** This is a re-post of a previous article, but it is applicable now.

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, but it won’t help many of the people who need it most. The problem is that you may be able to lower your rate and your mortgage payment, but you will take on the new mortgage insurance rate, which is about twice as high as it used to be. But for those who fit in, it 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 5.00% interest rate., your mortgage payment is about $1,073 per month. Now, if current rates are at 4.25% (this is only an example.  Call me if you want a personal quote) the new mortgage payment would be $984 per month. The lower rate means a savings of almost $91 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 $1,800 in total closing costs, it will take you about 19 months to payback the closing costs with the $91 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

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

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

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

Free Home Buyers Guide

You can trust in us to get the job done.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

Did you miss out on refinancing last year when mortgage rates dropped to their lowest point in our life times? Last Fall, right before the Fed announced their last round of the Quantitative easing policy, mortgage rates dropped to as low as 4.00% (for the best qualified conventional loans). The consensus at the time was that the economy needed more juice to keep it growing, and that rates were likely to drop even lower still. If you had considered refinancing at the time and missed the boat back then, you know what happened next. The Fed started the Quantitative easing program which pumped more money into the economy. The financial markets switched on a dime and while the big fear before was that the economy was growing too slowly and unemployment was too high, the new fear was that with all this money washing through the system, inflation was about to be unleashed. Rates spiked higher and ran as high as the mid fives. The program that was supposed to drive mortgage rates lower and act as a boost to the housing market had the exact opposite effect. Most analysts were calling for rates to spike even higher, and some thought we would be in six percent range before the end of the year. But while there have been signs of inflation, especially with gas and food related items, the economy is still very fragile. The latest indicator for this was last week’s monthly jobs report, which came in much weaker than expected. Rates are dropping again and have now broken through a technical barrier, which implies that we may have room to go even further down. If you didn’t pull the trigger fast enough last time to get a lower rate, it looks like you will get a second chance.

Refinancing now isn’t as easy as it was in the past. Home values have slipped and not everyone has the equity they need to refinance, but there are programs available where you can still refinance even if you don’t have much equity. There are still programs available if your loan is held by Fannie Mae or Freddie Mac, and the FHA streamline refinance is always a good option. There are a lot of homeowners who can still qualify and would benefit by refinancing their mortgages, who don’t realize it’s possible, or don’t think it is worth the effort.

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.
• If you have enough equity 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. If you would like to compare options, see if it makes sense to refinance your mortgage or get a rate quote for your situation, give me a call.

Free Home Buyers Guide

You can trust in us to get the job done.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Refinance           Chicago FHA Mortgages

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

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

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

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

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

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

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

Free Home Buyers Guide

You can trust in us to get the job done.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

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

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

Assemble your team of experts

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

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

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

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

Free Home Buyers Guide

You can trust in us to get the job done.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

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

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

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

Other videos in this series -

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

How leverage and home appreciation will build value over time

The tax benefits of owning your own home

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

Free- Home Buyer’s Guide

Free Mortgage Pre-approval

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

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

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

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

Other videos in this series -

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

How leverage and home appreciation will build value over time

Free- Home Buyer’s Guide

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

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

One of the peculiarities of the lending environment since the housing bubble burst, is how the idea of what makes up a good borrower has changed. Back when conventional mortgages (those loans made to Fannie Mae and Freddie Mac guidelines) were available for anyone with a pulse, a good borrower, that is someone who can get the best rate on a mortgage, was considered a borrower with a credit score of 620 and above. Mortgage qualification was too easy then, and as the housing market floundered, qualifications have continually ratcheted down, making conventional loans harder to get and more expensive for those who aren’t in the best category. It started out with Loan Level Price Adjustments (LLPAs) or price hits, based on credit scores. Now it takes a credit score of 740 or above to get the best rate, and if your score is below 700 the price hits mean a big increase in the rate you will be able to obtain. There are also LLPA price hits for the type of property, so buying a multi-family home is more expensive than buying a single family home. If you buy a condo with a conventional loan, you now need to have 25% equity or down payment in order to get the best pricing on a condo.

With a new change by both Fannie Mae and Freddie Mac, conventional loans are about to get more expensive again, and this time the changes will affect those borrowers who have always been looked at as the gold standard of borrowers, those with excellent credit who are putting 20% down on a home. The new price adjustments are based on the borrowers credit scores and the loan to value (amount of the mortgage compared to the appraised value of the home) and combined loan to value (which includes the total of mortgages, including second mortgages and home equity loans) The surprising thing about this is that there are now price hits for those who up until now have been considered the top credit risks with both top credit scores and down payments of 20%, but less than 25% equity. The price hits get bigger if your credit scores aren’t perfect, and if you have more than one mortgage the price hits will make a big, big difference in your loan pricing.

Most consumers won’t end up paying these price hits in cash. As a rule, they will be built into the loan price and when you are quoted a rate on your mortgage these will be built into the rate. In other words it may not cost you more in fees, but for most conventional borrowers, the rates just went up. These changes go into effect for loans delivered to Fannie Mae and Freddie Mac as of April 1st 2011, but in order to deliver these loans on time, lenders are starting to implement these fees now, or will be soon. The frustrating thing about this is that with the housing market still so weak, why are we (both Fannie and Freddie are government owned entities now) making it harder and more expensive to get financing? The long term plan is for Fannie and Freddie to become self sufficient again, and the plan here is to reduce risk and increase their fee income. Everyone is concerned with reducing risk and it makes sense that if you add more fees and toughen requirements this will help lower your risk. But when borrowers with virtually no risk are targeted, this means we have gone too far.

FHA loans are becoming more attractive for more borrowers – even those who can qualify for a conventional mortgage

As conventional mortgages become more expensive and harder to qualify for, FHA mortgages are becoming an even better option for many borrowers. FHA loans aren’t for everyone, if you have 20% for a down payment, even with the price hits, buying conventionally is a better option because it eliminates the mortgage insurance (FHA has mortgage insurance no matter how much of a down payment you put down). But the truth is, most borrowers now, especially first time home buyers, are scrounging just to get the minimum down payment. FHA is now a great option for many borrowers who could be approved for conventional, and if you are buying a home, you should have your loan officer run your situation with both scenarios – FHA is often the better option when you look at the full situation.

Here are some of the features and advantages of buying a home with an FHA mortgage:

• FHA mortgages require only 3.5% down payment.
• With FHA financing you can use a gift for the entire down payment and all the closing costs.
• FHA mortgages allow up to 6% of the purchase price as a seller concession, which can be used to pay for closing costs.
• FHA mortgages rates are comparable to conventional loans.
• FHA allows much lower credit scores than conventional mortgage require, (640 is the required score unless there is a larger down payment). The focus is on the entire credit profile, not just the score, and FHA is more lenient of past problems once you are back on track.FHA has minimal loan level price adjustments or price hits.
• Most borrowers can qualify for more with an FHA mortgage.

Free- Home Buyer’s Guide

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

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

You don’t need to look at a calendar to know we are starting a New Year. My gym is crowded again, a regular January occurrence. Diets are in again after a December of eating way too much. And my phone is ringing with renters just testing the water to see if they are in shape to buy their first home later this year. This is expected in January because buying a new home is consistently one of the top financial resolutions. This year, with a combination of low interest rates and low home prices, buying a house is more affordable than it has been in decades, so I expect buying a home is on a lot of peoples list of resolutions for the year.

If you are even thinking about buying a home this year, even if you don’t plan on buying until later in the year, there are some steps you should take now.

Make out a budget – Buying a home is a big step, and you need to make sure the new payment will fit into your budget before you even start looking. Too often home buyers skip this step, and then are stressed later on when the cost of home ownership takes up more of their income than they expect. When you put together a budget, make sure that you include not only the direct costs of owning a home (the mortgage payment, taxes, insurance and association fees) but also the costs of maintenance and repairs. Often after buying a new home you will buy new furniture and appliances, lawn mowers or other items. If you are planning on buying stuff for the home, and will use credit to do so, make sure you include the costs in your budget. Also, if you know you will have a big expense coming up, like a new car payment, allow for this in the budget, too (if you aren’t sure how to start a budget, give me a call and I can send a sample form over to you). The good thing is, you can afford a higher payment when you buy a home than if you were renting. This is because the interest you pay on the mortgage and your real estate taxes are tax deductable. For many people, the mortgage payment seems easier to pay over time as they get used to the payment and their income increases. But don’t make the mistake of stretching too far and buying more than you can afford

Start thinking of what is important to you in a home – The more thought you put into what you want before buying a home, the better off you will be. Buying a home is often an emotional decision, and when you find the home that feels right to you, may not meet all your needs. But if you do your homework upfront and think about what features of a home are important, what is absolutely necessary and what you would like but could do without, you are more likely to find a home that is right for you in the long run. Things to think about may include what type of home you are looking at (single family, condo, townhome or whatever), as well as features of the home, location and whether you are looking for a home that is in great shape or one that might need some work. 

Research the areas you are interested in – Before starting to look or even putting much time in searching on the internet, narrow down the areas you are interested in buying in. One common mistake when starting to look for a home is having too broad of a search area. If you want a home on the north side of Chicago, or in the western suburbs, this covers a whole lot of ground. By thinking of what are the key features for you, this can help you narrow down the best area to look. Are you looking for something new, or something in an older area? Is the school district important? Is being close to work or public transportation one of your key needs? How ever you do it, narrowing down the areas you are looking in early will make the home search easier and less stressful.

Run your credit report and make sure there are no mistakes or problems that need to be worked on –Credit is more important know than it has ever been. You need to meet minimum standards just to be able to qualify for a mortgage, and having a lower score can cost you money when you get the loan. Too often home buyers assume their credit is good, and don’t find out about problems until they have already found the house they want to buy. Even if you always pay your bills on time, you can still have issues on your credit report. Sometimes these are mistakes, other times they can be small items that can easily be fixed, as long as you know about them in time. Make sure you get a copy of your credit report early. This is part of a normal pre-approval, and a good loan officer will not only run your credit report, but will help advise you on what you can do to present yourself in the best way. If more extensive work needs to be done, a good loan officer can help you with that, too.

Start planning for where the down payment and cash needed to close will come from – You don’t need a lot of money to buy, but you will need some cash. FHA loans are available with as little as 3.5% down payment. But even if you have the money for the down payment saved up, you will also need money for closing costs and to set up the escrows. This may mean more cash than you expect. But if you know what to expect and you plan ahead, these are obstacles you can get around. For example, you can ask the seller to pay for the closing costs as part of the negotiation to buy the home (if you wait until you already have the contract it could be too late). Maybe you can get a gift from a relative? This is a common option for first time home buyers. If you don’t have all the savings now, will you be getting enough from a tax refund? Is a loan against your 401K an option? There may be ways to structure the purchase, but you need to give some thought to this early.

Talk with a good loan officer and get pre-approved for a mortgage – This should be one of the first things you do when you are getting ready to start looking for a home. Getting pre-approved can start with a short phone call, or you can fill out a free and confidential on-line pre-approval form. Either way, a mortgage pre-approval is a way to look at what you are hoping to do, and matching your needs and goals with the best mortgage options for your personal situation. A true pre-approval will require the same documentation we would need if you already had a home, paystubs, tax papers, bank statements and the like. It will also require a full credit report.  A good loan officer will not only tell you how much of a loan you can qualify for, but will be a guide throughout the entire home buying and mortgage process. If you have any questions or are ready to start with a pre-qualification or mortgage pre-approval, give me a call, I would love to help.

If buying a home is one of your New Year’s resolutions, don’t put it off until you are ready to buy. Starting the process early and putting some thought and effort into this now will make for a better decision later on.

Free- Home Buyer’s Guide

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

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

This is the second installment of the Chicago Video Home Buyer’s Guide and in this installment we go over one of the major advantages of owning your own home, appreciation and leverage.  Property

appreciation, or how home values increase over time, was something that everyone took for granted up until the bubble popped. Home values now are down sharply from where they were a few years ago, but forces are in place which will stabilize the market, and buying now when home prices are so low means home appreciation is much more likely as we go forward. Leverage is when you use a mortgage to buy your home, and when home prices increase, your return is magnified. This is how people can buy a low priced starter home and build equity to move up to a larger home over time. Of course there is no guarantee that home prices will go up, but this has been a major benefit of owning your own home over time.

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

Free- Home Buyer’s Guide

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

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages