Illinois Mortgage Rates and News

When I first started in the mortgage business here in the Chicago area almost 2 decades ago, it was normal for a home purchase to close in 60 days. That is a long time, but it took that long to close because that’s how long it took to get a mortgage approved. The financing contingency date (the date in the contract that you need to have your mortgage approved by) was usually 45 days after the contract was accepted. Everything took longer back then from the appraisal to underwriting. If a file needed to close in 30 days that was a real rush, and we had to pull put all the stops to get it done. Like so much else, that way of doing business is long gone.

Now most contracts are written to close in 30 days or less. I’ve had two loans this month that closed in under two weeks (one where the buyers went on their honeymoon in-between), and have closed loans in days when necessary. Because of technology life is faster paced and people expect things to move faster. So one of the questions I get all the time is – How fast can you close? My answer is usually – How fast do you need to close? The truth is, in most cases we can close quickly. We underwrite and fund most of the loans ourselves, which means more control, and we now have FHA direct endorsement so we can close FHA files as fast as conventional ones. But there are still a lot of moving parts to getting a mortgage approved. In order to close a loan quickly everything has to be coordinated. The appraiser has to get the appraisal done quickly, the file has to be put together fast and accurately, and the documentation has to be collected up-front.

That’s where the borrower has control. If you need to close on a mortgage in a hurry, here are some things you can do to help yourself:

1. Get pre-approved ahead of time – once you have a contract with a fast approaching closing date, it’s too late to think of the things you should have done earlier. If you have a few problem spots on your credit, or other weak spots that need to be addressed, knowing what you need to do can put you in a much better position for a fast loan approval.
2. Have your documentation ready – The days of approving a loan based just on your credit score are gone. Having your documentation ready is a key to a fast approval. Having all the documentation at application means that we don’t have to try and get the paperwork in other ways, which slows the process down. Here are some of the things we will need for a normal file:

Current paystubs for the last 30 days for all borrowers.

W2s for the prior two years (2006 and 2007) for all borrowers.

Full tax returns for the last 2 years – only if you are self employed or have substantial commission income.

Bank and investment account statements for the last 2 months (enough to show where the down payment and closing costs are coming from as well as any required reserves) – all pages attached.

A copy of your driver’s license or other picture ID.

This is the minimum documentation. Depending upon your situation we may need more. To get a loan approved and closed quickly we will need to make sure we have what is required for the mortgage guidelines, and we need to address any questions that the underwriter may have. If you are looking for a fast closing, give me a call before you make an offer on a home and I can tell you what else you will need.

1. Have all your addresses and phone numbers – As part of the approval process we need to verify everything on your loan application. Addresses and phone numbers for both your current and past (if in the last 2 years) employers and if you are renting, your landlords.
2. Address any problems early – If you are buying with an FHA loan and you have had any late pays or credit problems in the last 2 years, we will need a letter explaining why it happened. If there are large deposits in any of your bank or asset accounts, we will need to know where the money came from and show a paper trail. Providing this information up-front saves time and helps speed the process.
3. Be prepared – The underwriter is the person who makes the final decision on the loan. If they issue an approval with conditions (things they need before the loan can close) be prepared to get the items needed as quickly as possible. Any thing that is listed as a pre-closing condition means the underwriter has to look at and sign off on these items before the property can go to closing.

You can close on a loan quickly, but you need to plan ahead. Working with your loan officer and having what you need takes away some of the stress and makes for a quicker, smoother closing.

Illinois Mortgage Rates and News

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Welcome to Illinois Mortgage Rates and News week in review for the week ending May 16th, my take on the week’s financial news and how it affected Illinois mortgage rates.

If you follow the news, it was a grim week with talk of natural disasters in Asia, an earthquake in China and a cyclone in Myanmar. With true disasters like this the mess in the real estate and mortgage markets doesn’t look nearly so bad. In fact, there were a few signs this week that we are starting to come out of the worst of the mess. While it is too soon to say that we have reached a bottom, there are signs that point to how we can navigate through this. We are still a long ways from where we were, but in a way we are coming to a new normal, and I see signs of the financial markets stabilizing and the mortgage industry gaining confidence. Two things happened this week that point to this conclusion. One, foreign investors started to show interest in buying mortgage bonds again, and two, Fannie Mae is getting rid of their disastrous declining market policy.

Let’s start out with number two, Fannie Mae’s scrapping their declining market policy. Last December, in a reaction to the down turn in the housing market, Fannie Mae, the biggest purchaser of mortgages, came up with a plan that they thought would shield them from the risk of falling home prices. The idea was to identify markets where the prices were falling, and require a higher down payment in those areas. So if someone was going to buy with what would normally be a 95% loan to value (5% down), in a declining market they would need to put down 10%. The idea was for Fannie Mae to cut their exposure in the worst markets. In a way this was a form of Redlining, a discriminatory lending practice and because of this they became a target for consumer groups. The bigger problem was that it made things worse. By making financing more difficult it took more buyers out of the system, guaranteeing that home prices would continue to spiral down. And while the original idea was to cap off the worst areas, the declining markets started to creep into areas that were looked at as more stable, including portions of the Chicago area, again making sure that prices would continue to fall. The new plan is to go back to the old plan. Financing rules will be the same for all parts of the country, with no hits based on the market condition of the area. This change will be part of the release of the new DU version 7, which is going to be tightening qualifying overall, so it’s not all good news. The changes go into affect staring June first.

The other encouraging sign was a return of foreign investors to the mortgage bond markets this week. The lack of foreign buyers in the mortgage backed securities market has been one factor in keeping mortgage rates higher than they would be otherwise. There is now evidence that the foreign investors are starting to buy again. This means they have confidence that the worst is over, and are willing to vote with their cash. We are also starting to see some movement on some programs that have been given up for dead, like adjustable rate mortgages and Jumbo loans. We’ll see how this develops as time goes on, but it is another encouraging sign.

A lot of economic reports were released this week, and as has been usual in this market, they were a mixed bag. Retail sales numbers dropped, but when low auto sales were factored out they increased by a higher than expected .5%. This could be looked at as proof that consumers are still spending, which means that the economy still has some strength. It could also be looked at as a reflection of higher prices, and the increase is due to inflation. Housing starts unexpectedly moved higher, but again this was a mixed result because the increase was due to a surge in multi unit apartment buildings. Single family home starts dropped for the 12^th straight month. Consumer price index came in lower than expected, which means inflation is still manageable. Good news for mortgage rates. There were some other reports which showed that the economy is continuing to loose steam, and consumer confidence fell again to its lowest reading since 1980.

All this activity meant another see-saw market where volatility was amazingly high. Mortgage bonds tried to break through a layer of resistance, and finally did on Friday afternoon, before giving back their gains and ending down for the session. Still, mortgage rates are about the same as they were last week, and poised at level of support. Over the last few weeks rates have dropped each time they got to this level, but at some point I think we are going to break through and rates will drop down again. If you are in the market to refinance your mortgage, get your papers ready. We’ve had a couple of opportunities where the rates dropped to the lowest points, but the windows were only open for a short time. If it happens again you should be ready to jump on it.

Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee.  The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me and I’ll take the time to find the rate and program that is best for you.) :

Conventional loans up to $417,000

30 year fixed rate    5.875%   5.942% APR

15 year fixed rate    5.50%   5.657% APR

5-1 A.R.M.               5.25%     5.398% APR      

7-1 A.R.M.               5.50%     5.659% APR

For Jumbo loans over $417,000

30 year fixed rate*  6.50%     6.674% APR – Requires 20% down payment

(*We have one lender at 6.125% for a Jumbo fixed rate – if you meet their guidelines – 75% loan to value, tighter ratios.)

7-1 A.R.M.*             5.75%     6.014% APR *there is a 1 year pre-payment penalty on this option.

FHA LOANS

With 1 point origination fee – 60 day lock

30 year fixed rate   5.75%     6.159% APR

With no origination fee –        60 day lock

30 year fixed rate   6.00%     6.274%

These are just a few of the programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over a situation, let me know how I can help.

Illinois Mortgage Rates and News

Are you just starting to look for a home in the Chicago area, and wondering how much of a home you can afford? There are all types of rules of thumb for how much of a home you can qualify for, but rules of thumb are simply estimates, not guidelines. It used to be that there was a hard set formula for how much of a loan you would qualify for, now the underwriting process is more technology driven and in many cases you can qualify for more of a mortgage than you can comfortably afford. But how much you can qualify for is just a first step. The mortgage you choose has to fit your life style and future goals, as well as your current financial situation. To find out how much of a home you can afford, and how much of a mortgage payment is right for you, you need to understand what we look for in the mortgage process, and how mortgage loans are approved.

What lenders are looking for: When qualifying for a mortgage, I look at it as a game of twenty questions. I need to get as much information about you and your finances as possible to make sure we find the best loan program for you. The whole idea behind the qualifying process is to measure the risk, that is, to figure out how likely it is that a borrower will pay back the money they’re borrowing. I ask a lot of questions, but the personal qualifying issues all revolve around 3 areas:

Credit

Income

Assets

Your history in these 3 areas determines what type of loan you can get, how much you can afford, and what your payments will be. All conventional loans (those loans eligible for purchase by Fanny Mae and Freddy Mac, the 800 pound gorillas in the mortgage market) are now put through an automated underwriting process. This is a computerized artificial intelligence program which weighs all of your risk factors and spits out a decision on whether or not the loan is acceptable. In most cases the loan decision is made by computer, but loan officer and underwriter have to make sure that all the information that is put in is true and verifiable. FHA also uses the same programs, but there is more leeway and more chance of an approval if the loan is underwritten manually (that is, by a real live person). Let’s break these factors down a little.

Credit Qualifying – Credit scores are key. With a high credit score you can get approved for a much higher mortgage than someone with the same income and debts, but a lower score. Your credit score is crucial not only for approval, but for how much you pay for your loan. One big change in the mortgage market is the new Risk Based Pricing model. This is the idea that those borrowers with the best credit scores and higher down payment will be able to get mortgages at the best rates, and those with lower credit scores and lower down payments will have to pay more. The people affected by this change are borrowers with credit scores good enough to qualify for Fannie Mae and Freddie Mac based conventional financing. This concept has been talked about for years, but it is only now with the soft real estate market that it is going into effect. Or more to the point, it’s only going into effect now when the big mortgage players are taking it on the chin for all the bad loans they wrote when credit was easy. Those with lower scores and not much equity (first time home buyers?) will be hit hardest. FHA does not have risk based pricing, which makes it a good option for many home buyers. Here is some information on what you can do to make the most of your credit.

Income Qualifying – The second area we look at is your income. Again, we’re measuring risk here. In this case we want to make sure that your income is high enough to comfortably make the payments on your new mortgage and that your income is . To do this, we look at two things: How stable is your income? and, How does your income relate to the housing payment and your other debt? I’ll go over both.

Income stability - When people are trying to figure out how much they can afford, this is one area where it’s easy to get bad information. First we need to determine how much you make each month. We use gross income, not your take home pay. If you’re in a job where you get the same amount of pay each month, it’s pretty simple. But if you have a job where your income fluctuates from month to month, like commissioned sales or construction, or if part of your pay comes from bonuses, it gets more complicated. In these cases we need to go back and look at the history of your income over the last two years and make sure that this income is likely to continue.

The truth is, lenders look more favorably on someone who has been in the same (or similar) line of work for at least 2 years. If you haven’t been working steadily for the last two years, we need to know why. There are many acceptable reasons, including:

· You recently finished school, vocational training, or left the military.

· Your work is typically seasonal and gaps in employment are normal in your industry.

· You have been laid off from your job.

· Frequent employment changes are normal in your line of work (if you are in car sales, for example), but you have been consistently employed and maintained a consistent level of income over the past 2 years.

Besides income from your job, other sources of income can also be used. These can include alimony or child support (we need to see that you have a history of receiving it), pension or disability payments, investment income, trust income, income from a part time job and so on. Again, in order to use this income to qualify, we need to be able to show that the income is likely to continue.

Housing and Debt Ratios -This is a big factor in how much you qualify for, but one that has changed a lot recently. There are actually 2 ratios we look at. The first, the housing ratio, is a measure of your total housing cost compared to your monthly income. The housing figure includes all the normal monthly costs of owning a home: the principal and interest payment, the monthly taxes and insurance, mortgage insurance, and the association fee if it’s a condo or townhouse. The second ratio is the total expense ratio. This measure includes not only your housing expenses, but all your other monthly debts, too. So this takes into account all your minimum credit card payments, car payments, student loans, any alimony or child support, and the like. (There are some obligations that you are required to pay, things like car insurance and day care for children, that don’t count in the ratio. You do, however, need to keep these items in mind when budgeting.)

For years, the maximum ratios were 28/36; that is, no more than 28% of your income could go toward your housing payment, and all your debts combined couldn’t be above 36% of your income. This isn’t the case anymore. As I mentioned before, credit scoring changed everything. With good credit, it’s now common to qualify for a much larger payment than you would have before. You still need to budget and make sure that the payment you qualify for is one you are comfortable with.

What if you can’t prove all the income you receive? This is another area where the underwriting guidelines have changed a lot. Not so long ago, there were lots of loans that didn’t even ask about how much you made, or if they did, they didn’t try to verify it in any way. These programs went under a variety of names such as, no income verification (NIV), no ratio loans, stated income and ‘No Doc’ loans. These opened the system to a lot of abuse. Some people bought houses they had no hope of making the payments for, and foreclosures in these loans skyrocketed.

Because of these problems, lenders have pulled most of these loans off the table. Still, if you are self employed, or if you know that you’ll be able to make the payments, but there’s income that we can’t use for qualifying, and you have good credit, there are some options available. It all depends on the amount of your down payment and your credit score. If you have questions about whether we can use all of your income to qualify, give me a call and I can find the program that works best for your circumstances.

I’ll go over the third area, asset qualifying, in my next post.

Illinois Mortgage rates and News