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One of the provisions of the recently signed Housing Bill, was the elimination of the Down Payment Assistance Programs (DPAs) like Ameridream and

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Nehemiah. These programs were a legal loop hole which allowed sellers, in a round about way, to fund the buyer’s down payment and allow them use an FHA loan to buy with no down payment from their own pockets. The DPAs have been a great deal for home buyers who didn’t have extra cash saved up for a down payment, and it’s been a great deal for home sellers because they brought in home buyers who otherwise wouldn’t have been able to buy a home. The down side has been that FHA has linked the DPAs to a higher default rate, and they’ve been trying to shut them down for years. Ameridream and Nehemiah contest the default figures, and claim that the defaults are more a function of fraudulent loans than problems with the down payment programs. Their claim is that administered properly, this is one of the best ways to bring low and moderate income buyers into homeownership and they have helped hundreds of thousands of families get their piece of the American dream. The DPAs have fought off court challenges and evaded death in the past, but it looks like this time it’s for real.

My experience lines up with the DPAs. The toughest part of qualifying for a mortgage has always been saving up the money for a down payment. I know that I’ve helped lots of otherwise well qualified buyers who without this program would have been out of the home market entirely. I also know that most of these buyers continue to pay their mortgages on time, and some of the buyer’s who started off with this program have gone on to use the equity they’ve built up to buy bigger homes – just like those homeowners who started out with large down payments. I’ve also known people who bought with larger down payments but ended up having financial problems down the road. I think most mortgage defaults are based on traumatic events like job loss, medical problems and divorce, than the size of their original down payment.

Another thing I’ve been seeing lately, now that FHA has increased their loan limits here in the Chicago area, is buyers using FHA and DPAs to buy up into a move up home. I have two clients I am working with now who are selling their homes, but because of the softness in the real estate market they need to bring money to closing in order to pay off their current mortgage and closing costs. With no money for a down payment they would be frozen out of buying. The DPAs allow them to start over again and not have to become renters again. Having a hefty down payment is always preferred, but this seems like a tough time to take otherwise good buyers out of the housing market.

So if you are looking to buy a home but you are short the down payment, this might be your last chance to buy. The new housing bill goes into effect on October 1^st. . This means you need to buy a home and close on it by September 31^st or you are out of luck. With 2 months this is plenty of time to find a home and to get a mortgage, but you need to act fast. If you are thinking of buying a new home here in the Chicago area or throughout Illinois, give me a call and we can go over your situation and get you pre-approved. You can still buy with no money down, but the train is pulling out of the station and you will have to act fast.

Illinois Mortgage Rates and News

Click here if you would like to add your name to a petition to keep the DPAs in place. It may be too late, but it is worth a shot.

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I had breakfast this morning with a Realtor who was having a difficult time with one of her listings. She had a contract on the house and the buyer was pre-approved for the mortgage before they wrote the offer. Everything looked like it was set for a nice smooth transaction. When the financing date in the contract came due the buyer still didn’t have loan approval, so they requested an extension. She was assured that the borrower was great and the appraisal came in right where it needed to be. There were just a few small details to take care of and loan approval would be forthcoming. 10 days later when the extension was up, they still didn’t have a loan approval. The loan officer was vague about what the problems were, but promised that it was nothing serious and with a little more time everything would be fine. By this time the Realtor was nervous and the seller was a basket case. But in for a penny, in for a pound, they agreed to a second extension rather than put the property back on the market. You can guess where this story is going. The second financing extension came and went with no loan approval. Now the loan officer isn’t answering his phone and all the calls to his company end up in voice mail and no one is returning phone calls. Many home buyers think of mortgage financing as a commodity, but this Realtor knows that isn’t true.

On the other hand, mortgage rates can be looked at as a commodity. Mortgage options have narrowed and most loans are now either conventional loans insured by Fannie Mae or Freddie Mac, or FHA government insured loans. The rates on these loans are determined by action in the mortgage backed securities markets, and wholesale lenders react to changes in these markets in unison. On the consumer level, mortgages rates are extremely competitive. What this means is that mortgage rates, no matter what the source, are going to be very similar from one lender to another. There will be differences from day to day. On any day one lender might be an 1/8^th of a point better, maybe even a ¼ point (when you account for costs and fees, anything more than this and they are hiding fees somewhere), just as one gas station might at times sell their gas for a few pennies less. But most lenders will offer mortgage rates in a very tight range. So mortgage rates are a commodity, but the mortgage experience is much more than just who has the best rates and fees on any particular day.

Having the best rate doesn’t matter if you don’t close on time or if you don’t close at all. Having the best rate quote isn’t going to help you if the terms of your loan change and you end up closing with a higher interest rate or higher fees. So what exactly should you be looking for when choosing a mortgage besides comparing the programs, rates and fees charged? There are a few things that will have a direct impact on how good, or bad, your mortgage experience turns out to be:

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Communication – Unless you’re a mushroom, you probably don’t want to be kept in the dark. You don’t realize how important communication is until you run up against someone who is not telling you what is going on. Does the loan officer return your phone calls and emails quickly? Does he fully answer your questions? Do you know the status of your loan and is there a system in place to show your loan status?

Knowledge and experience – Does your lender understand what your needs are and help you to meet your goals? Or does he just quote a rate? Does he know how to do the loan that you need? This is a real issue now with FHA loans. FHA used to be a big factor in the housing market, especially for first time home buyers loan But that dropped off and over the last 5 years FHA dwindled down to a trickle. The market has changed though, and this year FHA is the best option for many buyers. How experienced is the lender with FHA? Many loan officers have never done an FHA loan. Letting them practice on you is not going to give you a good mortgage experience.

Follow through – About 50% of good service is about doing what you said you were going to do when you said you were going to do it. If they are promising the moon but not coming through, that’s going to be a big problem.

Reliability – This is where the rubber meets the road. Is the lender going to be able to meet their obligations? More mortgage lenders, both brokers and national banks, have closed their doors over the last year than at any time in memory. Is your lender going to be around for the long run? Will they be able to meet the deadlines in the contract? Are they going to have the money at the closing when you need it? Surprises can be nice, but surprises that come at the closing usually aren’t the kind you want.

Reputation – What do you know about the lender, both the company and the loan officer? Do a little bit of research and see what other people’s experience has been. Do a Google search to see what you find, and see if the Better Business Bureau has any complaints filed. Ask your real estate attorney what they know of the company – they, along with title companies, have more experience with lenders and can tell you who is good and who to watch out for.

Everyone wants to get the best deal and mortgage rates might be a commodity, but the mortgage experience isn’t. When choosing a mortgage make sure you look at the big picture.

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Illinois Mortgage Rates and News

Last year, when the Sub Prime market was imploding, there was a lot of talk about how FHA, a Government backed loan, was going to be the new Sub Prime. It hasn’t worked out quite that way. In fact, the real truth is that FHA is the new conventional mortgage.

Sub Prime mortgages were loans for borrowers who couldn’t qualify for the more stringent conventional guidelines. This often meant borrowers who had credit

problems, or it could mean borrowers who couldn’t prove their income. The thing about Sub Prime loans is they were profitable for the lenders (if they got rid of them quickly). These loans were often structured as 2 or 3 year adjustable rate mortgages, and they were priced several points higher than a conventional fixed rate would be. When the market was hot, defaults were low, so these loans were money machines for the lenders who offered them. With money to be made it was almost inevitable that conventional lenders started making more of these types of loans, that is, loans to low credit score borrowers and loans to borrowers who couldn’t prove their income. This went on for a while, but as it had to eventually, the party stopped, loan default rates rose and the whole mortgage market changed. Sub Prime mortgages were the first to disappear, but over the last 9 months conventional guidelines have continued to tighten going from a way too loose approach to where we are now when even good credit risks may have trouble qualifying for a mortgage.

After the market changed, I heard a lot of people say that FHA would take over the slack. But FHA isn’t now and never has been a loan of last resort – which sub prime was. For one thing Chicago FHA Loans are full doc. That means we need to be able to verify the borrowers income and know where the money to close is coming from. FHA will take on borrowers with lower credit scores or borrowers who have had major credit problems in the past, but this isn’t an automatic thing. FHA has no set minimum credit score (though many of the wholesale lenders now do – some will only go as low as 580, others will go below 550) but the idea behind FHA underwriting is to understand the risk involved in a loan. FHA isn’t as concerned with a borrower’s past credit problems as they are about how the borrower will treat credit in the future. This means understanding what happened that caused the problems in the past, and showing that the situation has changed so that these credit problems won’t be a problem going forward. If the bad credit is over 2 years old it probably isn’t even an issue.

Conventional loans have always been the foundation of the illinois home mortgage market. But as conventional guidelines have tightened, borrowers who used to be considered great risks are now frozen out or forced to pay more for their mortgage. FHA helps to fill this gap. Earlier this year FHA upped their lending limits (Temporarily at least, if not extended it will expire by the end of this year) so that you can now buy a home in the Chicago area with a loan as high as $410,000.

What can you now do with an FHA loan that you can’t do with conventional financing? Here are a few advantages of FHA and ways that FHA has become the new conventional alternative here in the Chicago FHA loans : Mortgage Chicago il area:

1. No Risk Based Pricing adjustments- Risk Based Financing is the idea that those borrowers with the best credit scores will be able to get the best mortgages rates, and those with lower credit scores will have to pay more. With conventional loans buyers with credit scores under 720 and with down payments under 20% are getting hit on their pricing. With FHA if you qualify for the loan you get the best pricing. You can qualify for an FHA mortgage with credit scores in the upper 500s – without any price hits.
2. FHA uses common sense credit guidelines –FHA looks at the buyers over-all history, not just their credit scores.
3. You can buy with a low down payment – or no down payment – This is another area where FHA has a big advantage over conventional loans. It is now much harder to get a conventional mortgage with a minimal down payment. But FHA only requires 3% down which can come as a gift from a relative or as a grant from a down payment assistance program. That means that you can still buy a home with no money out of your own pocket.
4. FHA allows a seller concession of up to 6% – By using seller concessions, you can structure your purchase in more creative ways including paying all your closing costs.
5. FHA is more lenient with past bankruptcies – FHA is MUCH more lenient with past bankruptcies. Conventional loans just changed their guidelines to make financing harder. FHA takes a more common sense approach.
6. FHA financing is available for Permanent Resident Aliens – With FHA you don’t need to be a U.S. citizen and you don’t need to have your green card. You will need to have a social security number, established credit and proof that you are able to work in the United Sates.
7. No cash reserves are required – All you need with FHA is enough to pay the down payment and closing costs. No reserves necessary.
8. No income limits – Many of the low and no down payment conventional loans are set up to help low and moderate income home buyers. This isn’t the case with FHA.
9. Non traditional credit is accepted – Most conventional loans require that you have a credit score and an established credit history. But not every one uses credit. With FHA we can build up a credit history from other payments you have mad. This would include your rent and utility payments, and any other non-traditional credit you have used.
10. Mortgage insurance is lower than conventional – FHA splits their mortgage insurance into 2 parts – an up-front insurance which is added to the loan amount, and a premium which is paid monthly. If you are buying with a minimum down payment, the combined premium on FHA is better than it is with conventional loan programs – especially if your credit scores aren’t the highest.
11. You can buy a 2-4 unit building with only 3% down – Conventional financing isn’t even close here, and rental income is looked at in a way that makes it much easier to qualify. With a 2-4 unit you will need 3 months of reserves, though.
12. FHA refinancing – FHA has a streamlined refinance that makes refinancing easier and less expensive, and a cash out refinance program that goes up to 95% of your home’s value, giving you more flexibility in your debt management.

In short, more people will qualify at a lower price with FHA financing. Put it all together and there is no doubt, FHA is the new conventional.

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Not so long ago, FHA loans were the red-headed step child in the housing market. They didn’t get any respect. That wasn’t always the case. Back in the old days FHA loans were the only option for most first time home buyers or others who had little money to put down. FHA was the way for many borrowers to take their first steps into home ownership here in the Chicago area. Not only could you buy a home with a small down payment, but the entire down payment could be a gift, and your credit didn’t have to be perfect. There were problems with FHA loans, though. It took longer to get a loan approved and closed than with a conventional loan, and if there were issues with the homes condition (like peeling paint) the issues had to be fixed before closing. Many people felt that FHA underwriters were professional nitpickers, so if they had a choice, many Realtors and home sellers would take a conventional buyer over an FHA buyer. As time went on

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FHA became less and less of a factor in the market. Conventional loans came out with low, and later no down payment options, and other loans catered to borrowers with bruised credit. Another part of the problem was that FHA didn’t keep up with the market values. As home prices moved up in Dupage County and throughout the Chicago area, FHA kept their loan limits low, and became a non-issue for all but the lowest priced homes. Now, as the conventional market is in turmoil, it looks like FHA has another shot at its glory days, and there is no doubt that FHA financing is the best loan option for many Chicago area home buyers and the best first time home buyers loan available today.

Over the last few years FHA has updated the way they make loans. They’ve eased off on their property conditions, and with direct endorsement underwriters we can approve and close an FHA loan as fast as we can a conventional loan. But the biggest change is that FHA has increased their loan limits here in the Chicago area and throughout the nation. In the Chicago area (this includes all of the collar counties including Dupage, Kane, Lake, Gruny, Kendal and Will) you can now get an FHA loan on a single family home up to $410,000. This is already making an impact. FHA’s market share in 2006 was about 3% of total mortgage originations. Today FHA is closer to 10%, and moving up.

Why would you consider an FHA loan over a conventional loan? Here are some of the advantages:

1. No Risk Based Pricing adjustments- Risk Based Financing is the idea that those borrowers with the best credit scores will be able to get the best mortgages rates, and those with lower credit scores will have to pay more. Fannie Mae and Freddie Mac, the two big buyers of mortgage loans in the mortgage aftermarket, recently changed their guidelines in a way that meant all but the very best borrowers will pay more for a loan. Now buyers with credit scores under 720 and with down payments under 20% are getting hit on their pricing. This isn’t the case with FHA. With FHA if you qualify for the loan you get the best pricing. You can qualify for an FHA mortgage with credit scores in the upper 500s – without any price hits.
2. FHA uses common sense credit guidelines –FHA looks at the buyers over all history, not just their credit scores. FHA uses a common sense underwriting approach that understands credit problems can happen to anyone. Their concern is that the problem has been addressed and isn’t likely to occur again. If you have had credit problems in the past, you may need to document why they happened and what you have done to correct the problems, but you aren’t automatically frozen out of a loan, as you would be now with most conventional loans. If you have some issues with your credit, give me a call before you are ready to buy. Working to fix your credit earlier will help you save money later.
3. You can buy with a low down payment – or no down payment – This is another area where FHA has a big advantage over conventional loans. It is now much harder to get a conventional mortgage with a minimal down payment. But FHA only requires 3% down. And this down payment can come from a gift from a relative or as a grant from a down payment assistance program. That means that you can still buy a home with no money out of your own pocket.
4. FHA allows a seller concession of up to 6% – By using seller concessions, you can structure your purchase in more creative ways. One way many buyers use this is by converting a seller concession into a grant from a non-profit down payment assistance program like Nehemiah or AmeriDream. Here is how it works. When you negotiate the contract with the seller, you would ask for a concession on the price upfront — the amount will usually be between three and a half to four percent of the price (more if you want to build in closing costs, too). Three percent will go for the down payment; the rest goes to pay for the organization’s administrative costs. The seller agrees to give this negotiated concession to the grant provider at the closing table, and they in turn give a “grant” to you for your down payment. This is all done on paper and no money really changes hands, but it allows you to buy your home with no money down. There are other ways to use the seller concession, including buying down your interest rate to lower your monthly payment. The important thing is to make sure you ask for the concession right up front when you first start to negotiate your purchase.
5. FHA is more lenient with past bankruptcies – With FHA you can buy a home 2 years after a Chapter 7, and 1 year after a Chapter 13 bankruptcy – sooner if the bankruptcy is medically related or due to actions beyond your control. You will still need to show that you have reestablished your credit and can afford your new payment.
6. FHA financing is available for Permanent Resident Aliens – With FHA you don’t need to be a U.S. citizen and you don’t need to have your green card. You will need to have a social security number, established credit and proof that you are able to work in the United Sates.
7. No cash reserves are required – This is another way that FHA differs from conventional financing. Saving up for a down payment is the biggest obstacle to buying for most first time home buyers. With conventional loans you need to have saved not only the amount for the down payment, but also have some money left over in reserve. With FHA they only require enough cash to close and you don’t need money in reserves.
8. No income limits – Many of the low and no down payment conventional loans are set up to help low and moderate income home buyers. This isn’t the case with FHA. It’s goal is to help more people buy homes and there are no limits on how much you can make.
9. Non traditional credit is accepted – Most conventional loans require that you have a credit score and an established credit history. But not every one uses credit. With FHA we can build up a credit history from other payments you have mad. This would include your rent and utility payments, and any other non-traditional credit you have used.
10. Mortgage insurance is lower than conventional – FHA splits their mortgage insurance into 2 parts – an upfront insurance which is added to the loan amount, and a premium which is paid monthly. If you are buying with a minimum down payment, the combined premium on FHA is better than it is with conventional loan programs – especially if your credit scores aren’t the highest.

These are other just a few of the advantages of FHA financing. There are other advantages of FHA financing which help some individual needs. One of the biggest things to keep in mind is the pricing. FHA pricing is as competitive as conventional financing –and much lower if you are buying with a low down payment or if your credit scores aren’t the absolute best. If you would like to see how FHA could work with your situation, give me a call or contact me. I would love to work with you.

Illinois Mortgage Rates and News