Illinois Mortgage Rates and News

There were two major events last week which will have major impacts on the real estate market. The first was the release of the monthly unemployment  report Friday, which served as confirmation that the Fed will begin a new wave of quantitative easing next month. It wasn’t that the report was so bad. With 95,000 total job losses it was in line with what we have seen much of this year, and the private sector actually hired more workers than expected. But we are stuck in a spot where too many are looking for jobs and even profitable companies are afraid to add more without a real sign that the worst is over. The Fed is expected to begin goosing the money supply with an announcement at their next meeting in the beginning of November, by buying up treasury bonds and mortgage backed securities. In a way, they are cranking up the printing presses and hoping that this will effectively lower rates, bump up inflation and get the economy revving on its own. Mortgage rates have slid to a new low, and low rates will be with us for a long time. This should spark more interest in home buying, but with so much fear and uncertainty in the economy, too many likely buyers are still off on the sidelines. For those who haven’t refinanced yet, get your paperwork together. It’s time. Refinancing into a lower rate will save you thousands of dollars in payments. No one knows if rates will drop even lower. When the Fed makes the official announcement, or when the new money actually starts to flow rates could drop lower. But market wisdom says to buy on the rumor and sell on the fact. This means the Fed’s expected action is already priced into the rates. My own feeling is that we have entered a new range, and rates will fluctuate, but they will remain in a low, low range. This is great news for many homeowners and home buyers.

The other big news from last week was the foreclosure moratorium from several of the nation’s biggest lenders. Bank of America, GMAC and Chase mortgage are among the big players who have announced they will temporarily stop  foreclosures while they access their processes and see how big of a problem they have due to the shortcuts they have taken to get the properties foreclosed. When times were flush, the big banks ran approvals through an assembly line. Documentation wasn’t much of a problem because they needed loans to fill their pipeline, and quality wasn’t an issue. It seems they are doing the same things on the foreclosure side now. Some bank employees were signing off on thousands of documents each week, which meant they were doing it automatically and not examining what they were signing. One man in Florida was foreclosed on, even though he bought his house with cash and didn’t have a mortgage. While a pause in foreclosures will help some distressed homeowners stay in their homes a while longer, this throws another wrench in the housing recovery. The market can’t truly recover until the massive inventory of foreclosures are dealt with. Some analysts think this will be dealt with quickly and a way will be found to get the foreclosure express back on track. But others think this may just be the tip of the iceberg, and legal challenges could drag this on for a long time.

Here are the current Chicago Illinois Home mortgage rates for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 day rate lock, with 0 points, and no origination fee, best FHA rates assume a 660 Fico score, but loans are available with credit scores as low as 620. Mortgage rates in other states may be slightly different, give me a call and I will give you an accurate quote for your particular situation. The conventional and FHA rates 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 (Illinois mortgage company) and I will take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

For Jumbo loans over $417,000

*(Another option is to break your Jumbo loan into 2 parts a conventional to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be.)

** 5-5 ARM is fixed for first 5 years, with 2/6 caps it can’t go more than 2% above the start rate for the next 5 years. 2% cap for next 5 years – so a blended rate over 10 years is no more than 1% over the start rate. Super Jumbos available.

FHA LOANS 3.5% down payment FHA Maximum varies by County

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances

FHA 203K Rehab Loans – Call for Quote

VA Veterans Administration 0 Down Loans

Call for information on no-cost VA Streamlined Refinances

These are just a few of the mortgage 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.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company            Chicago FHA Mortgages

The monthly jobs report is always the most watched indicator of strength in the economy, this month the focus has been more intent because this is also the last report before the Fed open Market Committee meats at the beginning of November. The reason for the extra focus is that the Fed has indicated that they are prepared to move forward with another round of quantitative easing, or pumping more money into the economy in an effort to shock the economy back to life. A good report showing higher than expected job creation would likely push this effort back into a wait an see mode. That didn’t happen. The BLS report showed a gain of 64,000 private level jobs, but this was offset by the loss of 159,000 government jobs (census workers and local government job losses), for a net loss of 95,000 jobs. The two previous month’s reports were also revised lower, and the unemployment rate stayed at 9.6%. This is nowhere near as bad as the hundreds of thousands of jobs lost each month throughout last year, but it takes about 125,000 new jobs each month just to make up for new people entering the market. So it is a bad report.  

The Fed meets next for 2 days on November 2nd and 3rd, and it is now expected that they will announce a program of quantitative easing. The concern of the economy slipping into a new recession (officially we are out of it) and the fear of deflation taking hold are now trumping any worries of inflation. With short term rates already set as low as they can go (the Fed Funds rate is 0-.25% to the big banks) the last big weapon in the Fed’s arsenal is the control of the money supply. Quantitative easing means the Fed is likely to start a program of buying back Treasuries and Mortgage bonds, to get more money flowing in the economy, and to drive down effective rates so that people are more willing to spend, or invest in new ventures rather than sitting with a minimal return. Mortgage bonds, and mortgage rates, have improved this week, and they may improve more now that there is confirmation that the program is coming. Rates are now as low as they have ever been, but this won’t help everyone. There are too many people who own homes and have comparatively high mortgage rates, but they can’t refinance due to tightened underwriting guidelines and loss of home equity. But there are plenty of people who will be able to take advantage of this. If you have been sitting on the fence waiting for the right time to refinance, or are thinking about buying a home but not sure if the time is right, it is time to get your documents together.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

Last week was mostly a holding pattern for mortgage bonds, and this week looks to be the same – at least until Friday when the monthly employment report is released. Mortgage rates have been in a range over the last few months, and though there was a lot of economic data issued last week, it was just enough to keep mortgage bonds bouncing around in the range. The Case-Shiller 20-city housing price index rose 0.6% in July after a 0.3% increase in June. This sounds like good news, but keep in mind, the index is based on a 3 month average, and we were still feeling the effect of the tax credit 3 months ago. A truer measure will be what happens to the index this month. The index is off about 29% from its peak. The consumer confidence index fell to 48.5 in September from a downwardly revised 53.2 in August. This is usually a good indicator of whether consumers are willing to spend more, or not. The Institute for Supply Management reported that the monthly index of manufacturing activity was 54.4 in September down slightly from August, but right in line with expectations. A reading above 50 signals expansion and this was the 14th straight month of expansion (whether it feels that way is another story).

But these were all minor issues, and traders attention is focused on the Fed, and looking for signs of what comes next. At their last meeting, the Fed announced that they were prepared to move forward with another round of Quantitative Easing (pumping more money into the economy through purchases of securities like treasury and mortgage bonds). If this is going to happen it probably won’t start until their next meeting in the beginning of November. In order to have justification, they are waiting for the next piece of really bad news. The employment report released this Friday is the next big test. The employment report is always the most anticipated piece of information for the markets. The consensus guess is that the number will be close to 0, with no new jobs gained or lost. But even 0 is a bad number since it takes about 120,000 new jobs created each month just to keep pace with those newly entering the job market. With millions unemployed or underemployed, even a small increase in jobs is tepid encouragement. If the number is read as bad, this will be fresh evidence that the Fed is going to go forward with their plan. If the news is better than expected, the markets will react, but the pot will be reduced to simmer and the wait will be on for the next bit of bad news. In the mean time, rates are holding at all time lows, and the odds are they won’t go much higher anytime soon.

Here are the current Chicago Illinois Home mortgage rates for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 day rate lock, with 0 points, and no origination fee, best FHA rates assume a 660 Fico score, but loans are available with credit scores as low as 620. Mortgage rates in other states may be slightly different, give me a call and I will give you an accurate quote for your particular situation. The conventional and FHA rates 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 (Illinois mortgage company) and I will take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

For Jumbo loans over $417,000

*(Another option is to break your Jumbo loan into 2 parts a conventional to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be.)

** 5-5 ARM is fixed for first 5 years, with 2/6 caps it can’t go more than 2% above the start rate for the next 5 years. 2% cap for next 5 years – so a blended rate over 10 years is no more than 1% over the start rate. Super Jumbos available.

FHA LOANS 3.5% down payment FHA Maximum varies by County

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances

FHA 203K Rehab Loans – Call for Quote

VA Veterans Administration 0 Down Loans

Call for information on no-cost VA Streamlined Refinances

These are just a few of the mortgage 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.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

If you are buying a home or refinancing your mortgage in Cook County, expect to pay some extra cash at closing to set up your tax escrows. Real estate tax bills come out twice a year. The first installment (which pays for the first 6 months of the previous year) was due in March and the second installment (for the second half of last year) was supposed to come out in September. But in Cook County these dates are suggestions, not real deadlines. I can’t remember the Cook County tax bills ever coming out when they were supposed to, and this year it looks like they will be out later than usual. Cook County Treasurer Maria Pappas says that she expects tax bills will be mailed out the week of November 22nd – almost Thanksgiving. The reason the bills are extra late this year may be political. Even though home prices are down, tax increases are expected (the increase is shown on the 2nd installment). If the tax bills came out before the election on November 2nd, this would be a big issue. Holding it back may make political sense, but it means that anyone transacting a mortgage and escrowing their taxes will have to cough up extra money at closing. Lenders all count on the tax bills coming out at the proper time, so when they aren’t the title companies build in a big reserve to insure they have collected enough, even if the tax bills are much higher than before. This is called TI, or Title Indemnity.

With TI, the title company holds back an amount over and above the previous tax bill to allow for tax increases, and guarantees the lender that they have collected enough to fully fund the new escrow account. Most title companies will collect one and a half times the current tax bill and they will charge a fee ($150-$200, usually) to hold onto the taxes and pay them once the bill comes out. Once the bills are out, any money left over will be returned to the borrower. So this isn’t an increased cost (except for the fee) but it is a real hit to cash flow, and for borrowers who are short on cash anyway, it is a real hardship.

Last year the Cook County tax bill came out in October. Delaying it for an extra month means a lot more cash needed at closing. If you are refinancing your mortgage and have an escrow set up now, this means you will have to fund the new account, and will then get paid back from your current lender after closing (this is usually done within 30 days). If you are buying a new home it isn’t quite as bad because you will get a credit for the unpaid taxes from the seller, and you will normally get more back in the credit than you need to set up the new escrows. Either way, it means more cash at closing than any other time of the year. I’ve worked with homeowners who needed to get gifts to come up with the extra cash. Again, this is a cash flow problem, not an extra cost, and you will get money back from the current lender (if it is a refinance) and the title company once the bill is out. Closings will be a little easier and more affordable once the bills do come out.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

Mortgage rates are holding in the same low range we have been in over the last few months. The reports released this week showed some signs of improvement, mixed in with the more down beat news. The index of leading economic indicators — designed to forecast economic activity in the next three to six months — rose 0.3% in August after a 0.1% increase in July, a better than expected improvement. Orders for durable goods — items expected to last three or more years — fell 1.3% in August after increasing a revised 0.7% in July. Excluding volatile transportation-related goods, orders posted a monthly increase of 2%. New home sales were unchanged in August at a seasonally adjusted annual rate of 288,000 and existing home sales were slightly better than expected (though still very low). But the big news had nothing to do with any of the reports issued, it was all about reading the tea leaves in the statement from the Fed Open Market Committee meeting. 

The news here is that the Fed has served notice that they are concerned that deflation is a big enough threat and we actually need more inflation in our system. Over the last 2 years the Fed has used nearly every weapon in its arsenal to try and pump up the economy and get things moving again. But with short term rates near zero and unemployment high, they are losing ground. But they still have one big weapon left, quantitative easing. Quantitative easing is a way to flood more money into the system by buying up long term assets like treasury bonds and mortgage backed securities. The logic here is that this will force investors to reallocate their portfolios, and bring down the cost of credit, stimulating new business. The Fed tried this last year when they bought $1.25 trillion in mortgage backed securities. They are now on record as being locked in and ready to fire when needed. The next Fed meeting is in the beginning of November. Unless there are some surprisingly upbeat signs of an economic turnaround by then, expect that the Fed will unleash their buying power. How this will impact mortgage rates though, is still an open question. Mortgage rates dropped when the first round of QE was announced, but then fluctuated throughout the length of the program. After all the Fed money had dried up, when everyone was sure rates would rise again, rates this year have fallen to new lows. Last week at the release of the statement the mortgage bond market rallied, but by the end of the week it was near the worst part of the range. Mortgage rates are at historic lows. While it is possible they could dip lower, my guess is we can’t go much lower unless there is a big change in the economy for the worst. If you are still on the fence about buying a home or refinancing your mortgage, this may be as good as it gets.

Here are the current Chicago Illinois Home mortgage rates for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 day rate lock, with 0 points, and no origination fee, best FHA rates assume a 660 Fico score, but loans are available with credit scores as low as 620. Mortgage rates in other states may be slightly different, give me a call and I will give you an accurate quote for your particular situation. The conventional and FHA rates 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 (Illinois mortgage company) and I will take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

For Jumbo loans over $417,000

*(Another option is to break your Jumbo loan into 2 parts a conventional to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be.)

** 5-5 ARM is fixed for first 5 years, with 2/6 caps it can’t go more than 2% above the start rate for the next 5 years. 2% cap for next 5 years – so a blended rate over 10 years is no more than 1% over the start rate. Super Jumbos available.

FHA LOANS 3.5% down payment FHA Maximum varies by County

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances

FHA 203K Rehab Loans – Call for Quote

VA Veterans Administration 0 Down Loans

Call for information on no-cost VA Streamlined Refinances

These are just a few of the mortgage 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.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

When the Fed talks, people listen. The FOMC (Federal Reserve Open market Committee) met yesterday, and announced that they will continue to keep the rates they offer to their best clients (the big banks) at or close to zero and will keep rates low for an extended period of time. This part was expected. The Fed has kept similar wording in their statement for over a year now. What was new was the wording suggesting that the economy has softened over the last several months and the pace of recovery is likely to be “modest” in the near term. They go on to say that the measure of inflation is at levels below what is needed for price stability. In plain English, this means that the Fed is more concerned about deflation (prices spiraling downward), than a return of inflation (prices moving higher). The Fed will continue to reinvest principal from securities (Treasury and mortgage bonds) back into new securities to maintain the same level of support. They also said they were “prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.” This is another way of saying they may be ready to do another round of quantitative easing. The markets were choppy after the release, but the net result was mortgage bonds ended the day with a big gain, meaning mortgage rates are trending down again (we are in the middle of a range right now).

Quantitative easing means the Fed would pump more money into the system. They did this last year by buying Treasury bonds and 1.25 trillion dollars of mortgage backed securities. The danger in this move is that when more money floods the system, it can trigger inflation, and once inflation takes hold it is hard to stop. By saying that the level of inflation is too low, they are saying that this a battle for later, and they are willing to risk some inflation to get the economy moving again. One Fed member voted against this (an inflation hawk) but all the other members were in agreement. So it probably won’t come right away, but the next time we get a new round of bad economic news, don’t be surprised if the Fed steps in and announces a new round of buying mortgages and treasuries. The bottom line is that fear is still in the air, and the consumer is still strapped. Mortgage rates are likely to remain low for quite some time.

Here is the Fed statement in its entirety:

Information received since the Federal Open Market Committee met in August indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months. The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term.

Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.

The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.

Voting against the policy was Thomas M. Hoenig, who judged that the economy continues to recover at a moderate pace. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and will lead to future imbalances that undermine stable long-run growth. In addition, given economic and financial conditions, Mr. Hoenig did not believe that continuing to reinvest principal payments from its securities holdings was required to support the Committee’s policy objectives.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company           Chicago FHA mortgages

The real estate market is a mess. Almost every day I talk with people fighting to save their homes. I have daily conversations with homeowners who want to refinance their mortgages, but can’t because their home values are too low. I know too many good Realtors who are looking for full time jobs, because they can’t support themselves and their families doing what they are so well suited for. I get it. The economy is in a recession, but the real estate market is in a depression.

Time magazine gets it too. Their recent cover story, Rethinking Homeownership, talks about all the problems in the real estate market. It notes the problems of foreclosures and short sales and how trillions of dollars of home equity have evaporated over the last few years. But Time takes this a step further. The point of the article is that with things so tough in the real estate market, it no longer makes sense to own your own home. This is a real head shaker, and a common flaw in logic. They are taking a current trend and projecting it on into the foreseeable future. If things are bad now, they will always bad and will probably get worse (or the flipside, things are good and they will only get better). Time is famous for these types of stories. They have called for new highs in the stock market right before the markets dived, and I am sure that president Gullianni and President Hillary Clinton had to feel a bit queasy when they got their cover stories early in the last presidential primary season.

Time had another cover story on real estate back in 2005, but the point of that one was that with real estate prices heading higher, you could use your home as an ATM and everyone would have a McMansion soon. In this article they took the current trend and used that to say that the real estate market would continue to boom on into the future. At the time, the market was building up to its peak and they turned out to be spectacularly wrong. I expect that in another five years we will look back and their new article will look just as ridiculous.  I’m not saying that the market is about to boom. There are real structural problems to the economy. With unemployment high and a huge inventory of distressed properties to deal with, home prices are likely to remain low for a long time. But those who are buying now at prices a fraction of where they were a few years back and at interest rates in the 4s are miles ahead of those who bought when Time last called for a boom.

Having a home of your own has always been part of the American dream. Homeownership gives you control and there are a lot of personal and emotional reasons to own. But let’s look at the meat of the article, is it true that it no longer make financial sense to buy a home?

There are 4 major financial benefits to home ownership. Let’s see if these still apply:

Equity build up – Assuming you are buying a home with a traditional mortgage, part of your payment each month goes to pay down the loan. The mortgage payment is split between principal and interest, and in the early years you are paying mostly interest. But with every payment you pay a little less interest an a little more principal. Most people don’t stay in a house to pay off the mortgage, but if you did, at the end of the term you would own your home free and clear. If you continued to rent, you would still be renting at the end. This is still a strong advantage of home ownership.

Price appreciation – Back when Time wrote the article in 2005, this was the big attraction to real estate. The thinking then was that if you bought today, the home was sure to be worth more tomorrow. Historically home prices do rise over time, at least keeping up with inflation. But the early years of this decade the real estate market was part of a bubble, and with cheap money flooding the system underwriting standards went out the window. So nearly anyone could qualify for a mortgage. This in turn brought on a building boom, and we are now dealing with an over supply of housing at the same time that demand is low. So does this mean appreciation is a relic of the past? Maybe, but I doubt it. New home building has ground to a halt. Eventually the economy will improve and all of a sudden all the potential buyers sitting on the sidelines will be in the market again. This is all about supply and demand, and right now with supply high and demand low, the buyers who are out there are getting screaming good deals. That is what happens in a buyer’s market. So my guess is that if you buy low, when others are afraid to, there will be appreciation down the line.

Leverage – This goes along with appreciation. Mortgages are available with low down payments (FHA offers loans with just 3.5% down) so you don’t need a lot of money up front in order to own your own home. This not only makes homeownership affordable, but it means that if prices do rise, your return is magnified. If you buy a home for $100,000 without a mortgage and it goes up $10,000 in value over time, you have gotten a 10% return($100,000 invested divided by the $10,000 increase). If you took on a mortgage for 90% of that and used a down payment of $10,000, that same $10,000 increase in value is now a 100% return on your cash invested ($10,000 invested divided by the $10,000 increase). Again, appreciation isn’t automatic, but when it happens leverage means you build equity faster.

Tax advantages – Uncle Sam loves real estate. Home owners are given tax exemptions for the interest part of the mortgage, the real estate taxes and in many cases mortgage insurance. This makes sense because home owners have deeper roots to the community and this helps build a stronger society, but the bottom line is that the government helps you pay for the cost of owning your home. Every now and then you hear cries for eliminating these exemptions, but the chances of this happening are about as close to zero as you can get. This is still a strong financial benefit of owning real estate.

The financial benefits of owning a home are as strong now as they have ever been. If history is a guide, Time’s bold stand against home ownership is a good sign that we have hit the bottom of the cycle and the turn around is starting. I don’t think this will be a quick change in the market. Home prices could still drop a little further and we are likely to bump along at the bottom for a while before the market improves. But for those who are willing to look to the long term this could be a great time to buy.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company           Chicago FHA mortgages

FHA is now the big dog in the mortgage market. FHA allows a low 3.5% down payment, and with conventional guidelines ratcheting consistently tighter, more and more home buyers are choosing FHA as the way to buy. But over the last few years, as FHA has increased their market share, a chorus of doubters have been crying about how FHA is the next subprime, and with the low down payment the program is a ticking time bomb waiting to explode. I’ve pointed out before that though it is a government program, FHA has been self supportive since it started way back in the 1930s. While Fannie Mae and Freddie Mac and all the big banks have required bailouts to stay in business, FHA has kept on chugging along. FHA doesn’t make loans directly. It acts more like a mortgage insurance company guaranteeing loans made to their guidelines and covering losses with the mortgage insurance premiums it collects. Up until now the insurance has been enough to cover all losses and so far they still have about two billion dollars in a reserve fund. But because FHA has increased its market share so much and the housing market and economy are still so stressed, FHA is now making changes to make sure the program stays financially sound. Over the last year FHA has tinkered around with their structure and come up with a variety of plans to shore up the reserve fund. Starting on October 4^th, FHA will be changing the way they charge the insurance, and this will mean some home buyers will have a harder time qualifying, but it may work out better for others.

FHA breaks their mortgage insurance into two parts. One is an up-front mortgage insurance that is a percentage of the mortgage amount and added back into and financed over the life of the loan. The other part is an annual insurance paid each month (like private mortgage insurance). Currently, this breaks down to an up-front payment of 2.25% of the mortgage financed into the loan, and an annual payment of .55% per year, divided by 12 and paid monthly. The new changes will give with one hand, while taking away with the other. The good news is that the up-front increase will drop in a big way, down to 1% of the loan amount. The bad news is that the annual factor increases up to .90% (again, divided by 12) for those making the minimum down payment.

To see how this will affect new buyers, let’s compare the new version with the old (we won’t count taxes or insurance to keep this simple).

To compare, we will base this on -

• Purchase price $200,000
• 30 year fixed rate at 4.5%
• 3.5% minimum down payment of $7,000
• Base mortgage amount of $193,000

Under the current program it will look like this:

Up-Front mortgage insurance – $4,342 – Total mortgage amount of $197,342 – This gives a payment of just under $1,000. The monthly mortgage insurance premium (.55% divided by 12) adds $90 per month for a total payment of $1,090.

This is how it will work with the new plan:

Up-Front mortgage insurance – $1,930 – Total mortgage amount of $194,930 – This gives a payment of $988. The monthly mortgage insurance premium (.90% divided by 12) will add $146 per month for a total payment of $1,134.

With the new plan you will save $2,412 in the up-front charges, which mean more initial equity since this won’t be added on to your mortgage. But the flip side is that your monthly payment increases by $44 per month. For most home buyers $44 isn’t going to make or break a deal, though it will tip the scales for some. This is still the most affordable loan available. One thing to keep in mind is that the mortgage insurance decreases slightly every month because it is based on the current balance of the loan. So as you pay down the loan balance the monthly insurance will decrease. Another thing to keep in mind is that FHA mortgage insurance is tax deductable (as is conventional mortgage insurance, at least through the end of 2010). If you are in the 30% tax bracket, this means an additional $15 per month after tax savings with the above examples (the current break down spreads the benefit over a much longer time).

For many, even though the monthly payment will increase, this will turn out to be a better structure in the long run:

• For those who don’t plan on being in the home long term, the lower up-front MIP is more important than a slightly higher monthly payment. Most home buyers won’t stay in their home for ever, 7 years is the average.
• If you are buying a home that is undervalued (maybe a foreclosure that needs work and you are doing it with an FHA 203k rehab loan) you may be able to refinance it later and get rid of the mortgage insurance entirely. 
• I am also advising buyers I work with to ask the seller to pay the 1% Up-Front MIP. Seller concessions are common now, and this will cut the payment down a little further.
• This will also work out better for many home buyers who could qualify for a conventional mortgage, but would be subject to Loan Level price Adjustments (price hits, for everything from credit scores to property type).

The bottom line is that this will hurt some borrowers and those will be the ones who are already stretching to get into a home. But by lowering the cost of getting into an FHA mortgage, the unintended consequence may be that it pulls in more borrowers who could go conventional if they wanted to. This may not be the result they were looking for, but my guess is that this change will bring in new buyers to FHA will add to the market share. If this change makes the program more stable, it will be worth it.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company           Chicago FHA mortgages

Mortgage rates moved higher this week as bond investors chose to look at the bright side of the news. Markets run on emotion and this means swings in prices based on the mood of the moment. Mortgage rates had dropped to their all time lows over the last few weeks as fear of a double dip recession took hold. With gloom in the air, investors bought treasury bonds for safety, and mortgages went along for the ride. When you buy bonds, whether they are treasury bonds or mortgage bonds, you are locking in a fixed return for a long period of time. With fear the dominant emotion, investors were locking in low, low returns. If the economy turns lower or deflation takes hold, these low returns will still mean that investors aren’t losing, and it will be a positive trade. But if the gloomy consensus is wrong and the economy improves, that means the investors are tying up their funds for almost no return. They would either have to hold on to the bond and collect a meager return, or sell the bond at a loss so they can put their money into investments with better prospects. So when the economy showed a few glimmers of light, it wasn’t that surprising that money would rush out of bonds and rates would rise. The two reports that made the difference were the release of the Fed Beige book, and the weekly unemployment claims. The line in the Fed’s beige book that sparked the activity, stated – "Continued growth…mid-July through the end of August, but with widespread signs of a deceleration." In other words, it sounds like a train is coming, but it isn’t here yet. With this statement the stock market rallied and bonds sold off. More damage was done when the weekly unemployment claims fell by 27,000 to 451,000. Economists had projected claims would fall to 470,000, so this is an improvement. On the other hand, unemployment is still distressingly high, and because this was done over a shortened Labor Day weekend, some question the accuracy of the report. The bottom line is that there are a few points of light, but the picture is still very dark.

So the question is, have we seen the bottom of the low mortgage rates, and if Rates are higher, have you missed out on your opportunity to take advantage of the low rates? Mortgage rates are still near their all time lows, so for most people a little blip won’t make a big difference. But for those who have sat on the sidelines waiting for rates to drop even lower, there may be a long wait. The chart below (courtesy of mortgagecoach.com), shows what has happened in the mortgage backed securities (mortgage bonds) market over the past month.

The higher the level on the chart, the lower the mortgage rates should be. The green bars show days where the prices improved from the opening, and red showed days that worsened. The two things you can see from this chart are that, first, mortgage bonds are volatile. There is a lot of movement from day to day, even when rates seem to be holding steady. Secondly, mortgage bonds are sitting at their worst level in the last month. We have been in a range, and it is entirely possible that now that we have hit the low point of the range rates will bounce back. But if optimism holds, rates could get much worse, at least for a while. My own feeling is that we still have a long way to go before the economy is back on track, and rates are likely to remain low for a long time. At the same time, I don’t see us getting any lower than where we have been over the last few weeks. I won’t be surprised if rates increase another 1/8 or a 1/4 of a point over the next weeks, but we are still in a long time low range, and these rates are still at bargain levels.

Here are the current Chicago Illinois Home mortgage rates for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 day rate lock, with 0 points, and no origination fee, best FHA rates assume a 660 Fico score, but loans are available with credit scores as low as 620. Mortgage rates in other states may be slightly different, give me a call and I will give you an accurate quote for your particular situation. The conventional and FHA rates 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 (Illinois mortgage company) and I will take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

For Jumbo loans over $417,000

*(Another option is to break your Jumbo loan into 2 parts a conventional to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be.)

** 5-5 ARM is fixed for first 5 years, with 2/6 caps it can’t go more than 2% above the start rate for the next 5 years. 2% cap for next 5 years – so a blended rate over 10 years is no more than 1% over the start rate. Super Jumbos available.

FHA LOANS 3.5% down payment FHA Maximum varies by County

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances

FHA 203K Rehab Loans – Call for Quote

VA Veterans Administration 0 Down Loans

Call for information on no-cost VA Streamlined Refinances

These are just a few of the mortgage 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.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

The flavor of the week last week in the mortgage market was recovery. Signs of an uptick in the economy helped the stock market regain some steam, and caused mortgage bonds to drop from their all time best levels. Mortgage rates are still in the best range they have ever been, but with optimism in the air (ban news is good news for mortgage rates) mortgage rates are likely to be under pressure. The reason for this optimism boils down to a few reports released last week. The ISM (Institute for Supply Management) Purchasing Managers Index showed some growth in manufacturing for the past month, beating expectations. The bigger news though, was the release of the jobs report which showed a loss of 54,000 jobs for the previous month and an increase in the unemployment rate from 9.5% to 9.6%. This was spun into good news that 114,000 of those jobs lost were temporary government hired census workers, and private enterprise payrolls increased by 67,000 in August. 

A lot of this comes down to perspective. While any increase in private employment is good news, I’m not sure this is reason to celebrate yet. The overall report was still pretty grim. It takes about 125,000 new jobs each month just to keep up with new entrants to the job market, so we are still getting pushed back on the treadmill even as we see some progress. The bigger concern is the breakdown of those who are unemployed. The number of long term unemployed is at its highest point. 46% of those who are unemployed have been out of work for 6 months or longer. Economists are now saying that if we do get a recovery, there will still be a high level of unemployment for years to come. With government spending trending down, and banks still holding back on business lending, any recovery will be slow and hard fought. Markets arte fickle, and the good news today may be looked at differently tomorrow. We are still in a range and I think it is likely we will stay in this range. With refinancing activity high and pipelines full, mortgage lenders are slow to show improvements when the market is pointing toward lower rates, and quick to move higher at any sign that rates may move higher.

The effect of all this on mortgage rates this week is that mortgage rates are still near their best rates ever, but volatility is high and rates are as likely to worsen as go lower. Even as mortgage bonds have improved, mortgage rates haven’t. On days that mortgage backed securities have a good day, the wholesale lenders hold their rates or improve just a little. When mortgage bonds have a bad day, the wholesale lenders jump at the chance to raise rates (or more likely the pricing which determines the rates). Some of this is due to a normal cautious nervousness when rates are at previously uncharted highs. Part of this is because all the lenders pipelines are full, and they aren’t as hungry for new business when they are near capacity now. As some of the loans close, and more room is available, we may see some improvements, but for those waiting for the next leg lower in rates, it may be a long wait. There is a lot of activity this week, including the most watched indicator the employment report which will be released Friday morning.

Conventional loans up to $417,000

For Jumbo loans over $417,000

*(Another option is to break your Jumbo loan into 2 parts a conventional to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be.)

** 5-5 ARM is fixed for first 5 years, with 2/6 caps it can’t go more than 2% above the start rate for the next 5 years. 2% cap for next 5 years – so a blended rate over 10 years is no more than 1% over the start rate. Super Jumbos available.

FHA LOANS 3.5% down payment FHA Maximum varies by County

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances

FHA 203K Rehab Loans – Call for Quote

VA Veterans Administration 0 Down Loans

Call for information on no-cost VA Streamlined Refinances

These are just a few of the mortgage 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.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company