Monday, April 20, 2009

HOME BUYER BONANZA: MORTGAGE RATES NOW IN THE 4-PERCENT RANGE

With home-loan interest rates already in the 4-percent range and residential resale prices down 20 percent or more in some neighborhoods, spring house hunters in the Chicago have not had it this good since 1965 when President Lyndon Johnson was in the White House.

The Federal Reserve’s plan to double its purchases of mortgage debt pushed benchmark 30-year fixed home loans to an average of 4.87 percent in mid April, and some analysts predict rates eventually could inch toward the rock-bottom plateau of 4.5 percent or less with President Obama’s stimulus program driving the current economic cycle.

Chicago-area mortgage lenders currently are charging 4.875 percent on a 30-year fixed loan and 4.5 percent on a 15-year fixed mortgage and the market for adjustable-rate loans has all but dried up, noted Perry D. Farella, mortgage banker with Wintrust Mortgage.

“We look for 30-year mortgage rates to hit 4.75 percent by early May, and 15-year fixed loans could decline to 4.375 percent,” Farella said. “But if you are planning to buy or refinance, better get your loan application together as quickly as possible. If the economy starts to grow again, rates will rise.”

Steven V. Frytz of Anchor General, developer of Cornelia Court, a 63-unit townhome development in West Roscoe Village, believes the next few months could be the best time to buy a home in the next decade.

“This is a time of opportunity. Interest rates are at or near the bottom,” Frytz said. “Inflation and higher rates will occur in the next business cycle.”

To help more buyers qualify for mortgages, Farella noted that many condominium developers are applying for Federal Housing Administration-approval of their projects to qualify for low-down payment financing.

“The minimum FHA-loan down payment is 3.5 percent, and the interest rates on these government-backed mortgages are essentially in the same range as conventional loans,” Farella said.

From the consumer point of view, an FHA-approved new- or converted-condominium building must meet tougher government standards, so buyers will have peace of mind knowing that the declaration, bylaws, engineering report, budget and financial information has been heavily reviewed, experts say.

Seller financing is another creative trend emerging in today’s real estate market, Farella noted. “While they wait for their project to receive FHA approval, some developers are selling condo units using an installment contract,” he said.

Under this the so-called “articles of agreement,” the seller retains title to the property and the buyer is given time to clear up any credit problems.

“Typically the seller charges interest on the contract sale based on the prime lending rate, currently 3.25 percent, and up to 50 percent of the contracted monthly payment is credited as a down payment and placed in escrow,” Farella said.

When the building achieves FHA approval, and the buyer’s credit score hopefully improves, he or she usually can qualify for the low-down payment government-insured loan and the contract agreement would end.

However, luxury home and condo buyers who are shopping for a jumbo mortgage (more than the $417,000 Freddie Mac and Fannie Mac conforming-loan limit) are still paying hefty rates for these loans. The going rate for a 30-year fixed jumbo mortgage is 6.125 percent plus a loan fee of 1 percent of the loan amount, Farella noted.

Frank Nothaft, Freddie Mac vice president and chief economist, noted that the Federal Reserve’s announcement that it intends to purchase Treasury securities over the next six months caused bond yields to drop and mortgage rates followed. “Potential home buyers are taking notice of these historically low mortgage rates,” Nothaft said. “First-time home buyers accounted for half of all existing home sales in February, according to the National Association of Realtors.” “Realtors are hopeful the Obama stimulus measures such as the $8,000 tax credit will give first-time buyers some confidence in the months ahead,” said Pat Callan, president of the Illinois Association of Realtors. To take advantage of the tax credit buyers must close on their home or condo sale by Nov. 30, 2009.