate would need to be in order to cover all the closing costs. This won’t be the best route for everyone, but, depending on your situation, it could be a great option.

Things to watch out for

A true no/cost refinance means that you are not paying any fees or costs to get the loan. This is different than adding the fees and costs back into the loan. This means that your mortgage will be larger, and you will be paying the costs of refinance over the years you have the loan. There is no money coming out of your pocket at closing but you are still investing extra money. If you sold the home or decided to refinance again later, the money you paid will be gone. In some situations this could be the right way to go, but it is not a no-cost refinance. You need to know exactly what it is you are signing up for.

Peter Thompson                              630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Refinance

How Much Does It cost to Refinance, and How Long is the Pay Back?

With mortgage rates down near their all time lows again, refinancing is getting hotter (purchases, too). Low mortgage rates give you a chance to lock in the low rate for the long term, lower your payment and take some pressure off your budget. The rates now are the lowest I’ve ever seen and I expect when we look back at this a few years from now, they will seem like the bargain of a lifetime. But while rates are low, if you have compared rates you see in the newspaper or on-line, you might think rates are better than they really are. You might also see that some lenders are showing much lower rates than others, when the reality is that we all get our funds from the same sources, and the true rate shouldn’t vary from one lender to the next by more than an 1/8 or 1/4 of a percent.  So what gives? Why are some lenders able to show such low, low rates? Are they really able to do something that other mortgage lenders aren’t able to do?

The truth is, if it looks too good to be true, it probably is. Most consumers focus on the rate when comparing offers for their mortgage refinance, and mortgage marketers take advantage of this fact by advertising the lowest rates they can. But whether the lowest rate is the best deal for you is more complicated. The other thing you need to be aware of is how much the loan will cost you, and the lowest rates have the highest fees. We (mortgage bankers, brokers and banks) have a whole variety of rate and fee combinations we can offer every day. Each wholesale mortgage lender provides a matrix of price options every day. To get the lowest rate you will have to pay points (1% of the loan amount for each point, which is interest paid up front). I’ve seen Good Faith Estimates which show over 4 points (4% of the loan amount) charged to get a  below market rate. On the other hand, you can go in the other direction. The lender pays us (mortgage bankers, brokers and banks) extra money (called yield spread premium) for bringing in loans at higher rates. We can use this extra premium to pay off all your closing costs and give you a no cost refinance. Most borrowers elect to go with loans that have no points, or one point. The lenders don’t care how you do it, because they will get their money either now or in the future, and it works out the same to them based on their pricing models. For you, the consumer, it can make a big difference. So the big question is, what is the best way to refinance, paying extra money up front to get the lowest rate? Or does it make more sense to pay less money in fees upfront, but get a slightly higher rate?

 For a quick check to see if refinancing makes sense for you, and what the best way to refinance is, you need to consider 3 things:

How much will you save by refinancing?
How much will it cost to refinance?
How long do you expect to stay in the mortgage?

To find out the best option for you, you need to figure out your payback or break-even point. Let me work through the math to show you how this works (the rates and numbers here are all for illustration, not based on market rates now).

The first step is to determine, how much you will save?

For an example, let’s assume that you now have a mortgage with a $300,000 balance and a 5.50%% interest rate. This would give you a payment of $1,703 per month on a 30 year fixed rate loan. With improved rates, lest’s say you can now get the same  mortgage for 4.75% with a payment of $1,565 per month. This is a savings of $138 per month. That is a great rate and substantial savings. Does it make sense to refinance? Maybe, but we still need to know more.

The second step is, how much it will cost to refinance?

If you have spent any looking, you’ve found lots of ads for mortgage companies claiming they offer the lowest rates. But low rates don’t mean a thing if you don’t look at the closing costs too. Closing costs include title fees and the amount the bank charges to process the loan, which includes fees for credit reports, appraisals, processing and underwriting charges as well as Points (up-front interest). The cost can make a big difference for you. In the Chicago area it costs about $1,600 to close a refinance if you don’t pay any points or origination fees (another word for a point).  To see how the closing cost can make the difference, divide your monthly savings into the cost of refinancing ($1,600 divided by $138).  So in our example, it will take you less than a years worth of mortgage savings to pay off the up-front costs. Every month after that will be a true savings. If you are paying 2 points on the same loan ($6,000) plus the normal closing costs, ($7,600) the same loan will take almost 5 years before you would have any benefits from refinancing. The rate should be lower if the costs are higher, but you need to run the numbers on each to see which is the better deal. But there is still one more step.So the lowest rate isn’t always the best deal.

The third step is to estimate, how long do you expect to be in the mortgage?

With interest rates as low as they are, it may make sense to pay extra to lock in the long term savings. But if there is any chance that you may move, the savings may be wasted. In the above example, even if the rate is much better, if it takes 5 years to pay off the closing costs and you sell your home in 6 years, you wasted a lot of money on a refinance. On the other hand, if you stay in your home a full 30 years, you have made a lot of extra savings by paying more up-front to get the lowest rate. The thing to remember is that one size doesn’t fit all, and you need to go with the program that best fits your needs. Most mortgages last 7 years or less (before the homes are either sold or refinanced) so paying higher costs is not always the best deal. 

The idea that the lowest rate is the best deal can be a big problem. When you are comparing interest rate options, make sure that you compare apples to apples and not comparing a quote with points to one without. Pick the option that works for your needs, and don’t over pay to get a low rate if it costs you more in the long run. And make sure you get it in writing. Every lender should be able to give you a written Good Faith Estimate showing how much it will cost to close your loan, and how long your rate will be locked in for (make sure they are able to process your loan during their lock period). This is shaping up to be a great time to refinance, but you need to understand your options. If you would like a quote for a refinance that works best for your situation, give me a call.

Illinois Mortgage Rates                   First time home buyer loans               

We Lend in All 50 States

Mortgage rates are down to the lowest rates of the year, again. We are now hitting the best rates we saw last Spring in the midst of the refinance boom when the economy was still in free fall. Back then, from the beginning of the year until the start of the Summer, mortgage rates were in a flat, even pattern and the low rates were as stable as I have ever seen. By nature, mortgage rates are volatile. Mortgage rates aren’t set, but determined in a market (mortgage backed securities, a type of bond), just like with stocks or other financial instruments. Mortgage bonds bounce around from day to day based on economic reports and changes in trader sentiment. Mortgage bonds are long term investments, so the traders are looking for signs of inflation, which is the enemy of any fixed rate investment. Back in the Spring the big worry was deflation, not inflation, and the Fed had committed to a huge purchase of 1.25 trillion dollars in mortgage backed securities in order to keep mortgage interest rates low. The Fed purchases did the trick, and rates stayed in the low stable range until worries about the build up in public debt shook the market up at the end of May. We are in a very different situation now. The Fed is nearly finished with its buy back program, and with all the debt the government has taken on to keep the economy moving, inflation fears are high (even though there is no sign of inflation now).

The low rates earlier this year were much more understandable. A lot of experts now are shaking their heads and wondering why the rates have improved so much now, and whether these low rates will last. The saying is that bad news for the economy is good news for mortgage rates, but the economic reports coming in now are mixed. The stock market is still holding unto its gains and the dollar is weak, which usually means higher mortgage rates. It seems like there are 2 major reasons that rates are so good now:

1. The margin between mortgage backed securities and treasury bills is shrinking. Mortgage backed securities typically go in the same direction as the 10 year T Bill. US Treasury notes are considered the safest investment in the world, and since they are backed by the US government, there is no risk that the bonds won’t be repaid. With the margin shrinking, this means that investors are looking at mortgages as a safer investment than they considered it before.

2. Investors are finally convinced that the Fed intends to keep short term rates low for an extended time, so long term rates (like mortgages) have less upward pressure.

This is a real surprise that rates are this low now, but if you are able to refinance your mortgage and save up to hundreds of dollars a month, one more reason for Thanksgiving (I had to get that in somehow). If past history is a guide, the lowest rates won’t last long.  If you’ve been holding off for the right time to refinance your mortgage, this looks like the time to pull the trigger.

We offer every type of refinance including:

Conventional refinances including no cost mortgage refinances

DU Refi Plus and Obama refinance programs

FHA cash out and rate reduction mortgages

VA IRRL- Veterans Administration streamlined refinance

Jumbo refinances

Refinancing now isn’t as easy as it used to be. With property values down, home appraisals are coming in low and we require more documentation than we used to. But rates this low aren’t going to last forever. If you could benefit from refinancing your mortgage, give me a call and I’ll see what I can do to help you.

Illinois Mortgage Rates                   First time home buyer loans               

We Lend in All 50 States

Mortgage rates have dropped again, and we are now back in the all time low range we were at earlier this year. If you didn’t refinance your mortgage earlier this year, it might be time to look at it again and see if lowering your mortgage rate and payment would help you now. A few years back refinancing your mortgage was an automatic any time that mortgage rates dropped. It is more complicated now because mortgage guidelines have gotten tighter, making it harder for some to qualify, and with home prices down it isn’t a slam dunk that your home will appraise out to the value needed. But there are programs which make it easier to refinance even if you don’t have a lot of equity (or none) in your home.

The FHA Sreamline Refinance – This is available only if you already have an FHA mortgage. This (up until it changes in November 2009) is the easiest and most inexpensive mortgage around. If you can lower your rate an payment you can refinance without a new appraisal or credit qualifying, and roll most of your costs into the new loan.

FHA refinance – With this program you will still need to show that you qualify and we will need to order a new appraisal, but for a refinance where you aren’t taking any cash out, you can refinance up to 96.5% of the home’s value.

Fannie Mae and Freddie Mac Home Affordable (Obama Refinance) – These programs are ways to lower your rate even if your home value has gone down. Most lenders will now accept up to 100% of your current value, and mortgage insurance will be based on what it was when you originally took on the loan.

Refinancing can make a lot of sense if you are lowering your rate and payment without incurring a lot of up-front costs. The more you pay up-front to close the loan, the longer it will take for the lower mortgage payments to pay off the higher cost of getting the loan. This can still make sense if you are sure that you will be in the home for a long time, and you want to lock in the lowest rates. But too often the lowest rate isn’t the best value. If you are thinking of refinancing your mortgage, you should always do a break even or pay back calculation. For this you need to know 3 things:

1. How much will you save by refinancing?
2. How much will it cost to refinance?
3. How long do you think you will stay in the home, and with this mortgage?

To find out how long it will take for you to break even, figure out how much your loan will cost you (the bank fees and title charges on your Good Faith Estimate) and divide this by the amount you will save on a monthly basis (the difference between your new mortgage payment and your current payment). This will give you the amount of months that it will take to pay off the closing costs and break even on your new loan. For example, if it costs you $1,600 (this is what I am currently quoting for bank fees and title charges for a no point loan in the Chicago area) and you are saving $50 per month, it will take you 32 months to break even, and every month after that you will be saving money.

On the other hand, if the loan cost more to close, you should be saving a lot more each month. For another example, let’s say you are paying a point (1% of the loan amount) and the cost of the new loan is now $4,600. If your new payment is now $100 better than what you are currently paying, it will take 46 months ($4,600 divided by 100) before you break even. So even though the rate on the second option is lower, and the monthly savings are higher, the first option is going to be better for the near term. You then need to decide how long you think you will be in the loan, and if it makes sense to pay the extra to get the long term benefit. In many cases it will, but in most cases it takes about five years to pay off any up front points. You need to see which option makes the most sense for your own situation. You can also go the other way. Instead of paying points or closing costs, for many borrowers the best option is a no cost refinance. With this program the lender increases the rate slightly and uses the yield spread premium (what we are paid to make the loan) to pay all the closing costs.

I’ve heard all sorts of rules of thumb of when it makes sense to refinance, but each situation is different. It would take a big rate reduction to make sense to refinance a small loan, but with a larger loan a small reduction in rate could pay off quickly. Run the numbers yourself (or give me a call and I can walk you through the options) and you will make the decision that works best for you.

Illinois Mortgage Rates                   First time home buyer loans               

We Lend in All 50 States

The FHA Streamline refinance is one of the easiest and most beneficial loans available. This program lets borrowers who are have an existing FHA loan refinance into a lower rate mortgage without having to get a new appraisal or prove their income. The idea behind the program is that these borrowers have already qualified for the loan, and if they could afford the higher payment, they would be in better shape with a lower rate and a lower payment. The FHA streamline refinance or FHA refinance loan has always been a good program, but in this market, with home values down and appraisals a consistent problem, it has been a God send for many, allowing some borrowers to save up to hundreds of dollars each month. But FHA has come under pressure as a result of all the problems in the housing market, so they are making moves to cut their risk and save money. This means that as of loans assigned case numbers after November 17^th, the FHA Streamline refinance as we know it will be gone.

Here are the changes coming in November:

1. Verification of income and cash to close – These are the two biggest changes. The streamline is considered a streamlined refinance because you don’t have to go through the normal mortgage approval process where everything is verified. The new regulations will require a letter from the lender stating that they have verified that the borrower has enough income to qualify and has sufficient cash to pay for the closing costs and escrows needed to close the loan.
2. Seasoning – borrowers will need to have paid 6 payments on their loan before they can refinance. In most cases this won’t make a difference, but in times when the interest rates have dropped sharply, like earlier this year, the borrowers couldn’t take advantage of the lower rate and lower payment unless they already had 6 payments under their belt.
3. Payment history – As it stands now, all the FHA streamline requires is that the mortgage is paid up to date and current. The new regulations require that mortgages with less than a 12 months of payment history have made all mortgage payments within the month due (no late payments). For mortgages older than one year, the borrower can’t have more than one late payment in the last 12 months, and none in the last three months.
4. Net tangible benefit for the borrower – This means that the mortgage lender has to show that the borrower is benefitting from the refinance by getting either a lower payment, reducing the time he will pay on the mortgage or converting from an ARM into a fixed rate mortgage. This only makes sense and has been put in as a consumer protection because too many loans have been made where the borrower is lowering their interest rate, but because of all the upfront charges, they aren’t getting any real benefit from doing it (the mortgage broker is, though). This is already the law in Illinois.
5. Maximum combined loan to value – As the program is set up now, FHA will let you subordinate your second mortgage or home equity loan (keep it in place with the banks permission), no matter how much the combined value of the 2 loans is compared to your home’s value. With this change they are now capping it at 125%, or the loans can’t be over 25% more than what your home is worth. In the real world this won’t make much of a difference. Most second mortgage lenders don’t want to offer subordinations over the home’s current value anyway, and even if FHA allows it, the lender funding the mortgage may not.
6. Appraisal guidelines – One of the big advantages of the FHA streamline refinance, especially in this market, is that the borrower can in most cases roll the closing costs and escrow charges into the new loan amount, reducing the cash they need to come up with at closing. The new rules will require that if you want to roll in costs, you will need a new appraisal. If property values are down, as is the case for many borrowers, they will need to come up with the cash upfront and show that they have the funds available.
7. Discount points – After the changes take place, borrowers won’t be able to roll discount points into the new loan to buy down the rate. This is another rule that makes sense to me. I’ve seen too many companies that prey on borrowers by offering below market rates, but then piling on the points (which increases the loan amount and the payment) in order to get the lower rate. This rarely makes sense for the borrower, even if they will stay in the loan for the full 30 years.

Here is a breakdown of how the FHA Streamline Refinance Program works now. If this loan will work for you, do it now, time is running out.

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 Current 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.
• FHA mortgage refinance Loan. 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 Mortgage Rates                   First time home buyer loans

Downers Grove Mortgage Company

We Lend in All 50 States

To paraphrase baseball’s greatest philosopher, Yogi Berra, it’s looking like déjà vu all over again. For most of this year mortgage rates have hovered in a range near their lowest levels of the last 40 years. Rates were so low because the economy was in free fall, and the Fed had made it its stated mission to keep mortgage rates low to stabilize the real estate market. After announcing that they would continue to buy mortgage backed securities (with a budget of 1.25 trillion dollars) the normally volatile mortgage rates market settled into a pattern so dull and boring that the rates became predictable. This range lasted for months, but all good things must come to an end, and as June came in the market swooned. Markets are ruled by emotion, and the fear of economic collapse was now gone, but the fear of inflation (from printing new money to pay for all the new spending) took hold. There was talk of green shoots, and many market participants thought the economy was about to rebound quickly. The stock market surged, and mortgage rates went up nearly a full point from their low to the high point. Mortgage refinances stopped over night, and while the purchase market kept on going, higher rates cut down on the purchasing power of many first time home buyers. But, déjà vu, we are now coming right back to where we were before the market tanked and rates are dropping again.

The consensus thinking is now back to an outlook that the economy has stopped its free fall, but there are no signs of a quick recovery. Unemployment is still spiking higher, and with massive loss of wealth (home values and the stock market) inflation has no way to take root. That means the bias is back toward lower mortgage rates. That doesn’t mean rates will continue to drop, and it certainly doesn’t mean that we are back into the calm period we were before (after yesterday’s huge bond market rally the market is off today, meaning slightly higher rates for this morning). But the trend has changed, and rates are now back near their lows again. If you were thinking of refinancing before but didn’t pull the trigger, or if you have been thinking of buying a new home, this could be a good reason to get off the fence now. Rates are low again, but the June move up reminds us that these low rates won’t last forever. Take advantage of them while you can.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

The mortgage market has shrunk dramatically over the last 2 years. Not in volume, thanks to low rates and a refinance boom volume is strong. But the market has shrunk in the what types of mortgages are available. There used to be a wide variety of mortgage options available but with the mortgage meltdown the options have narrowed so that the only mortgages currently written are conventional and Government fixed rate loans. Many of the now extinct loans (Sub Prime and Option ARMs) were exotic varieties which were appropriate for some situations, but were abused and rolled out to borrowers who didn’t fit the profile for benefitting from the loan, often didn’t understand what they were getting in to, and these abuses were a big cause of the mess we find ourselves in. One of the biggest casualties of the mortgage melt down has been Jumbo loans, but they might be making a comeback.

Jumbo loans are mortgages which are above the Fannie Mae lending limit of $417,000. This means that they are too large and not eligible to be bought by Fannie Mae or Freddie Mac (that is, the government) and anything that isn’t sold to the government has pretty much disappeared. Jumbo loans used to be priced at a premium to conventional loans, but the premium used to be small. Since Jumbo loans are made to those who are own or are buying larger homes, the borrowers usually have high incomes, high assets and high credit scores, which made them low risk borrowers. But the problem wasn’t tied to the borrower’s risk profile. Jumbo loans have been scarce because most of the Jumbo mortgages were bundled together with other Jumbo loans, securitized and sold in the mortgage after market. When the whole securitization market collapsed most of the Jumbo mortgages disappeared with it. There have been some jumbo options (usually ARMs) offered by lenders, often regional banks, which keep the loans for their own portfolio. The big lenders have had fixed rate Jumbo loans available, too, but at prices so high they were not a serious alternative.

It looks like this situation is starting to change. A few big wholesale lenders have dipped their toes into the Jumbo market, and we now have one lender who is pricing aggressively. Risk is still an issue and in order to qualify you will need to have great credit, verified income, strong equity and lots of reserves. In other words, they want loans that will perform even if the housing market gets worse. But if you are in a Jumbo loan and want to refinance, or about to buy a home in the jumbo category, you now have some options that weren’t available before. If you are in the market for an Illinois Jumbo loan, give me a call.

Illinois Mortgage Rates                   First time home buyer loans               

We Lend in All 50 States

Rates are down again near all time lows, and the opportunity to refinance your mortgage and save money by lowering your rate has been one of the few bright spots in a gloomy economy. That is, it’s been a bright spot for those who were able to refinance, but for the most part, those refinancing have fit into one of two categories, well qualified borrowers who had plenty of equity in their homes, or home owners with FHA loans who could take advantage of the FHA Streamlined Refinance program. There have been too many otherwise well qualified home owners who weren’t able to refinance because their home values had declined. The economy can’t recover until the housing sector is on the upswing, and the Obama administration has made it a priority to help more people refinance and lower their payments in spite of these circumstances. Home Affordable Mortgage, also known as DU Refi Plus or just the Obama Mortgage Plan, is a program to allow these homeowners to refinance to a better rate, even if their home has lost value to the point where the mortgage is slightly higher than what the home is currently worth.

DU Refinance Plus is a Fannie Mae program to refinance loans which are currently in its portfolio. Your mortgage is likely serviced by another company, but most loans are owned by one of the big Government Service Enterprises, Fannie Mae or Freddie Mac. Here is the Fannie search page to see if your loan is eligible for the program. DU stands for Desktop Underwriter, and it is Fannie’s automatic software which mortgage bankers (like me) and mortgage brokers use to approve loans every day. The process works like any other loan, but if the loan is eligible for the DU Refi Plus program it will be listed in the findings along with the specific conditions for documentation and appraisal that need to be met. I ran a few of these yesterday the process is simple. One of the big benefits was to buyers who bought with a 20% down payment, but because of the decrease in home values, they would have had to pay mortgage insurance if they refinanced. With this program they go back to the conditions when they first purchased their home, and if they didn’t need mortgage insurance then, they won’t need it now.

The Obama administration expects that the DU Refi Plus program and related programs could help as many as 9 million home owners refinance, and with the savings from the refinances often reaching hundreds of dollars per month, this could have a big impact on the economy (not to mention the effect it has on your own cash flow). This is possible, but there are a lot of moving parts to the Obama refinance program, and all the parties involved will have to follow the program as it is intended for it to get the most benefit. DU Refi Plus has made the guidelines, but each wholesale lender can choose how they interpret these guidelines and they can change what they are willing to accept in order to meet their own standards. If the loan had mortgage insurance when it was first taken on, it will need mortgage insurance again, and the MI companies will need to cooperate (most have signed on, but we’ll have to wait and see if they add their own criteria). Also, if you have a second mortgage or home equity loan, the second mortgage holder will need to subordinate the mortgage , and unless they have a change of heart (make that government incentives to do so) that is not going to happen. Most second mortgage lenders are pulling back and only subordinating loans which have a strong equity position. In other words, they will only subordinate for those who need it the least.

There are some issues to get through before this program reaches its full potential, but it will help a lot of people just as it is. Here are some of the features of the new Obama mortgage plan, DU Refi Plus:

• It is available through all Fannie Mae approved lenders.
• The old mortgage needs to have been paid on time and can’t have any 30 day late payments in the last 12 months.
• Mortgage insurance is based on how the loan was set up originally. If you bought with at least a 20% down payment and didn’t have mortgage insurance, you won’t need it now. If you had mortgage insurance originally, but you had the MI canceled or terminated afterwards, you won’t need it now. Otherwise the new loan will be set with the same level of MI coverage as it was originally, and lenders are encouraged to get the lowest cost option for the buyer.
• The borrowers on the new loan must be the same as those on the old loan (new borrowers can be added as long as all the old borrowers remain on the loan).
• Maximum loan to value ratio is 105% (that is, the loan can be up to 5% higher than the current value of the home).
• There is no limit on the combined loan to value when you factor in second mortgages and home equity loans, but the second mortgage holder will need to agree to subordinate their loan to the new first mortgage.
• The property can be your primary residence, a second home or an investment property and include all property types (single family homes, condos, multi unit properties).
• The new loan will be your choice of a fixed rate or an ARM that is fixed for at least 5 years.
• These are rate/term refinances only, that is you can add your closing costs into the new loan amount, but you can’t take out any extra cash.
• No minimum credit scores are required, but the loan has to be passed by the DU software approval, and there are loan level price adjustments for lower credit scores (but these are better than the price adjustments currently put on conventional loans).
• Condos won’t have to go through a new project review. You will need to be able to show that the condo did meet Fannie Mae guidelines at the time you took on the new loan.
• The DU findings will determine what type of appraisal is required. This could be a full appraisal, a drive by appraisal or none at all.
• Normal underwriting rules apply and the loan has to be underwritten through DU and the debt ratios have to be within the stated guidelines.

There are some loans which will be ineligible:

• These include sub prime loans, Alt A loans and loans which were approved under DU’s expanded approval, as well as reverse mortgages, second mortgages and government loans or Jumbo loans.
• The program is also not available for borrowers in loans which are fixed for less than 5 years, ARMs that have negative amortization, balloon loans or My Community minimum down payment mortgages.

It will take a little while to see how all these pieces fit together, but this is a program that will help a lot of people right now. If you would like  more information on how this program works, or to see if you qualify, let me know.

Illinois Mortgage Rates                   First time home buyer loans               

We Lend in All 50 States