If you are still on the fence about wanting to buy your first home maybe this will motivate you. First-time buyers need to close by Nov. 30 under current guidelines to get the $8,000 tax credit. After that the option will no longer be available unless Congress decides to extend it.
Contact me at rdemille@prupref.com to schedule a meeting to discuss your options.
Tuesday, June 23, 2009
Tuesday, June 16, 2009
Where Are the Chicago Mortgages & How Can I Qualify for A Mortgage Loan
The sub-prime mortgage debacle has had a devastating ripple effect throughout the entire financial services industry. The lending environment has gotten very tight. Lenders sometimes look three or four times – adding more and more conditions, requesting more and more documentation - before agreeing to make a loan. And while all of that is true, that does not mean that there are no mortgages to be found. So what can you, as a homebuyer, do to increase your chances of getting a mortgage? There are several factors that need to be taken into consideration when looking for a mortgage:
1) Your FICO® scores Being pre-approved for a loan is almost a necessity in today’s tough lending environment. Before spending a lot of time looking at homes, you will want to sit down with your mortgage broker or lender, have them pull your credit reports and verify your FICO® scores. They will also be able to counsel you on any red flags that may appear.
The free credit report that you are entitled to receive each year is primarily used for monitoring errors and identity theft. Those reports will not give you your FICO® scores. You must pay for that information.
The term “FICO®” is derived from the name of the company that originated the credit scoring system – the Fair Isaac Corporation. Begun in 1958 as a way to provide banks with a guideline to creditworthiness, today it has become the primary indicator that lenders use. If your FICO® score is 700 or above, you are generally considered to be a good credit risk. There are steps you can take to improve your score – and some of them may surprise you. Feel free to contact me for further details.
2) Your Income With unemployment numbers rising, lenders are extremely nervous about over-extending your ability to pay. Be prepared to document any income that you receive. Stated income loans are gone – a thing of the past. The order of the day is paperwork, paperwork and more paperwork.
3) Your Down Payment As recently as a year ago, it was still possible to buy a home with virtually no money down - particularly if you had excellent credit. Those days are gone. The best you can do now is to apply for an FHA loan that allows you to put as little as 3.5% down. FHA also allows you to use the $8000 first time homebuyer tax credit towards closing costs or towards your down payment over and above the 3.5%. However, the details are still being worked out.
There may be some special programs available through individual lenders, but generally expect to have at least 10% of your purchase price saved. If you put less than 20% down, the lender will require you to buy mortgage insurance. Mortgage insurance does not insure you – it insures the lender in the event that you default on your loan.
Besides your down payment, you will need additional funds to cover closing costs. Closing costs include a home inspection, title insurance, termite inspection, transfer stamps, loan application fee etc… All of the lender’s fees are estimated on the Truth-In-Lending Statement that you receive at the time you make your loan application.
4) The Appraisal Once you, the borrower, have passed the lender’s litmus test for paying back the loan, you have one more hurdle to cross. The property itself must also pass muster. In the event that you quit making your payments and the lender must take the property back, they need to be assured that the property is worth at least what you are paying for it.
It may seem to the consumer that lenders are using the appraisal as an excuse not to make the loan. However, in the event of a foreclosure, lenders will lose tens of thousands of dollars. And the Federal Government has just added one more layer of complexity: lenders are required to order their appraisals from an outside vendor. The object is to prevent the lender from having any influence on the appraiser’s findings.
If you are able to navigate through all these major obstacles in obtaining a mortgage, you will be clear to close on your home purchase.
When it comes to mortgages, every individual situation is unique and requires the guidance of an expert. Let me help you navigate the home-buying process. Please contact me with any questions you may have or to schedule an appointment. Learn more about your FICO® scores – how they are compiled and what you can do to improve them. Contact me now for a free in-depth report, “Your Credit Scores”.
1) Your FICO® scores Being pre-approved for a loan is almost a necessity in today’s tough lending environment. Before spending a lot of time looking at homes, you will want to sit down with your mortgage broker or lender, have them pull your credit reports and verify your FICO® scores. They will also be able to counsel you on any red flags that may appear.
The free credit report that you are entitled to receive each year is primarily used for monitoring errors and identity theft. Those reports will not give you your FICO® scores. You must pay for that information.
The term “FICO®” is derived from the name of the company that originated the credit scoring system – the Fair Isaac Corporation. Begun in 1958 as a way to provide banks with a guideline to creditworthiness, today it has become the primary indicator that lenders use. If your FICO® score is 700 or above, you are generally considered to be a good credit risk. There are steps you can take to improve your score – and some of them may surprise you. Feel free to contact me for further details.
2) Your Income With unemployment numbers rising, lenders are extremely nervous about over-extending your ability to pay. Be prepared to document any income that you receive. Stated income loans are gone – a thing of the past. The order of the day is paperwork, paperwork and more paperwork.
3) Your Down Payment As recently as a year ago, it was still possible to buy a home with virtually no money down - particularly if you had excellent credit. Those days are gone. The best you can do now is to apply for an FHA loan that allows you to put as little as 3.5% down. FHA also allows you to use the $8000 first time homebuyer tax credit towards closing costs or towards your down payment over and above the 3.5%. However, the details are still being worked out.
There may be some special programs available through individual lenders, but generally expect to have at least 10% of your purchase price saved. If you put less than 20% down, the lender will require you to buy mortgage insurance. Mortgage insurance does not insure you – it insures the lender in the event that you default on your loan.
Besides your down payment, you will need additional funds to cover closing costs. Closing costs include a home inspection, title insurance, termite inspection, transfer stamps, loan application fee etc… All of the lender’s fees are estimated on the Truth-In-Lending Statement that you receive at the time you make your loan application.
4) The Appraisal Once you, the borrower, have passed the lender’s litmus test for paying back the loan, you have one more hurdle to cross. The property itself must also pass muster. In the event that you quit making your payments and the lender must take the property back, they need to be assured that the property is worth at least what you are paying for it.
It may seem to the consumer that lenders are using the appraisal as an excuse not to make the loan. However, in the event of a foreclosure, lenders will lose tens of thousands of dollars. And the Federal Government has just added one more layer of complexity: lenders are required to order their appraisals from an outside vendor. The object is to prevent the lender from having any influence on the appraiser’s findings.
If you are able to navigate through all these major obstacles in obtaining a mortgage, you will be clear to close on your home purchase.
When it comes to mortgages, every individual situation is unique and requires the guidance of an expert. Let me help you navigate the home-buying process. Please contact me with any questions you may have or to schedule an appointment. Learn more about your FICO® scores – how they are compiled and what you can do to improve them. Contact me now for a free in-depth report, “Your Credit Scores”.
Monday, June 08, 2009
Chicago Real Estate and Mortgage News for this week
Interest rates rose sharply this past week, as the sunny signs of an economic recovery continued to peek out from behind the dark clouds that have been overhead. This makes three weeks in a row that we have seen mortgage rates rise. The mortgage market is now in an oversold position, and may be ripe for some improvement in the week ahead. However, first we have to get through an auction of U.S. Treasury Bonds again this week. The government has to auction off treasury bonds to help pay for the national debt, including the massive stimulus package that is helping to get the economy moving again. In order to attract interest in the bond auctions, interest rates often rise ahead of the auction, only to decrease if the auction goes well. If there are not a lot of foreign buyers of the treasury bonds, then rates have to go even higher in order to get them sold. This week there are not a lot of economic reports for the markets to worry about, but they will be watching the auction results and also watching to see if the stock market continues its bullish ways. A strong stock market is also a drag on interest rates, as investors pull their money out of the safety of government bonds and put it into the stock market. It could be a wild, quiet week!
Economic news out this week:
The week started out with news that Personal Income rose by 0.5%, when it was expected to decline. The markets assume that when income increases, so will spending, and this will lead to an improving economy. However, that was not the case in April, as we saw Personal Spending decline by 0.1%, although that was less than the 0.2% decline that was anticipated. The Federal Reserves favorite inflation barometer - the Personal Consumption Expenditures (PCE) index rose slightly from March to April, as rising gas prices began to take a hold of our wallets. The Industrial Supply Manager's (ISM) goods producing index showed a rise to 42.8, above the 42.0 that was expected and the 40.1 from a month earlier. A number under 50 is a sign of a contracting economy, but since the number appears to be rising, the markets think of it as "contracting, but not as much", and rally on the news. Wednesday brought news that crude oil inventories in the U.S. increased by a large amount, which the markets were not expecting. The ISM Services Index, which measures the services side of the economy, came in worse than expected, opposite the goods producing index. This was a little piece of good news for the markets to digest. Also on Wednesday, the ADP National Employment Report was released showing that the economy lost 532,000 jobs in May. This report is often used as a predictor of how the employment report will be when it is released later in the same week. More on that later! On Thursday, we learned that first time Unemployment Claims for last week were 621,000, about in line with expectations and a slight decrease from the prior week. U.S. Factory Productivity rose in the first quarter of 2009 by 1.6%, from a reading of 0.8% in the final quarter of 2008. The economic news event of the week/month was, as per usual, the labor department's release of the employment report for May. The markets were quite surprised by some of the numbers. The report showed that 345,000 jobs were lost in May, lower than the 504,000 lost in April, and much lower than the 520,000 jobs that the markets were expecting to have been lost. Hourly earnings remained steady from April to May, while the average work week dropped slightly. Finally, the Unemployment Rate increased from 8.9% to 9.4%, higher than the 9.2% that the markets were anticipating. The markets initially rallied on the news, as it focused in on the fact that fewer jobs were lost, even though 345,000 jobs lost in one month is a huge number. As the day wore on, more emphasis was placed on the unemployment rate itself. The unemployment rate is derived by a poll of households throughout the country, and is actually considered more relevant than the jobs gained or lost number.
Economic news in the week ahead:
Wednesday - U. S. Balance of Trade - did we increase the amount of goods that we export more than we import?
Wednesday - Crude Oil Inventories - did we use more or less oil during the week? If we used more, that causes the cost to go up, which is inflationary.
Thursday - Retail Sales for May - did the U.S. consumer spend more in May than they did in April? The experts are predicting that retail sales will show an increase of 0.3% from a decrease of 0.4% in April. That would be a sign of an economic recovery.
Thursday - Retail Sales, excluding auto sales. Same as above, only without auto sales included in the numbers.
Thursday - First Time Unemployment Claims - has the number of people losing their jobs finally started to bottom out? Friday - Univ of Michigan Consumer Sentiment Index - this number is expected to show a slight decline from the previous report.
Economic news out this week:
The week started out with news that Personal Income rose by 0.5%, when it was expected to decline. The markets assume that when income increases, so will spending, and this will lead to an improving economy. However, that was not the case in April, as we saw Personal Spending decline by 0.1%, although that was less than the 0.2% decline that was anticipated. The Federal Reserves favorite inflation barometer - the Personal Consumption Expenditures (PCE) index rose slightly from March to April, as rising gas prices began to take a hold of our wallets. The Industrial Supply Manager's (ISM) goods producing index showed a rise to 42.8, above the 42.0 that was expected and the 40.1 from a month earlier. A number under 50 is a sign of a contracting economy, but since the number appears to be rising, the markets think of it as "contracting, but not as much", and rally on the news. Wednesday brought news that crude oil inventories in the U.S. increased by a large amount, which the markets were not expecting. The ISM Services Index, which measures the services side of the economy, came in worse than expected, opposite the goods producing index. This was a little piece of good news for the markets to digest. Also on Wednesday, the ADP National Employment Report was released showing that the economy lost 532,000 jobs in May. This report is often used as a predictor of how the employment report will be when it is released later in the same week. More on that later! On Thursday, we learned that first time Unemployment Claims for last week were 621,000, about in line with expectations and a slight decrease from the prior week. U.S. Factory Productivity rose in the first quarter of 2009 by 1.6%, from a reading of 0.8% in the final quarter of 2008. The economic news event of the week/month was, as per usual, the labor department's release of the employment report for May. The markets were quite surprised by some of the numbers. The report showed that 345,000 jobs were lost in May, lower than the 504,000 lost in April, and much lower than the 520,000 jobs that the markets were expecting to have been lost. Hourly earnings remained steady from April to May, while the average work week dropped slightly. Finally, the Unemployment Rate increased from 8.9% to 9.4%, higher than the 9.2% that the markets were anticipating. The markets initially rallied on the news, as it focused in on the fact that fewer jobs were lost, even though 345,000 jobs lost in one month is a huge number. As the day wore on, more emphasis was placed on the unemployment rate itself. The unemployment rate is derived by a poll of households throughout the country, and is actually considered more relevant than the jobs gained or lost number.
Economic news in the week ahead:
Wednesday - U. S. Balance of Trade - did we increase the amount of goods that we export more than we import?
Wednesday - Crude Oil Inventories - did we use more or less oil during the week? If we used more, that causes the cost to go up, which is inflationary.
Thursday - Retail Sales for May - did the U.S. consumer spend more in May than they did in April? The experts are predicting that retail sales will show an increase of 0.3% from a decrease of 0.4% in April. That would be a sign of an economic recovery.
Thursday - Retail Sales, excluding auto sales. Same as above, only without auto sales included in the numbers.
Thursday - First Time Unemployment Claims - has the number of people losing their jobs finally started to bottom out? Friday - Univ of Michigan Consumer Sentiment Index - this number is expected to show a slight decline from the previous report.
Tuesday, June 02, 2009
First-Time Home Buyers Have Many Options To Buy a Home
Although the newspapers and the media like to scare us with news of the economy, first time homebuyers have an advantage unlike any that has been seen in recent history. Home prices have not fallen any further for the past 4 months – indicating that prices are bottoming out. Interest rates are at their lowest level in over 50 years – with 30 year fixed rate mortgages coming in at under 5%. The combination of low prices and low interest rates is unusual and not likely to be duplicated again in our lifetimes.
In addition, the government has created some terrific programs available only to first-time homebuyers.
The First-Time Homebuyer $8,000 Tax Credit: The First-Time Homebuyer $8,000 Tax Credit:
The Housing and Economic Recovery Act was passed in late 2008. However, Congress expanded the provisions of it the first few weeks of 2009. Whereas money originally needed to be repaid, now it does not – and the credit was increased from $7500 to $8000. If you don’t have an $8000 tax liability, not to worry – you get the difference back in the form of a refund! Here is how it works:
- You must be a first-time homebuyer (defined as not having owned a principal residence within 3 years prior to the date of purchase).
- The home must be purchased between April 8, 2008 and before Dec 1, 2009.
- The credit is 10% of the purchase price up to a maximum of $8,000.
- To receive the full credit, your adjusted gross income must be $75,000 or less if you file singly or $150,000 for a married couple filing jointly. The credit is phased out for AGI’s between $75,000 to $95,000 (filing singly) or between $150,000 to $170,000 (filing jointly).
- If your tax liability is less than the credit, you will receive a refund for the difference!
- You must live in the property as your primary residence for 36 months or you will be required to repay the credit.
- You must purchase the home from an unrelated third party.
FHA Loans:
Although FHA loans are not restricted to first-time buyers, their low down payment requirement and easier underwriting standards make them ideal for most first-time homebuyers – particularly in today’s stringent lending environment. And the interest rates are very competitive. FHA does not make the loan; they insure the lender against default. Therefore, many lenders make it easier for you to qualify.
And FHA is an excellent loan product for a first-time homebuyer. The program is not limited only to first-time buyers, but it is limited to buyers purchasing their primary residence. Investors are not able to take advantage of the favorable terms of an FHA loan. What are those terms?
- You only need put 3.5% of the purchase price as a down payment – and the money can come from a family member.
- It is easier to qualify for the loan. You may still be able to qualify for a loan, even if you have had credit problems or a bankruptcy.
- Interest rates are competitive with conventional mortgages. (However, you should compare interest rates from different FHA-approved lenders to make sure you’re getting a good deal.)
- A buyer with credit problems can take advantage of much lower interest rates than a traditional sub-prime loan.
- You will be required to pay for mortgage insurance which is charged as an upfront premium of 1.5% - 1.75% of the loan amount and then as a monthly fee included in your monthly mortgage payment.
- Some allowed closing costs or credits can be added to the loan amount.
- You must occupy the property as your primary residence – however, there is no time restriction as with the Tax Credit.
- Approved condos and 1-4 unit properties qualify.
- The condition of the property must meet FHA guidelines.
- FHA loan limits apply. These will vary from region to region but have been increased recently to make the loans more widely practical.
FHA 203(k) Loans:
For properties in less than perfect condition, FHA offers a Rehab Program known as a 203(k) loan. This program provides all the benefits to buyers of an FHA loan as outlined above while also funding the cost to repair and rehab a property.
It’s a nice program especially for first-time buyers because you are able to borrow the money you need for any repairs right up-front. And, since you are required to use FHA approved contractors and an FHA approved inspector, you know that the work will be done correctly.
- The property must be an FHA approved condo development or a 1-4 unit property.
- You must occupy one of the units as your primary residence. These loans are not available to investors or rehabbers.
- You only need a down payment of 3.5% of the final loan amount. For example, if your purchase price is $100,000 and your rehab costs are $50,000, you will need a down payment equal to 3.5% of $150,000 – or $5,250. Don’t forget, this money can come from an immediate family member! (FHA loan limits apply.)
Eligible Improvements
As a rule, luxury items are not eligible. However, the homeowner can use the program to paint, add rooms or decks even if the home does not need any other improvements! All health, safety and energy conservation items must be addressed prior to completing any other general home improvements.
The 203(k) program has been around a long time. Many agents and lenders have steered away from it because of the complicated paperwork involved in the program. However, FHA has streamlined the process considerably and it is possible to close a loan in a normal time frame – often in less than 60 days.
Although there is additional paperwork and added inspection fees, many of those can be rolled into the loan. And it provides a tool so that a typical homebuyer can take advantage of the bargains available in foreclosed properties.
Rarely has there been a better time to be a first-time homebuyer. Let me help you - or someone you know - take advantage of the opportunities available in today’s market!
In addition, the government has created some terrific programs available only to first-time homebuyers.
The First-Time Homebuyer $8,000 Tax Credit: The First-Time Homebuyer $8,000 Tax Credit:
The Housing and Economic Recovery Act was passed in late 2008. However, Congress expanded the provisions of it the first few weeks of 2009. Whereas money originally needed to be repaid, now it does not – and the credit was increased from $7500 to $8000. If you don’t have an $8000 tax liability, not to worry – you get the difference back in the form of a refund! Here is how it works:
- You must be a first-time homebuyer (defined as not having owned a principal residence within 3 years prior to the date of purchase).
- The home must be purchased between April 8, 2008 and before Dec 1, 2009.
- The credit is 10% of the purchase price up to a maximum of $8,000.
- To receive the full credit, your adjusted gross income must be $75,000 or less if you file singly or $150,000 for a married couple filing jointly. The credit is phased out for AGI’s between $75,000 to $95,000 (filing singly) or between $150,000 to $170,000 (filing jointly).
- If your tax liability is less than the credit, you will receive a refund for the difference!
- You must live in the property as your primary residence for 36 months or you will be required to repay the credit.
- You must purchase the home from an unrelated third party.
FHA Loans:
Although FHA loans are not restricted to first-time buyers, their low down payment requirement and easier underwriting standards make them ideal for most first-time homebuyers – particularly in today’s stringent lending environment. And the interest rates are very competitive. FHA does not make the loan; they insure the lender against default. Therefore, many lenders make it easier for you to qualify.
And FHA is an excellent loan product for a first-time homebuyer. The program is not limited only to first-time buyers, but it is limited to buyers purchasing their primary residence. Investors are not able to take advantage of the favorable terms of an FHA loan. What are those terms?
- You only need put 3.5% of the purchase price as a down payment – and the money can come from a family member.
- It is easier to qualify for the loan. You may still be able to qualify for a loan, even if you have had credit problems or a bankruptcy.
- Interest rates are competitive with conventional mortgages. (However, you should compare interest rates from different FHA-approved lenders to make sure you’re getting a good deal.)
- A buyer with credit problems can take advantage of much lower interest rates than a traditional sub-prime loan.
- You will be required to pay for mortgage insurance which is charged as an upfront premium of 1.5% - 1.75% of the loan amount and then as a monthly fee included in your monthly mortgage payment.
- Some allowed closing costs or credits can be added to the loan amount.
- You must occupy the property as your primary residence – however, there is no time restriction as with the Tax Credit.
- Approved condos and 1-4 unit properties qualify.
- The condition of the property must meet FHA guidelines.
- FHA loan limits apply. These will vary from region to region but have been increased recently to make the loans more widely practical.
FHA 203(k) Loans:
For properties in less than perfect condition, FHA offers a Rehab Program known as a 203(k) loan. This program provides all the benefits to buyers of an FHA loan as outlined above while also funding the cost to repair and rehab a property.
It’s a nice program especially for first-time buyers because you are able to borrow the money you need for any repairs right up-front. And, since you are required to use FHA approved contractors and an FHA approved inspector, you know that the work will be done correctly.
- The property must be an FHA approved condo development or a 1-4 unit property.
- You must occupy one of the units as your primary residence. These loans are not available to investors or rehabbers.
- You only need a down payment of 3.5% of the final loan amount. For example, if your purchase price is $100,000 and your rehab costs are $50,000, you will need a down payment equal to 3.5% of $150,000 – or $5,250. Don’t forget, this money can come from an immediate family member! (FHA loan limits apply.)
Eligible Improvements
As a rule, luxury items are not eligible. However, the homeowner can use the program to paint, add rooms or decks even if the home does not need any other improvements! All health, safety and energy conservation items must be addressed prior to completing any other general home improvements.
The 203(k) program has been around a long time. Many agents and lenders have steered away from it because of the complicated paperwork involved in the program. However, FHA has streamlined the process considerably and it is possible to close a loan in a normal time frame – often in less than 60 days.
Although there is additional paperwork and added inspection fees, many of those can be rolled into the loan. And it provides a tool so that a typical homebuyer can take advantage of the bargains available in foreclosed properties.
Rarely has there been a better time to be a first-time homebuyer. Let me help you - or someone you know - take advantage of the opportunities available in today’s market!
For a free report “Why Rent When You Can Buy?” call or email me today!
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