For buyers sitting on the fence to purchase Chicago real estate after the calendar turns to 2014, be sure you’ve done your research. Borrowers can expect to pay more to get a home loan next year, thanks to recent changes from mortgage regulators.
Buyers will face higher fees on loans without large down payments or high credit scores. These new fees play a part in reducing the role that Fannie Mae and Freddie Mac play in the mortgage market.
The timing of these new fees is particularly bad since they are coming at the same time that the Federal Reserve may end its bond-buying program, which has taken some credit for keeping mortgage rates low. As we swing into the new year and the changes kick in, we’ll be able to see what effect they truly have on the mortgage market.
The new fees will hit certain buyers the hardest—especially those who don’t make a down payment of at least 20% or have a credit score in the 680–760 range. These buyers could be looking at fees more than 1% higher than they are today. It could also raise their mortgage rate by about 0.4 percentage points.
But even with that 20% down payment, these mortgage fees could still rise. For example, a loan with a 25% down payment and a 690 credit score would be looking at an upfront fee of 2.25%, compared to the 1.5% it is today.
Jumbo loans are those too large for government backing—in Chicago, mortgages higher than $417,000 are considered jumbo loans, so many Chicago luxury homes that are financed are done so through a jumbo (or non-conforming) loan.
The jumbo market has recently been strong, with lenders wooing high-end buyers and offering rates lower than conforming mortgages. The implementation of the new fees could continue to swing things in that direction, since the higher costs could make conforming loans more expensive than jumbo loans. That could be good news for buyers looking to purchase luxury real estate in Chicago.
However, a number of new standards also take effect on January 10, 2014 that will affect jumbo borrowers. More documentation on tax returns, assets and earnings, plus a capped debt-to-income ratio could make taking out a jumbo loan more cumbersome for the luxury buyers, even those with a squeaky-clean credit history and a sizable down payment.
It will be interesting to see what the upcoming months bring in the Chicago real estate market as these regulations and fees take effect. Like the stock market, real estate can be quite unpredictable—we often don’t know what the true outcome will be until it’s already happened.
I invite any would-be buyers to contact me to learn more about fees and regulations taking place in the new year. I can steer you in the right direction so you know exactly what you’ll need to purchase Chicago real estate in the new year. Contact me at (312) 498-5080 or email me at [email protected]