Illinois Mortgage Rates and News

(This is an update of a previous blog post)

The one question I am asked more frequently than any other is, What is your rate? This is a great question because you obviously want the lowest rate, but it’s a question that is impossible to answer. First of all, the rate will depend on what type of loan you are getting, whether you want to pay extra money in points and fees to get the best rate (which is what happens with the low rates you see in ads). Even if you were comparing apples to apples and making sure the loans are priced the same way, you can’t compare mortgage rates without without taking into account all the factors in your personal situation which go into pricing a loan. When  a lender takes on a new mortgage their goal is to minimize their risk and make sure that they are getting paid for the risks they are accepting. Some loan characteristics increase the chance that the borrower will default on their loan, costing the lender money. Over the last year Fannie Mae and Freddie Mac, the buyers of most conventional loans, have instituted a whole new series of price hits called LLPAs or loan level price adjustments, based on situations they consider more risky. This means that loans that fit into these situations will cost more than other loans. These price hits can be paid as extra fees at closing, or by increasing the rate on the loan.

Here are some of the things that factor into the price of a loan, and how I price out my Illinois Mortgage Rates:

Credit scores – Fico scores are a measure of how likely a borrower is to pay back the loan. It used to be that if you qualified for a conventional loan (a loan that was eligible for purchase by Fannie Mae or Freddie Mac) your pricing would be the same whether your score was in the low 600s or the high 800s. If you didn’t meet these guidelines you could still get a mortgage at a higher rate, but these were considered Alt-A or sub prime loans. Now you will need a score above 780 to get the best interest rate and if your score is below 680 the price hits will be substantial (if your score is below 680 you may be better off with an FHA loan). In order to quote an accurate mortgage interest rate, we need to know your Fico score first. This makes it all the more crucial to review your credit and work on any problems before you are ready to apply for a loan.

Loan type – Even when comparing 30 year fixed rate loans, there are a whole variety of programs available, each to meet specific needs. The pricing changes based on the loan type. Conventional loans (Fannie and Freddie) are good up to $417,000 for a single family home. If your loan is above that you would most likely look at a Jumbo loan. Jumbo mortgages are not able to be sold to Fannie Mae and Freddie Mac and they are priced much higher. If you qualify best for an FHA loan, the pricing would be different.

LTV and CLTV – This means the Loan to Value and the Combined Loan to Value, or how much is the mortgage compared to the value of your home, and how much if you include any other mortgages on that home. This is another way of stating how much equity you have in your home – the higher the equity, the lower the loan to value. And the less equity you have, the higher the risk is to the lender. This is tied in with your credit score, and if you are buying with a lower down payment, this could make a big difference in your rate.  Are you buying with a second mortgage added on? In the past this has been a great way to buy with less money down and avoid mortgage insurance. It is harder to do in many cases now, and you may pay more on your first mortgage if you have a second loan attached.

Loan purpose – Are you buying a home or refinancing? If you are refinancing your home and taking cash out, it would cost you more if your loan to value is greater than 70% (less than 30% equity). A purchase or a rate term refinance would be priced the same.

Occupancy – Is this your primary residence, a second home or an investment property? You get the best rates and fees for your primary residence. Second home loans are often the same, but in some cases they can be slightly higher. Investment property is looked at as a riskier type of loan and investors are more likely to walk away from a bad investment, than home owners are on their homes. So there are higher rates and fees when you buy non-owner occupied or investment homes.

Type of property – Mortgages for single family homes are are priced better than loans for two, three or four unit homes. In one of the biggest changes, you will pay more if you buy a condo with less than a 25% down payment.  (Here is more information on Chicago condo loans)

Loan amount – On conventional loans, pricing is usually better for larger loans. It costs the same to process and close a small loan as it does for a larger mortgage. Because of this the pricing improves on loans over $200,000. On the other side, loans under $100,000 have increased fees, and the fees go higher as the loan price drops.

Property location – There are some areas in the city of Chicago and in the Chicago suburbs that are considered target areas. These neighborhoods are targeted for redevelopment and banks are encouraged to lend in these areas – more than encouraged, they have to have to lend a certain amount in low income areas or they could face big problems with the federal government. Because of this pricing in these areas is better. The original idea here was to offer more homes for low and moderate income borrowers. Often the areas marked for redevelopment are the hot areas where prices are rising. Make sure your loan officer checks to see if you are in a CRA or targeted area.

Buying out of state the pricing can be different, too. I specialize Illinois Mortgages, but also close loans in most states. The wholesale lenders have different rates for each state.

Length of the rate lock – You will get better pricing for a 15 day rate lock than if you locked your rate in for 60 days. The longer the rate is locked in for, the greater the risk to the lender, so they pass the cost of hedging the loan on to you.

Escrows – Mortgages are usually priced so that the end lender will hold your escrows for taxes and insurance, collect 1/12^th of the payment from you every month and pay the bills when they come due. Many borrowers want to pay these bills themselves and earn the interest on their money until the bills come due. You can do this if you meet certain guidelines, but it will cost you. Most lenders charge a quarter point fee if you waive your escrows. On a $300,000 loan this is an extra cost of $750.

Pre-payment penalty – If you know you aren’t going to be moving or refinancing for a while, you can sometimes get a lower rate by agreeing to pay a pre-payment penalty. This will lower your costs, but it also handcuffs you into staying in the mortgage. If you end up moving or refinancing before the time expires, it could cost you a lot.

These are some of the things that factor into the rate and cost of a mortgage. Even bigger though is how the loan fits your needs and what you qualify for best. It doesn’t make any sense to shop the rate on a conventional mortgage if you can only qualify for FHA. Also, make sure you look at the bigger picture, not only the interest rate but the costs of the loan and how the financing works for your personal situation.

Illinois Mortgage Rates                   First time home buyer loans  

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Welcome to Illinois Mortgage Rates and News week in review for the week ending May 23rd, my take on the week’s financial news and how it affected Illinois mortgage rates.

The economy has been on a tightrope for quite some time, perched above the brink, on one side inflation the other economic stagnation. The Fed has been walking out on this tight rope, careful to not lean too far one way or the other. It’s been a difficult task and so far it looks like they are dipping on both sides, but still maintaining balance. The economy is slowing and inflation is heating up, but there are signs we are heading in the right direction.

Right now the markets see inflation as the bigger threat. The Fed has signaled that they are through with rate cuts, at least for the foreseeable future, and that they are prepared to do whatever is necessary to stop inflation. But the inflation we are seeing now is mostly a result of higher commodity prices, especially oil. Oil prices were up again this week, hitting as high as $135 per barrel. You’ve seen the results at the gas pump and the super market, but this inflation hasn’t carried over to higher wages. When economies get into inflationary spirals workers pay moves up too. In this economy the cost of anything requiring oil or transportation is going up, but paychecks are kept in line because of the slow economy and global competition. This squeezes the consumer more, but in the long run it will mean less demand, which will bring down the inflation rate on its own. We are seeing this now in how the high gas prices have taken out the psychological value of the stimulus checks that have gone out, and several Fed governors have suggested that they see inflation peaking and then heading down.

Again, the economic indicators this week were mixed. Inflation was tamer than expected, but the core rate was higher. Jobless claims came in slightly better than expected, but the 4 week average was again in the danger zone. Home sales were higher than last month, but down sharply from the reading last year at this time. According to the National Association of Realtors, In Illinois home prices were up by 8.5% in April over March, but down 27% from the year earlier reading.

As I’ve said before, markets move based on fear and greed. Mortgage rates are determined by what happens in the mortgage bond markets and how the fear and greed balance out. On a day to day basis mortgage rates have been extremely volatile, and it has become almost commonplace for mortgage bonds to go up or down 40 tics in a day, an amount that used to be exceptional. There have been days when the market has moved as much as 100 tics, with multiple re-prices during the day. But if you pull back and look at the activity from a longer view, we are going back in forth in a fairly narrow range. This week the mortgage backed securities markets had two days where prices went up, a lot, two days where they went down about the same, and one day, Friday, where they moved around a lot, but ended with no change. There was a huge swing between the high for the week and the low, but at the end of the week we were very close to where we started. Over the last two months we have seen this same trend, though in a wider range. The market reacts (overreacts?) based on news reports and whatever happens that day seems to be the most important factor, until the next, possibly contradictory report is released the next day. Chances are that as long as the forces of inflation and the slowdown counteract each other, we will continue to stay in this range. What this means is that you should be aware of these trends if you are buying a home or refinancing your mortgage, and take these trends into account when locking your loan. 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. The same goes if you are in the market to buy a home here in the Chicago area.

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

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 your situation in depth, let me know how I can help. Have a great Memorial Day and tune in later for more mortgage and real estate commentary.

Illinois Mortgage Rates and News

Today’s Illinois Mortgage Rates and News week in review is my take on the week’s financial news and how it affected Illinois mortgage rates. There has been a see-saw battle over the last weeks and months as to what our bigger economic problem is – inflation or recession. Over the last few weeks with the release of a weaker than expected jobs report and comments by Fed Chairman Ben Bernanke, recession was gaining a decided edge. This week is notable because it is now in the open. All the powers that be are using the R word. We are either in one, or about to enter one. Inflation is still out there, but it’s on the back burner, a problem for another day.

Most of the news coming out this week confirmed the trend. Retail sales for December were released and instead of the small gain that was expected, sales were down. Housing starts fell to the lowest level since 1991. With new construction off so much, this is bad news for everyone in the construction industry, but it is good in the long run. In order for the housing market to improve we need to get rid of the excess inventory. That is hard to do when builders are putting more homes on the market.

Merrill Lynch wrote down another 10 billion in bad mortgage debt, their second major write down. The big question is how much more bad debt is still out there. As the big banks write off all their bad debts, they’ve needed to take on new capital. For the source of this new money they’ve turned to foreign investors, mostly China and Arab oil interests. Immigration is already a big issue in this years presidential campaign. I expect the sale interest in our big banks will be soon. The other big news this week was how everyone is suddenly if favor of an economic stimulus package. Bernanke came out in favor of the idea. President Bush has a plan and the Congress has their own. Whether it’s more tax breaks for businesses, or money in the mail for tax payers, more money will be pumped into the economy soon.

So how did all this news affect the markets? The stock market continued to get hammered, and mortgage bonds improved with mortgage interest rates continuing to fall. Conventional mortgage rates are now at their lowest point in the last several years. We are seeing a lot of refinancing now. Refinancing your mortgage makes sense for anyone who has bought a home in the last few years, as well as for those with adjustable rate mortgages that are about to adjust and home owners who have debt to consolidate. The low rates are bringing out more buyers, too. Even with all the doom and gloom there are a lot of good reasons to buy a home in the Chicago area now.

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, 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    5.50%    5.624% APR

15 year fixed rate    5.00%    5.136% APR

5-1 A.R.M.               5.125%   5.285% APR       

7-1 A.R.M.               5.125%   5.285% APR

For Jumbo loans over $417,000

30 year fixed rate    6.25%      6.375% APR

7-1 A.R.M.               5.625%    5.773% APR

FHA LOANS up to $270,200 with 1 point origination fee

30 year fixed rate   5.375%    5.647% APR

These are just a sampling of the mortgage rates available. We have special programs for first time home buyers and all the bond programs including the City of Chicago Bond program and the State of Illinois Bond program which offer no down payment and below market pricing.

There won’t be a lot of reports issued next week, so the focus will be on the Fed meeting to be held January 30^th, where they are now expected to lower the discount and Fed Funds rates by a half a point.

Illinois Mortgage Rates and News.