home mortgage aurora

Shorten Your Mortgage

The low mortgage rates are sparking many homeowners interest at refinancing.  It is the really smart ones that are looking at refinancing not just as a lower rate, but also for a shorter term.  Many people are finding out that they can drop to a lower rate, a shorter repayment period and not increase their monthly payments.

 More than one-third of all refinancers this year have chosen loans shorter than 30 years, and one in four chose a 15-year loan, according to CoreLogic, which tracks mortgage statistics.

In 2007, only about 15% of borrowers chose shorter-term loans, and fewer than one in 10 opted for a 15-year loan.

In one way, the trend is counterintuitive. Shorter loans mean bigger payments — the monthly cost of a 15-year loan can be 45% higher than that for a 30-year loan — and many people are trying to economize right now.

Additionally, the gap in rates between 15- and 30-year loans has narrowed in recent months, which means you don’t get as much of a break for shouldering a shorter loan. Lending standards have tightened to the point where most people getting refinanced are considered “high quality” borrowers. They have decent credit scores, steady incomes, some equity in their homes and not too much debt.

These borrowers refinancing today, are the type who are more likely to have their financial acts together enough to swing 15-year loans.

Rates have fallen to the point where people who missed the past few opportunities to refinance at lower rates can now opt for shorter loans without busting their budgets. If you still have a loan around 6% and have paid down your loan for a few years, you may be able to make the switch without a big increase in monthly payouts.

For baby boomers looking at retirement, today’s low rates may offer a kind of break that they may need – an opportunity to pay off a mortgage sooner without stretching their budget.  Paying off a mortgage before retirement is a smart move for most people. It greatly reduces their cost of living.

If you would like to discuss your mortgage in more detail, contact me at GSF Mortgage, Aurora, IL.

home mortgage aurora

How Low Can Mortgage Rates Go?

As surprising as it seems, mortgage rates are nearing lows not seen in over 40 years.  Many home owners used the month of August to lock in at a great rate.  But this is the start of a new month.  Will September bring the unthinkable mortgage low of below 4%?  Many potential borrowers are wondering and so is the mortgage industry.

The first week of April brought with it the start of the mortgage rate decline.  The rate has been steadily declining since that point.  This was unexpected as many lenders and investors believed that the rate would have gone up once the fed stopped purchasing mortgage backed securities in March.

The rates continuing to decline is not a fluke.  There are many reasons behind this.  Obviously, the economy has had an effect on the rates.  Many investors are concerned with the current state of the US economy that they are purchasing more Treasury bonds which in turn lowers those yields.

In turn, these investors purchasing these mortgage-backed securities are requesting higher yields from Fannie, Freddie and the FHA to justify their risk.  The rising yield is dropping mortgage rates further. 

So where will rates go from here?  If the economy takes another hit from inflation – rates will rise because lenders will try to make up from the hit they will take from the value of real estate investment they expect to lose.  The Federal Reserve does not see inflation as a potential problem and they announced in August that they’ll hold the federal fund rate at this historic low and continue to buy Treasurys, which surged at month end, to help try to stimulate the economy.

Another factor is that investors don’t think that the economy is recovering, but rather another recession will hit causing rates to drop even further.  So borrowers that are playing the waiting game could very well see the rate drop below 4% and could end up saving thousands of dollars in their monthly mortgage payment. 

If you would like to take advantage of these record low rates either by financing or buying your next dream home, contact GSF Mortgage in Aurora today!

home mortgage aurora

4 Things Not To Do Before Closing

Going through the mortgage process, you have been inundated with tasks and forms that you need to do and complete.  Due to Fannie Mae’s Loan Quality Initiative, lenders are looking closer at credit and doing checks in the final hour even minutes before closing.  Here are 4 things that you should not do, no matter what, before closing on your new home or the refinancing of your current home.

The First – Take a Loan out on a Car

Let’s say you purchase a car days before you are closing on your new home.  The lender is not aware of the new car loan and closes on the home.  A few months down the road, you fail to make your mortgage payments.  If Fannie Mae digs back into your files and credit history and discovers the undisclosed car loan, Fannie Mae can make the lender buy back the bad loan.  Obviously the lender loses money.

Number 2 – Apply for a New Credit Card

It seems that every store has a credit card and retailers often offer discounts to customers if you carry their card and use it.  Even if the card sits in a box untouched, your FICO and debt to income may be affected by the new card.

If you fail to make a mortgage payment down the road, the lender would be responsible for your actions and would need to purchase the bad loan back from Fannie Mae.

The Third – Max Out Your Credit Cards

Yes, another credit card warning.  It is understandable that you have this new home and no way to furnish it.  The way not to is by charging everything to your cards. 

Your mortgage is based on your debt-to-income ratio and the approval for how much the lender is willing to give you relies heavily on this number.  Just because you have been approved by the lender doesn’t mean the deal can fall through at closing. Fannie Mae urges lenders to recalculate the debt-to-income ratio before the closing.  If the lender see this ratio increase, you loan may be denied.

The Fourth Point – Changing Jobs

Fannie Mae likes to see history and documentation.  If you switch jobs, obviously you don’t have that anymore.

And don’t rule out switching positions within the company.  If you go from being salaried to an hourly wage or one based on sales and commission, your prior documentation of income may not be usable.  If this happens, you may not qualify for the loan amount you did prior to the recalculation.

If you have any questions regarding your current or future mortage, do not hestitate to call me at GSF Mortgage in Aurora.

home mortgage aurora

FHA Mortgage 101: Required Documents for Obtaining an FHA Loan

As more borrowers are considering FHA loans, they should know and learn what the necessary documents are to have to be approved.  It also needs to be noted that the market is constantly changing as are HUD’s guidelines and requirements.

The primary borrower must provide a copy of their social security card and current driver’s license. If they are not a citizen, they must provide a permanent residency card or proof that they are eligible to work in the U.S. by producing an employment authorization document. A co-borrower, whether occupying or non-occupying, must present the same required documentation and are subject to the same underwriting guidelines.

Income
For an FHA loan, borrowers must show 2 years of consistent work in the same field or with the same employer while maintaining a steady income. Documentation for income is as follows:

·         Two most recent years of W2s (with name and address of employer as lender may perform a verification of employment.

·         One month of pay stubs which document year to date (YTD) earnings.

·         Recent income tax returns (if requested).

·         Social security, pension and retirement income are documented with the most recent award statements.

·         Disability, workman’s compensation and child support must be supported with documentation that shows it will last for a minimum of 3 years.

·         Commission income requires 2 years recent tax returns and current pay stubs. Any un-reimbursed expenses will be subtracted from income before 2 year average is computed.

·         2nd job requires 2 years of W2s and current pay stub with year to day earnings.

·         Overtime and/or bonus (averaged for 2 years) is only used if it has continued for 2 years and must be documented with W2s.

·         Borrowers employed by a family business must provide pay stubs. The business must also verify whether the borrower has any ownership in the company through a written statement from the accountant that verifies ownership. In most cases, both the borrower and company tax returns will be required.

Credit
Although FHA is more lenient with credit issues, a borrower’s most recent 2 year credit history is very important as the overall performance of paying outstanding debts will be evaluated. Documentation for credit is as follows:

·         Credit report (provided by the lender) must have 2 lines of credit.

·         In lieu of active credit, borrower must document utility bills, rent payments, cell phone bills, etc. for a period of 12 months (all with no late payments)

·         Name, address and telephone number of landlord (lender will perform a verification of rent).

·         Court ordered judgments must be paid in full and documented.

·         Delinquencies on federal debts, such as student loans or tax liens, must be paid off or arrangements must be made and documented.

·         Child support must be documented with court ordered child support agreement showing how long payments will continue. Any payments remaining 10 months or longer must be included as debt.

·         Any debts that are to scheduled to begin payments within 12 months, such as student loans, will be counted as debt.

·         Chapter 7 Bankruptcy discharge documents (allowed after 2 years).

·         Chapter 13 Bankruptcy documents detailing the restructure of debts (allowed after 1 year).

Assets
Documentation of assets is necessary for an FHA loan in order to verify the borrower’s reserves as well as the source of deposit and down payment. Documentation for assets is as follows:

·         2 months of the most recent banks statements or 30 days most recent bank statements and verification of deposit (performed by the lender).

·         Copies of investment statements, 401ks, annuities, etc.

·         Large deposits in bank accounts must be documented for the source of funds.

·         Earnest money deposit canceled check and copy of the bank statement showing the balance before the deposit left the account and the ending balance after the deposit cleared.

·         Bank statements must show that there are sufficient funds to close the loan.

Gifts
FHA will allow a monetary gift that comes from a family member, close friend, borrower’s employer or labor union. This gift must be documented to show that no repayment is expected and that the donor will not place a lien on the property. Documentation needed for gifts is as follows:

·         Original signed gift letter (provided by the lender).

·         Document transfer of funds from the donor’s account to the borrower’s account with a copy of the canceled check or withdrawal document and deposit document.

·         Certified check is needed if gift is received at closing along with a copy of the withdrawal receipt from the donor’s bank account.

·         If the donor borrowed funds for the gift, documentation that these funds were not borrowed from a party in the transaction or the mortgage lender.

·         No cash on hand is allowed.

Although this may appear to be difficult, FHA loans are quite easy to obtain provided the borrower supplies us at GSF Mortgage with the necessary information. At any time during the processing and underwriting of the loan file, a borrower must be prepared to submit additional documentation to the lender.

The entire lending experience will be less stressful if borrowers prepare themselves with FHA Mortgage 101 and have the required documents for obtaining an FHA loan ready for the lender at the start of the application process. 

If you have any more questions regarding FHA loans, do not hesitate to contact GSF Mortgage in Aurora today!

home mortgage aurora

Some Mortgage Tidbits from the Dodd-Frank Mortgage Reform Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act devotes more than 200 pages to a section called the Mortgage Reform and Anti-Predatory Lending Act.  This new financial reform legislation includes provisions to prevent lenders from offering mortgages borrowers can’t afford or understand.

The legislation says its purpose is “to assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive or abusive.”

So how is this legislation going to affect your next mortgage?

The Act sets Minimum Standards for Lenders
The most basic new standard of this act prevents a creditor from offering a residential mortgage to a borrower without “a reasonable and good faith determination … that … the consumer has a reasonable ability to repay the loan.”

Ability to repay is a straightforward calculation for fixed-rate loans. For adjustable-rate mortgages, the lender must ignore the introductory (or “teaser”) mortgage rate when determining whether a borrower can afford the loan.

Instead, the lender has to calculate what the payments would be if the borrower got a fixed-rate loan at the ARM’s fully indexed rate.

The Act is to Give Favorable Treatment for “qualified mortgages”
The legislation terms qualified mortgages as plain vanilla, straight forward mortgages.  Lenders can sell qualified mortgages to investors with fewer strings attached. That gives lenders an incentive to give consumers mortgages without tricks and traps.

To be a “qualified mortgage,” the loan:

Doesn’t have a balloon payment.
Is fully amortizing — that is, it’s not interest-only or an option ARM.
Has taxes, insurance and assessments included in the monthly payments.
Meets debt-to-income standards.
Can’t be longer than 30 years.
Has reasonable points and fees.
The legislation says points and fees generally shouldn’t exceed 3 percent of the loan amount. There are exceptions for smaller mortgages.

The lender also has to verify and document the borrower’s income and savings, and there are limits on prepayment penalties on qualified mortgages. If a lender offers a loan with a prepayment penalty, the lender also has to offer a similar loan without a prepayment penalty.

The Act Restricts “Non-Qualified Mortgages”
The legislation imposes restrictions on loans that do not meet the criteria of a qualified loan.

Prepayment penalties are banned on nonqualified mortgages. This ban will make it easier for homeowners to refinance out of tricky mortgages. It probably also will make such mortgages less profitable to lenders.

Essentially, if a loan offers the possibility of negative amortization, the lender must tell the borrower that getting the loan is a bad idea. A first-time borrower won’t be able to get an option ARM without first getting housing counseling from a HUD-certified agency.

Setting Free the Truth
The Act also makes illegal some of the practices that were common during the mortgage boom.  The lender cannot “steer” a person with good credit onto a subprime mortgage when they can qualify for a low-rate prime loan.  This practice is now illegal. It is also illegal to lie about the appraised value of the property being mortgaged.

Most of the practices in truth have been implemented by the companies that are still in business. Those companies that dabbled in shady lending are out of the business now.

You can rest assured that GSF Mortgage abides by all the rules of the new legislation. Please feel free to contact or call me in regards to the Dodd-Frank Wall Street Reform and Consumer Protection Act and I can answer any questions you may have.

home mortgage aurora

Federal Reserve likely to stay on low-rate path

The Federal Reserve’s Federal Open Market Committee, or FOMC, is meeting this week in a two-day session scheduled to conclude with an announcement today at 2:15 p.m. Eastern.

What will the Fed discuss behind closed doors? Not interest rates, ironically, or at least not much. There just isn’t much to discuss on that front.

Instead, the FOMC’s time will be occupied discussing more pressing matters such as Europe’s debt woes, the anemic U.S. job market and a still-weak housing market. The committee will also probably do some scenario planning regarding the possibility of deflation.

Will the Federal Reserve raise interest rates before year-end? Not unless we see a big jump in private sector job growth, an easing in global financial tensions and a surge in inflation. In other words, probably not.

Deflation worries

Even with financial tensions easing, as evidenced by Libor stabilizing since the beginning of June, inflation has been running so low in recent months that the Fed will focus more on preventing an onset of deflation.

This means benchmark interest rates aren’t going anywhere. While the Fed may discuss downsizing its balance sheet, it won’t act on it anytime soon.

How should consumers respond to an environment of prolonged low interest rates? Paying down debt is a good start. And never mind what we hear about consumers doing just that, as the declining debt burden has come overwhelmingly from lenders writing off bad debt.

The Federal Reserve’s G.19 Consumer Credit statistical release shows a decline in revolving debt — primarily credit card debt — of $129 billion since September 2008. But credit card charge offs represent more than $120 billion of that.

Refinance opportunity

The outstanding mortgage balances on one- to four-family residences has been down every quarter since early 2008. In the context of distressed sales — where foreclosures and short sales involve lenders receiving much less than owed — that decline is not surprising.

But let’s not kid ourselves into thinking the decline is driven by homeowners around the country writing sizable checks to pay down or pay off mortgage balances.

Debt burdens have come down, but any evidence that consumers are the ones paying debt down is pretty scarce. A prolonged low-rate environment acts as a tailwind for those borrowers looking to pay down variable rate debts, such as credit cards and home equity lines of credit.

With mortgage rates hovering at record low levels, the window of opportunity remains open to refinance and lock in low fixed rates, especially for homeowners with adjustable-rate mortgages bound to reset higher over the next few years.  

If you are looking to take advantage of the low rates and purchase a property or refinance your home, call GSF Mortgage Aurora today!

home mortgage aurora

How does the financial reform bill affect you and your mortgage?

If you are planning on purchasing a home soon, turn to GSF Mortgage in Aurora for the latest information. We’ll keep you up to date on the financial reform bill.

This bill is designed to provide protection for borrowers, some of the provisions are opposed by the Mortgage Bankers Association, which says the regulations will likely constrain credit and make home purchases pricier.

Here’s a look at what’s on the table.

Compensation for loan originators – One of the key provisions in the legislation deals with how mortgage brokers and loan originators are paid. Both the Senate and House versions prohibit lenders from paying brokers more for steering borrowers to more expensive loans. Independent loan originators have often been given financial incentives to put borrowers in loans with higher interest rates than they qualify for.

Prepayment penalties – Both bills also restrict mortgage prepayment penalties, which are penalties charged to a borrower who repays the loan earlier than originally agreed upon. (In the past, when homeowners tried to refinance into a cheaper loan, they faced heavy penalties and increased payments.)

Ability to repay – Both bills would also block lenders from making loans without verifying if the borrowers can repay them. In an attempt to banish the practice of “no doc” and “liar loans,” the bill will require lenders to document income and have a reasonable belief that borrowers can repay their loans.

Appraisals – The House bill gives the consumer protection agency authority over home appraisals and the power to ensure the independence of appraisers from lenders and realtors. Currently, the Home Valuation Code of Conduct (HVCC), which was mandated last year by Fannie Mae and Freddie Mac, has this role. HVCC requires lenders to keep a distance between the lenders and appraisers. Most lenders have chosen to outsource appraiser selection to third-party appraisal management companies (AMCs). But this practice has resulted in some cases of AMCs steering work to appraisers who cost the least, not those who are most qualified.

HVCC is scheduled to sunset in November. The House bill calls for a new committee to be set up to review and set in place new standards for appraisal independence.

Credit score – Last month the Senate approved an amendment to the bill that would give consumers free access to their credit scores when they’re denied a loan, rejected for a job, or charged a higher interest rate based on their credit history.

Today, the credit score is the chief gauge used by lenders like GSF Mortgage in deciding whether to approve a loan. Right now, consumers can only access their credit report for free once a year (through AnnualCreditReport.com); they must pay to see a credit score from one of the three credit reporting bureaus. So if your mortgage application gets turned down, the lender would have to provide the credit score information they used to make the decision.

If you would like more information, about these proposed changes or other mortgage information, give me a call today!

home mortgage aurora

How does GSF Mortgage set your mortgage rate? We don’t…

How does GSF Mortgage set your mortgage rate? Well, actually we don’t.
 
While GSF Mortgage Aurora controls who gets approved for a loan with us and on what terms, actual mortgage interest rates are largely determined on the secondary market, where mortgages are bought and sold.

Fannie and Freddie’s Involvement
Fannie Mae and Freddie Mac, two large and influential mortgage investors, were founded by the government decades ago to help bring efficiency to the lending process. They and other mortgage investors buy loans that lenders make and either hold them in portfolio or bundle them with other loans into mortgage-backed securities. These are sold to Wall Street, mutual funds and other financial investors, which trade them much the same as Treasury securities and bonds.

It is these financial investors in the secondary market, not mortgage lenders and brokers like GSF Mortgage that collectively determine the interest rate of your mortgage loan.

As with the stock market, interest rates in the secondary market tend to move up and down. When the economy is on an upswing, investors demand higher yields, forcing lenders to raise mortgage rates. In a market downturn, rates tend to drop for consumers because of increased investor demand.

Conventional wisdom is that interest rates move in cycles; after a prolonged increase, a slow drop usually occurs. Some use 10-year Treasury bonds as a barometer; when bonds go up, interest rates go down, and vice versa.

For information on current rates, call your local GSF Mortage Broker in Aurora today! 630-806-7060

home mortgage aurora

Unemployed Homeowners Get Mortgage Help

A new government program was announced at the end of March that requires lenders to offer three to six months’ of lower mortgage payments to some homeowners who’ve lost their jobs. The temporary assistance is intended to help unemployed homeowners keep their homes while they seek new employment.

The new Temporary Assistance for Unemployed Borrowers program is a step forward, but many of the details are yet to be worked out.

Who qualifies?

To qualify, the homeowner must:

• Occupy the home as a principal residence.
• Submit evidence he/she currently is receiving unemployment benefits.
• Request assistance while the loan is current or within the first 90 days of loan delinquency.
• Make loan payments up to 31 percent of unemployment income.
• Have a loan balance of less than $729,000.

The need to prove receipt of unemployment checks could be tricky for homeowners who’ve exhausted their benefits, or whose benefits expire midway through the forbearance period.

Forbearance increases debt burden

The program could be a boon for homeowners who suffer a few months of joblessness, but it won’t offer an extended lifeline for the long-term unemployed.

The reduced mortgage payment is in the form of forbearance, which means the unpaid amount is deferred, not forgiven. As a result, even a homeowner who soon finds another job will end up with a bigger debt burden and forbearance also is typically reported as a negative item on the borrower’s credit report.

This program is set to roll out later this year.

home mortgage aurora

Consumers Face the End of an Era of Cheap Credit

Even as prospects for the American economy brighten, consumers are about to face a new financial burden: a period of rising interest rates. Economists say that this is the inevitable outcome of the nation’s ballooning debt and the prospect of inflation as the economy recovers from a recession.

The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic decline in the cost of borrowing. 

The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer. Along with the sell-off in bonds, the Federal Reserve has halted its emergency $1.25 trillion program to buy mortgage debt, placing even more upward pressure on rates.  The Mortgage Bankers Association expects the rise to continue, with the 30-year mortgage rate going to 5.5 percent by late summer and as high as 6 percent by the end of the year.

We’ve Gotten Spoiled
Just as significant as the bottom-line impact will be the psychological fallout from not being able to buy more while paying less — an unusual state of affairs that made consumer spending the most important measure of economic health.

“We’ve gotten spoiled by the idea that interest rates will stay in the low single-digits forever,” said Jim Caron, an interest rate strategist with Morgan Stanley. “We’ve also had a generation of consumers and investors get used to low rates.”

For young home buyers today considering 30-year mortgages with a rate of just over 5 percent, it might be hard to conceive of a time like October 1981, when mortgage rates peaked at 18.2 percent. That meant monthly payments of $1,523 then compared with $556 now for a $100,000 loan.

No one expects rates to return to anything resembling 1981 levels. Still, for much of Wall Street, the question is not whether rates will go up, but rather by how much.

Some firms, like Morgan Stanley, are predicting that rates could rise by a percentage point and a half by the end of the year. Others, like JPMorgan Chase are forecasting a more modest half-point jump.

But the consensus is clear – rates will eventually go higher.

« Previous Page — Next Page »