Is now a good time to buy?

You cannot imagine how often I hear this question nowadays. The answer I always give is a resounding YES! There are three main reason why this is a great time to purchase a home.

First, it’s a buyer’s market! Every day in the news we hear about how hard it is to sell a home and how far home prices have fallen. The buyer has a great opportunity to find the perfect home and negotiate a great deal for it.

Unfortunately, many would-be buyers have been scared out of the market by the falling home prices. They are afraid that the value of their home may continue to fall after they purchase it. This may be the case, but if you are looking at a home as a long-term investment, prices will stabilize and eventually rise giving you a nice return on your investment (There is a lot more risk if you are purchasing property as a short-term investment.). If this were any other purchase, falling prices and a wide selection would motivate people into buying now.

Second, mortgage interest rates are low. In the past few months, interest rates hit their lowest levels in the past few years. Low interest rates coupled with lower housing prices makes this market the most affordable home-buying market in years. Again, we hear in the news the problems in the mortgage market but the fact is, for borrowers, this is a great time to get a mortgage.

Third, nobody can predict the future. This is probably the biggest reason why I think now is the time to buy. Housing prices are low now – but for how long? Nobody can predict when the housing market will rebound. By the time we know, it is already begun to rebound. Trying to purchase at the exact bottom of a market is impossible – ask anyone who invests in stocks. And, housing markets are all local. Housing prices will rebound at different times in different parts of the country. Even neighborhoods within the same city will see their values move at different times. If there is a place you want to live, and you can afford it now, don’t wait until that changes.
Also, due to the problems in the mortgage market, it is getting more difficult and more expensive for many people to get a mortgage. Last year, if you had a 620 FICO Score and a 5% down payment, you would get the same rates as somebody with a 740 FICO Score and a 30% down payment. However, in the past few months, Fannie Mae and Freddie Mac have made a lot of changes that will increase the cost of people getting mortgage if they do not have a significant down payment and/or a great FICO Score. Please read "How much will my credit score cost me on my next mortgage?" and "Credit Score Affects Interest Rates Even More" for more information on this. If there continues to be problems in the mortgage market, these changes may continue. And, if you have credit issues and need a sub-prime loan, they are getting harder to find and more expensive all the time.

If you are ready, willing and able to purchase new home, now is the time to act. It has been a long time since housing has been so affordable and nobody knows how long it will last or how long it will be before it is this affordable again.

If you have been thinking about buying, I have a great tool that you can use to see the properties available in the areas you are interested in. It is free and there is no-obligation to use this service. Click on the link below for more information and to sign up.

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FHA Announces New Temporary Loan Limits

Earlier this month, HUD announced the new temporary loan limits for FHA Mortgages as a result of the economic stimulus package passed earlier this year. Like conventional mortgages, The maximum FHA loan amount is $729,750 but will be adjusted per housing market based upon the median home prices for that market.

In the Chicago MSA, the maximum loan limit for a single family home is now $410,000 up from $271,050 before the temporary increase. The new limits for 2- 3-, and 4-unit properties are $524,850, $634,450, and $788,450, respectively.

These increased loan amounts will make traditionally “jumbo” loans more affordable for more people and will hopefully allow many people who are currently in mortgages they cannot afford refinance to more affordable conventional and FHA loans (See FHA Offers Relief to Homeowners with FHA Secure).

These new loan limits will follow the same FHA guidelines as before. However, some lenders have already added some guidelines for these larger loan amounts. For example, one lender requires a second appraisal for any FHA loan that exceeds $417,000 and another lender requires at least a 580 FICO score for any FHA loan that exceeds the maximum mortgage amount before the temporary increase.

As I wrote in January 2008 (FHA Mortgages to Become More Popular) FHA loans will once again be a larger segment on the overall mortgage market than it has been in the past several years. The FHA Program has undergone many changes over the past couple years (see This is Not Your Father’s FHA)to better serve the mortgage needs of today’s market and bring it more into line with the conventional mortgage programs.

To see the new, temporary mortgage limits in your area, please go to: https://entp.hud.gov/idapp/html/hicostlook.cfm.

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Credit Score Affects Interest Rates Even More

On March 6, 2008, Fannie Mae came out with Announcement 08-04 which spells out the increased Loan-Level Price Adjusments (LLPAs). These LLPAs replace those discussed in my blog article “How Much Will My Credit Score Cost Me.”

An LLPA is an additional fee on top of any points and closing costs paid for a mortgage based upon the Loan to Value Ratio (LTV) and the borrowers’ credit score. So, the higher the LTV and lower the credit score the more you will have to pay for a mortgage. This can take the form of additional points and/or higher rates.

The new LLPAs are as follows:









1 These LLPAs do not apply to loans with amortization terms of 15 years or less, Expanded Approval®, Expanded Approval with Timely Payment Rewards®, MyCommunityMortgage®, and most Government loans. See LLPA Matrix for details.

CASH-OUT REFINANCES - FICO Score/LTV








Two- to Four-Unit Property LLPAs2
The two-unit LLPA below replaces the existing two-unit LLPA. The three- and four-unit LLPAs are new LLPAs.

• Two-Units: 0.50% LLPA applicable to all LTVs
• Three- to- Four Units: 1.00% LLPA applicable to all LTVs
2 These LLPAs do not apply to MyCommunityMortgage loans.

All LLPAs are cumulative unless otherwise noted.

These new LLPAs are effective with all mortgage delivered to Fannie Mae beginning June 1, 2008. Most lenders have already incorporated these new LLPAs into their current rate sheets. Your credit score is more important than ever in getting a good rate on a conventional loan. For information on credit scores please visit my blog article "Understanding Credit Scoring & Credit Repair.”

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Federal Reserve Cuts Federal Funds Rate by ¾%

Yesterday, the Federal Reserve Open Market Committee (FOMC or Fed)) voted to cut the Federal Funds Rate by .75% to 2.25% - the sixth time they cut rates in the past six months. These rate cuts are meant to stimulate the economy by making it cheaper for banks to borrow and lend money and for business to borrow to grow their business. This time, there was a lot of differing opinions on how large the rate cut would be. Some looked for the FOMC to cut by a full 1% while others were looking for only a .5% cut. The vote by the Fed was not unanimous – two members felt the cuts were too aggressive given the threat of inflation.

Cutting interest rates can be seen as inflationary. It stimulates the economy and also devalues the US dollar in relation to other currencies. This causes prices we pay to increase in the future and, as a result, many long-term interest rates, such as mortgages, actually increase when the Fed cuts rates.

Some homeowners with mortgages that are tied to the Prime Rate will see a decrease in their interest rates on these loans since banks tie their Prime Rate to the Federal Funds Rate – when the Fed cuts by .75%, banks cut their Prime by .75%. Usually, Home Equity Lines of Credit are based on the prime rate. These homeowners should see the new rates reflected on their next statement.

These rate cuts don’t seem to be working, the economy is still heading for recession

When the Fed cuts rates, it can take 6 – 9 months before they have an impact on the economy. Therefore, the economy is just now experiencing the rate cuts that the Fed put into effect when they began cutting rates in September 2007. The Fed tries to get in front of problems so they can prevent or lessen upcoming problems. The economy continued to grow through the end of 2007 and now the cuts are helping to prevent the economy from slowing further.

And what about mortgage interest rates?

This is an even more complicated question. The mortgage market is affected by the economy and, to some degree, the actions by the Fed. But, as I mentioned before, these rate cuts can be inflationary which will tend to increase mortgage rates. In addition to the economy, the mortgage rates are affected by the sub-prime mortgage crisis, the slowing housing market, and the resistance of investors to purchase the mortgage-backed securities (MBS) that fuel the mortgage market.

Today (3/19/08) the Office of Federal Housing Enterprise Oversight(OFHEO), the regulators for Fannie Mae and Freddie Mac, took a huge step today to increase the liquidity (Availability and accessibility of mortgage funds) of the mortgage market. The steps they took today will allow Fannie Mae and Freddie Mac to provide up to $200 billion in mortgage-backed securities liquidity. By purchasing these MBS, Fannie Mae and Freddie Mac will make a significant dent in the logjam of mortgages that have been unable to be securitized and purchased over the past several months. This logjam has led to MBS being less attractive and a widening of the spread between the yield on mortgages and US Treasury bills, notes, and bonds. This should increase the demand for MBS thus raising their prices and lowering their yields – this will in turn lower mortgage rates.

Fannie Mae & Freddie Mac Announce New, Temporary Loan Limits

As part of the economic stimulus plan signed into law last month (See Congress Agrees on Economic Stimulus Plan ... ) Congress authorized Fannie Mae and Freddie Mac to raise the maximum mortgage limit for conforming loans through the end of 2008. These temporary increases are to help the housing industry as well as make it easier for more people to refinance their mortgages. These increases will increase the liquidity of the mortgage market for many homeowners whose mortgages are above the current conforming limit of $417,000.

After much debate as to how many people these increases will help (See Will the Increase in Mortgage Limits Help?), the OFHEO has published the new limits. While critics had estimated that only 15 counties will be affected, it appears that over 100 counties and metropolitan areas across the country will experience an increase from the current maximum.

Unfortunately, my home market of Chicago, IL, as well as many other markets, will not see an increase in the limits for conforming loans.

To see a list of all the areas with increased limits click here!

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Down Payment Assistance Programs to Continue

On October 1, 2007, the Department of Housing and Urban Development (HUD) published a rule that would have eliminated the use of seller-funded down payment assistance programs for FHA loans effective October 31, 2007 (See FHA Bans “Gift” Down Payment Assistance Programs). On that date, Judge Friedman of the United States District Court for the District of Columbia issued a temporary injunction against HUD from implementing that rule (See HUD’s Ban on FHA Down Payment Assistance Programs on Hold). In the injunction, Judge Friedman agreed that there was a “substantial likelihood” that the regulation violated applicable law. Judge Friedman further stated that the regulation lacked a “reasoned analysis” and was based on “flimsy” support. Judge Friedman also questioned whether HUD acted appropriately in issuing the regulation in view of a published report that Secretary Jackson was committed to that course of action regardless of whatever public comments HUD would later receive.

On March 3, 2008 Judge Karlton of the United States District Court for the eastern District of California set aside the HUD rule, thus allowing down payment assistance programs to continue to help thousands of American families realize the dream of homeownership.

In addition to the various down payment assistance programs such as Ameridream, Inc and the Nehemiah Program, opposition to HUD’s rule included several members of Congress, the Mortgage Bankers Association, the U.S. Conference of Mayors, the National Association of Home Builders, the National Urban League, and over 15,000 individuals and families nationwide.

Down payment assistance programs have helped over 1 million families and individuals purchase a home. In addition to helping the home buyers, these programs also help to stabilize the neighborhoods in which they are utilized.

With all of the issues facing the housing industry over the past couple years, this is welcomed news. FHA will be an integral part of a housing turnaround. In addition to the recent changes to FHA guidelines (See FHA Mortgages to Become More Popular and This is Not Your Father’s FHA) as well as the temporary increase to FHA loan limits (See Mortgage Limits Increased), down payment assistance programs enable more people to afford a home.

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