Illinois Mortgage Rates and News

Welcome to Illinois Mortgage Rates and News week in review for the week ending April 4th, my take on the week’s financial news and how it affected Illinois mortgage rates.

This week was a good example of how bi-polar our financial markets have become. At the beginning of the week UBS, one of the biggest investment houses on Wall Street and a big player in mortgage backed securities, announced a loss of 19 billion dollars from its sub prime holdings. To me this would be looked at as bad news. This is a huge loss and a scary reminder of how Wall Street feasted on this junk, and how vulnerable these outfits are now to the risk from it. But that was just my take, and I am after all just an amateur. The professionals looked at it differently. They looked at this as great news. If the big players were writing down huge losses, this must mean the worst is over and we are about to turn the corner and happy days are ahead of us. The stock market had a huge rally (for a couple of days) and mortgage bonds tanked, sending mortgage interest rates higher. I hope they are right, but this seems like Alice through the looking glass, magical thinking. Some times bad news is just bad news.

By the end of the week we saw the other side of the coin. The monthly jobs report is usually the biggest mover in mortgage backed securities, which relate directly to interest rates. This report monitors employment, and the more people who are employed at good wages, the better the overall economy is. The opposite holds true, too. When employment is down consumers hold back spending and the economy suffers. I’ve talked before about how bad news for the economy is good news for mortgage rates, this is a prime example. The market was expecting a loss of about 50,000 jobs, and some news released earlier in the week showed a possibility that the number would come in much better than expected. The real number was a loss of 80,000 jobs, and the mortgage bond market skyrocketed, which meant that rates are again coming down. The other news in this report was a revision downward of jobs created in January and February to show another 67,000 jobs lost. So don’t be surprised if this month’s number turns out to be larger than expected when it is revised next month.

So what was the real difference between the optimism on the economy at the beginning of the week and the pessimism at the end? It was all perception and market sentiment. Mortgage bonds, and mortgage interest rates, are trading within a wide range. Volatility has been high, but there has been a ceiling and a floor, and the trading has bounced back and forth between these points. With the big run up in mortgage backed securities over the last few days, we are now starting to get close to the top of the range (which means the low end of the range for mortgage interest rates). In the past, as we hit that ceiling, mortgage bonds would bounce off of it and head back in the opposite direction, meaning mortgage interest rates would go back up. Chances are that at some point we will break through this range. With all the news on the economy pointing to a slowing economy, odds favor that when we do break out, it will mean that rates will drop lower. If you are thinking of illinois mortgage refinancing or are about to place an offer on a home, be sure and get your documentation into your mortgage lender ahead of time (or contact me, I welcome the business). You want someone who follows the market to help you time the best time to lock in your rate.

In other news, conventional ARMs are still out of the market, but some lenders are starting to test the waters again. Hopefully we will see more of a difference between fixed rates and adjustables in the coming weeks. Also, as FHA mortgages take up more and more of the slack from the tightening of conventional underwriting, we are seeing underwriting times get longer. If you are planning on buying a home or refinancing a mortgage and FHA is your best option, be sure to allow extra time for processing and closing your loan. We have some investors who are now taking up to 3 weeks for underwriting an FHA loan.

So how did all this activity affect mortgage rates? Although rates have moved a lot over the course of the week, they ended up close to where they were at the end of last week. 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 5.625% 5.746% APR

15 year fixed rate 5.125% 5.274% APR

5-1 A.R.M. 5.375% 5.587% APR

7-1 A.R.M. 5.625% 5.789% APR

For Jumbo loans over $417,000

30 year fixed rate* 6.875% 7.126% APR

(*We have one lender at 6.125% for a Jumbo fixed rate – if you meet their guidelines.)

7-1 A.R.M.* 5.625% 5.789% APR *there is a 1 year pre-payment penalty on this option.

FHA LOANS up to $410,000

With 1 point origination fee – 60 day lock

30 year fixed rate 5.625% 5.897% APR

With no origination fee – 60 day lock

30 year fixed rate 5.875% 6.246%

These are just a sampling of the mortgage rates available. Which option is best for you will depend on your own specific goals and circumstances. Check back regularly to keep up to date on any changes in the market.

Illinois Mortgage Rates and News

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

illinois Mortgage Refinancing

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