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What mortgage opportunities will you find when you want to buy a house in this post-subprime world?

Regardless of fears and stories you may have heard about tight credit, mortgages are available.

In fact, interest rates are low — 5? percent for a 30-year fixed-rate mortgage, said Paul Lueken, president of the Illinois Association of Mortgage Professionals.

Riskier loans that did not make sense according to traditional underwriting standards are gone or have become very rare.

These include subprime mortgages designed for borrowers with bad credit that require little equity or down payment and little or no proof of income. Rates for these loans often escalate over the years.

Now 30-year fixed loans are popular again, credit scores are important and FHA mortgages are a choice for those who don’t have large down payments.

Adjustable rate mortgages are less popular these days because rates are not much lower than 30-year fixed rate mortgages.

Experts recommend shopping around for rates and meeting with a mortgage representative to examine what options are available.

Remember, besides a down payment, with most mortgages there are $1,500 to $3,000 in closing costs and a few months of payments in savings required as a reserve.

FHA

If you are a first-time buyer, consider an FHA mortgage, said Frank May, senior loan consultant with Green Valley Mortgage in Bloomingdale.

May said such loans are good for borrowers in the 620 to 680 credit score range, which would require higher fees or interest rates with conventional mortgages. Some FHA borrowers can have credit scores as low as the high 500s.

The very best credit scores are above 800, May said.

FHA (or VA loans if you are a veteran) have advantages:

• A borrower can pay as little as 3 percent for a down payment, which can come from either the buyer or as a gift from a relative. Closing costs are additional but can be paid by the seller.

• Generally, FHA borrowers should have housing expenses at or less than 29 percent of gross income and minimum payments for all debt at 41 percent. However, these numbers are flexible, and the FHA Web site, www.fha.gov, urges home buyers to consult with a mortgage professional.

However, such loans also have drawbacks:

• A mortgage must be $275,200 or lower. The median price for homes in the Chicago area in November was $247,000, according to the Illinois Association of Realtors.

There is talk of Congress raising the limit and lowering the cash requirement.

• If you have a down payment in the 20 percent range, you might want to get a conventional mortgage because mortgage insurance is still required with FHA loans.

Freddie and Fannie

So-called conventional loans sold to Freddie Mac and Fannie Mae are the backbone of American mortgages.

With such a loan, a mortgage cannot be more than $417,000.

If your credit score is good — but between 620 and 680 — you will pay a slightly higher interest rate and closing costs will be increased by hundreds or a few thousand dollars, May said.

A 30 percent down payment would negate less-than-perfect credit.

Borrowers also pay more if the down payment is less than 20 percent, but it can be as low as 5 percent, May said.

A conventional borrower should keep housing expenses within 33 percent of gross income and all debt within 38 percent bad credit payday loans. These guidelines are flexible depending on circumstances like great credit, assets, family size and expenses, or expectations of increased income.

Jumbo

What if you can afford a more expensive home — say one with a mortgage higher than $417,000?

You will need to have good credit and a down payment of at least 10 percent, but 20 percent is better, said Lueken, who is also president of 1st Advantage Mortgage in Lombard.

A credit rating should be 680 or higher, May said.

Such a loan also will cost more. The interest rate will be about a half-percentage point higher than a conforming mortgage, he said.

This is one area where second mortgages can be allowed, said Paul Diamond, executive vice president for sales at Flagstar Bank in Gurnee.

His company did a loan for a buyer in Chicago’s Trump Tower for which the person got a conventional loan, and a second mortgage for part of the amount above the conventional limit.

Credit dings

Then there are those people who are going to find it very difficult to get a mortgage. Experts recommend their best choice is to work for a year or so to fix their credit rating.

Nonprofit agencies like the DuPage Homeownership Center in Wheaton offer advice on how to do this.

Subprime mortgages for people with bad credit have become scarce.

Etc.

It is difficult for people who have not established credit or cannot produce tax returns that reflect all their income to obtain mortgages.

Self-employed people can still get what are called stated-income mortgages without providing all their tax information, May said.

Good credit is essential, and the rates might be a quarter- to a half-percentage point higher than with conventional mortgages.

People who fall below loan guidelines for homeownership still have some options.

For example, through its House America program, Countrywide offers ways to count extra income and help people with higher-than-average housing expenses or debt.

Counties and other local governments also have programs to help low-income buyers.

Some of the now-disappearing loans for people without income they can document made sense, Lueken said.

For example, someone with a large down payment and cash in the bank but no current income, which can happen in divorces, could be a good risk, he said.

The mortgage association is trying to change Illinois laws that eliminate all loans for which borrowers do not have to prove their income.

Because of new state laws starting July 1, FHA borrowers will not be able to take advantage of easier methods to refinance into a lower rate, he said.
Sourse

Outside auditors charged with overseeing the State Board of Administration knew more than a year ago that an internal report had red-flagged the agency for not adequately supervising the risky investments made by its money managers.

The SBA’s internal auditor, Flerida Rivera-Alsing, reported the findings in fall 2006 to the three-person panel of inspectors general who in turn are answerable to the governor, attorney general and chief financial officer, officials said.

Among the audit’s findings: the agency lacked adequate risk-management reviews, senior managers weren’t involved in setting investment goals, and the agency relied too heavily on a handful of large brokers to make investments.

“There was lots of discussion about that particular report because it did raise some concerns,” Melinda Miguel, chief inspector general to Gov. Charlie Crist, said Monday.

Miguel chairs the SBA’s Audit Committee, which last month began an investigation of the agency’s investments in shaky, mortgage-backed securities that prompted a $14 billion wave of withdrawals in November from a local government investment pool. A withdrawal freeze to stop the run forced some cities and schools, which used the fund to invest spare operating funds, to scramble to pay salaries and bills.

Miguel, officials from the agency and Chief Financial Officer Alex Sink were grilled Monday by a panel of legislators who wanted answers about how those mortgage-backed investment decisions were made.

Lawmakers on the Joint Legislative Auditing Committee questioned why the SBA and auditors who oversaw the agency couldn’t say what had been done to fix problems spotted by the 2007 audit.

“Who was minding the store, and why didn’t we see the red flags in March and get on them?” said Rep check cash advance. Susan Bucher, D-West Palm Beach.

Miguel, who is heading up the new audit, said she recalled discussing the slow progress of the audit in late 2007, and that copies were forwarded last spring to all three trustees who oversee the SBA. Although the agency hasn’t said what fixes it made, Miguel said the process shows investigators were keeping an eye on the agency.

“It shows we weren’t asleep at the wheel,” she said afterward.

Acting SBA Executive Director Bob Milligan said Monday he has been trying since last week — when the Orlando Sentinel first reported the existence of the audit — to find out what the response to it was and asked for patience while he gets answers.

“Some things have been acted upon — not all,” he said. “I’m trying to sort through that right now.”

In the final audit finished in March, SBA managers wrote they would “consider” most of the 18 “high priority” recommendations. A follow-up report that was supposed to be produced three months ago highlighting what was done has yet to be produced.
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