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

With rates down near record lows, one of the most popular loan programs has been the FHA streamlined refinance. This is a way for anyone who has an FHA mortgage to lower their rate and lower their payment without going through all the qualifying they had to when they first got the loan. FHA is a government program, and the idea is that if you are able to make your payments on time with a higher rate, you will be in a better position with a lower rate, so they made qualifying as easy as possible. You don’t need to show any income or assets, the biggest credit issue is whether you are paying your mortgage on time (some lenders have established minimum credit scores), you can roll in most of your costs and in most cases you don’t even need to get a new appraisal. FHA is the biggest government loan program and FHA streamlines are very popular. But one of the best kept secrets in the mortgage business is that VA, the other big government loan, also has a streamlined program.

VA, or Veteran’s Administration loans, are available to qualified active duty and military veterans. The VA loan is one of the last true zero down options, and a great benefit for qualified veterans. The VA streamlined refinance program is called the Interest Rate Reduction VA Loan Program (IRRL) or VA to VA, and it is available for those who have already taken out a VA loan and are looking to lower their interest rate and payment with little or no money out of their pocket. Like the FHA streamline, you will need to show that you have made your payments on time over the last 12 months (no more than one 30 day late payment). This is an extension of the eligibility you used when you bought the home, and not a new use of your VA eligibility.

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

• No appraisal required.
• No application fee and no appraisal fee.
• No credit qualifying or job verification required.
• No mortgage insurance.
• There will be a half point (.5%) funding fee added into the loan – no funding fee for disabled Vets).
• You can roll in all the closing costs and pre-paids and up to 2 discount points (to bring the rate down) as well as up to $6,000 for energy efficiency improvements.
• This is available even if you no longer occupy the property, as long as you have occupied in the past.

Here is what you will need to get the loan started:

1. Your Certificate of Eligibility – or, with a copy of your DD214 discharge papers we can request your COE.
2. 2 forms of identification for anyone on the loan (Veteran and spouse) including your social security card or proof of your social security number.
3. A copy of your Note and HUD1 closing statement from when you bought the home.
4. A copy of your mortgage statement.
5. The name and phone number of your insurance agent.

The VA refinance is a great program for qualified veterans, and with rates near record lows, this could be the best time to refinance. If best time to refinance. If you are in a VA loan now and want to see how your payments could be reduced, give me a call and we can see how this will work for you.

Illinois Mortgage Rates                   First time home buyer loans               

We Lend in All 50 States

Yesterday I wrote about 2 possible Fed actions that could effect mortgage rates for the better – one, a commitment to extend their program to purchase mortgage backed securities, and two, if they decided to buy treasuries. They just came out with their statement (FOMC Statement), and they decided to do both. The Fed has extended their purchase plan so they will buy an additional $750 billion in mortgage bonds, for a total of $1.25 Trillion. They also plan on buying $300 billion in long term treasuries over the next six months. The market is approving these moves, and the 10 year Treasury note is up over 400 basis points as I write this (absolutely HUGE), and mortgage backed are skyrocketing, too. So what does this mean for home buyers and those sitting on the fence waiting for the right time to refinance? It is time to pull the trigger, rates will be coming down.

Wholesale mortgage lenders haven’t re-priced yet, but they will. Over the last weeks we have been in a range where rates might have gone up or down a little each day, but have been amazingly consistent. We are out of this range now, and we don’t know if this move will continue, but rates now are in the record low range.  The last time rates dropped down in this range the best rates were only there for a few days. I expect rates to stay low, but the best rates may not last long. This is a great opportunity to lower your rate and mortgage payment and save thousands over the life of your loan. If you would like a quote for your personal situation, give me a call or send me a note.

Illinois Mortgage Rates                   First time home buyer loans               

We Lend in All 50 States

“What’s your Rate?”

I’ve been hearing that question a lot lately. If you are a rate shopper looking to refinance your mortgage (or if you just bought a new home and are looking to finance your purchase), this is probably the big question on your mind. But before I can quote a rate, I need to get some information, first. Some of the things I need to find out are:

What type of loan are you looking for? Is this a conventional fixed rate, an ARM, an FHA loan or a Jumbo loan?

What loan term are you looking for? In a refi market, like we are in now, many people want to keep their loan terms the same or pay their mortgage off quicker. The loan term is most often 30, 20 or 15 years, and the rate on a 15 year mortgage will be lower than a 30 year (but the payment will be higher).

How much do you want to finance? Mortgages are based on the size of the loan. There are price hits for smaller loans and price enhancements for the larger ones (up to the conventional limit of $417,000 for a single family home). So bigger loans are priced better than smaller loans.

Do you know your credit score? One of the big changes in the mortgage industry over the last year is that conventional mortgages rates are now linked to your credit score. The best rates go to those who have scores of 740 or better. Pricing is just a bit higher for those below 740 but above 700, but if your score is below 680 the hits can be big. FHA loans only have price adjustments if your credit score is below 600.

What is your home worth? What I’m looking at here is loan to value. If the mortgage is a high percentage of the value of your home this may affect your pricing. It also may mean that you would need to take on mortgage insurance. One of the realities of this market is that homes values have fallen. In some cases with the lower values, it doesn’t make any sense to refinance.

Are you taking any cash out? Depending on your loan to value, this can be another price hit. If you still have a lot of equity in your home after taking the cash out, it won’t matter.

Do you have a second mortgage or home equity loan? This matters for a few reasons. If you have a second mortgage and you are not planning on paying it off, we will need to subordinate it. This means the company that holds your second loan will have to approve the terms of the new first mortgage and agree to go along with the refinance. The risk to the new mortgage lender is that a second mortgage holder could try and jump into a first lien position while the new loan is closing, so we need to get an agreement anytime there is more than one mortgage. This used to be just a formality, but now second mortgage lenders are getting much pickier about what they approve, and what they won’t. If we need to get a subordination we need to allow for more time, and more time affects loan pricing. Also, if you took on the second mortgage after you bought the home, this is considered a cash out refinance, which may be another price hit.

What is more important, getting the best rate or keeping your closing costs low? The more you pay in points and closing costs, the lower the rate you will be able to get. But getting the lowest rate isn’t always the best plan. It can take years to pay off the extra closing costs based on the difference in your payments. This might be the right way to go, but if you don’t expect to be there long term, or if you think that rates could drop even lower, this might be a mistake. But many people have their eyes set only on getting the lowest rate. I talked with someone recently who was shopping rates and had just been quoted from a nationally known (big advertising) company. She was quoted an extremely low rate, but she would have to pay an additional almost $9,000 to get that rate. Focusing only on the rate can cost you money.

Do you escrow for your taxes and insurance? Many people would prefer to pay their own tax and insurance bills as they come due, rather than paying the mortgage company every month as part of your mortgage payment. If you have enough equity in your home this is an option, but there is a price hit for doing it. Some lenders charge less than others, but this is something we need to know upfront.

What type of property do you have? Fannie Mae recently changed their guidelines, and Freddie Mac is planning on following, so that condos will cost more to finance. This only applies if your loan to value is greater than 75% (less equity), but it means that condos are more expensive to finance than a single family home would be. The same thing goes for 2-4 unit buildings.

In order to get the mortgage that is best for you, we need to match the loan to your situation. Asking the right questions up front helps us get the situation right so you get what is right for you and avoid unpleasant surprises down the road.

Illinois Mortgage Rates                   First time home buyer loans                We Lend in All 50 States

If you were looking to refinance your mortgage but were waiting for rates to drop further, the market has not been cooperative this week. Over the last 5 days mortgage rates have ticked up nearly a half a point in rate. Mortgage rates are still attractive, and they are at a level that will help a lot of people lower their payment and improve their budget. But they aren’t in that all time low, brag to your friends that your mortgage broker is a rock star range that they were before. So does this mean you’ve missed the boat and it’s too late to refinance? Was this another short term boom that is quickly going bust? Maybe, but I wouldn’t bet on it.

The truth is that no one knows for certain what is going to happen to mortgage rates on a day to day basis, and the markets have been volatile all year. But mortgage rates are based largely on activity in the mortgage backed securities markets, and these, like all markets, are driven partly by the underlying fundamentals, and partly by emotion. The fundamentals show the economy is stalled and we are in a severe recession with more than a hint of deflation. On the other hand, the emotions are more forward looking. The worry now is that the Obama stimulus package will be too big, and Ben Bernanke will be too loose with the money supply and that before we know it inflation is going to be out of control. This could happen. An economy as large and complex as ours is not an easy thing to manage. In the past Fed easing has often gone too far and rounds of loosening often lead to cycles of tightening to reign in inflation. But worrying about inflation now seems a little strange.

Right now it is like we are in a car trying to make it up a steep hill but the engine is stalling. We need to hit the gas hard and get the motor revving or the engine will die and we will roll all the way back down the hill and spend way too much time in an unpleasant valley. If we do step on the gas there is a chance that we will go too fast and lose control. But if we ease off on the accelerator as we near the top, and put on the brakes as we start heading down the other side, we should remain in control. After we crest the hill we may need to stand on the brake as inflation comes to life, and that promises to be just as scary as the situation we are in now. But we are now in a global recession and our major problem is how we are going to make it back up that steep hill. At some point we will need to worry about inflation and rising interest rates, but that is tomorrow’s problem.

This is obviously an oversimplification of the situation. There are other factors affecting mortgage rates (like wholesale lenders who are booked to capacity so they are keeping rates higher than they would be otherwise) and if markets were so easy to predict, we would all be billionaires. But I won’t be surprised if some of these same people who are screaming inflation now, have a change of heart down the road (think of oil prices this summer, and where they are now). If you are thinking of refinancing, the best thing you can do is get your papers together and start the process moving.

Illinois Mortgage Rates                   First time home buyer loans                We Lend in All 50 States

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