Conforming Guidelines Limits

The government published its 2009 Conforming Loan Limit guidance last week. Listed by county, the report grants 324 parts of the country a temporary increase beyond the “normal” $417,000 Fannie Mae mortgage loan limits. These areas are labeled “high-cost”, and are differentiated by their local median sales price. Temporary loan limits can range up to $729,750.

For now though Chicago and Cincinnati remain bound to $417,000. Increasing conforming loan limits was part of the American Recovery and Reinvestment Act of 2009 in order to stipulate the housing demand and get homeowners to refinance their existing jumbo and sub-prime loans into government insured loans, which will protect the banks and private investors.

Credit History

Traditional lenders are concerned with the borrower’s credit history, late payments, delinquencies, foreclosures, and bankruptcies and their ability to repay the loan. They are looking for good credit, stable job history and no late payments. If your credit score is not in the 720 range or better, you will not get as good of an interest rate. Lenders have tightened their lending guidelines since the sub-prime mess and it is harder to get loans these days so you should cleanup your credit issues if you have any before you apply for a loan.

Fannie Mae 2009 Single-Family Mortgage Loan Limits
Under The Housing and Economic Recovery Act of 2008, Fannie Mae’s has two conforming loan limits, one for traditional conforming loans and one for high cost area conforming loan limits effective November 2008. The conforming loan limits apply to all conventional mortgages delivered to Fannie Mae on or after January 1, 2009. The 2009 general conforming limits have not changed since 2008 and are identical to 2006 and 2007 as well. The high-cost areas are new and are determined by the Federal Housing Finance Agency. Fannie Mae may purchase loans up to $625,500 in areas that are designated high-cost areas. Please refer to the chart below for more information about your area.

Maximum Original Principal Balance
Units Contiguous States, District of Columbia, and Puerto Rico Alaska, Guam, Hawaii, and the U.S. Virgin Islands
General High-Cost* General High-Cost*
1 $417,000 $625,500 $625,500 $938,250
2 $533,850 $800,775 $800,775 $1,201,150
3 $645,300 $967,950 $967,950 $1,451,925
4 $801,950 $1,202,925 $1,202,925 $1,804,375

*Note that the limit may be lower for a specific high-cost area; use the Loan Limit Look-Up Table above to see limits by location. Source: Loan limits as presented on fanniemae.com
Fannie Mae requires a credit score of at least 580. Fannie Mae loans are available through a program called Home Path. For a list of lenders that offer Home Path and other Fannie Mae loans, visit the Fannie Mae website.

New Guidelines Effective March 1, 2009 for Investors and Second Home Borrowers
As of March 1, 2009, Fannie Mae guidelines will now allow investor and second home borrowers to qualify for Fannie-backed financing on up to 10 properties so long as they meet the other strict underwriting and delivery requirements such as:
• No foreclosures or bankruptcies in the past seven years.
• If more than four properties are financed, the borrower’s credit score must be a minimum of 720.
• Certain reserve requires must be met depending on the type of property being purchased.
• Buyers have to have 25 percent down for a second home and 30 percent for an investment property.

New Plan
Under the new Obama plan, borrowers who are current with the their monthly payments but whose mortgage interest rates are way above the current prevailing rates in the low 5 percent range may be eligible to refinance even though their property values have decreased. Fannie Mae and Freddie Mac would essentially waive the current rule that the LTV cannot be lower than 80% rule — even for LTVs as high as 105 percent. Borrowers would still need to keep their mortgage insurance in place.

Fannie Mae Condo Guideline Changes:
• New construction and newly converted developments, 70% of the units must be pre-sold (closed or under contract). Increased from 51%.
• No more than 15% of total units can be more than 30 days delinquent on HOA dues. This is an existing guideline that is now being applied to new condo projects.
• Fidelity insurance will be required for condos with 20 or more units, ensuring that homeowner association funds are protected.
• A requirement that borrowers must now obtain a condo-owners insurance policy unless the master policy provides interior unit coverage; coverage may not be less than 20% of the assessed value. A condo-owners policy covers personal property, personal liability, and the physical unit from the studs and in. Many policies also include special assessment coverage or the option to include a special assessment coverage rider.
• No more than 10% of a project can be owned by a single entity.
• No more than 20% of a project can consist of non-residential space.
• The homeowners association must have at least 10% of its budgeted income designated for replacement reserves and adequate funds budgeted for the insurance deductible.

FHA Loans and Limits
FHA insured loans require the borrower to purchase mortgage insurance for borrowers who put down less than 20% so that the lender is protected against loss if there is a default by the borrower on the mortgage. Mortgage insurance is charged to the homeowner each month at the rate of .5 percent per year of the total loan amount. You will also be charged an upfront FHA mortgage insurance premium of 1.5 percent. FHA mortgage lending limits vary based upon the state and county where the property is located and the type of property.

Appraisal and Credit Report Fees
You will apply for your loan with an FHA lender. FHA requires that the borrower pay for an appraisal fee and a credit report. Have your information organized and ready for your loan officer. Be prepared to pay for property appraisal and a credit report.

Closing Cost Guidelines
Each loan FHA office determines what costs are deemed reasonable and which closing costs are allowed to be charged to the borrower. The following are deemed acceptable closing costs:
• Lender’s origination fee
• Deposit verification fees
• Attorney’s fees
• The appraisal fee and any inspection fees
• Lender’s origination fee
• Cost of title insurance and title examination
• Document preparation (by a third party)
• Property survey
• Credit reports (actual costs)
• Transfer stamps, recording fees, and taxes
• Test and certification fees
• Home inspection fees up to $200

Debt to Income Ratios

The maximum debt to income ratio FHA allows is 29%. So if you add up the total mortgage payment including the principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners’ dues, etc. and divide that amount by the gross monthly income, that give your ratio. If your ratio is more than 29%, you will not qualify for FHA.

Credit History

The lender will look at the credit worthiness of the borrower. If you have a good credit rating and you are your bills on time, you will be eligible. If you have a poor credit rating, judgments and delinquent accounts, then you will probably not be approved. You sho9ld have at least established credit with two creditors to qualify for an FHA loan.

Bankruptcy

FHA will consider approving a borrower involved in a Chapter 13 Bankruptcy if the payments have been satisfactorily made and they can be verified for a one year period. The court trustee’s written approval will also be needed in order to qualify for the loan. The borrower will have to give a full explanation of the bankruptcy with the loan application and must also have re-established good credit, qualify financially and have a good stable job history.

With regard to Chapter 7 bankruptcy, at least two years must have lapsed since the discharge. The borrower must give a full explanation, must qualify financially and have reestablished good credit and have a stable job history.

Foreclosures and Deed in Lieu of Foreclosure

If the borrower has had a foreclosure or deed in lieu of foreclosure within the past three years, the FHA insured mortgages are generally not available to them. However, in cases where the foreclosure was a result of extenuating circumstances, FHA may grant an exception if they have reestablished good credit.

Collections and Judgments

If collections are minor they do not have to be paid off in order to get the loan. Judgments do have to be paid in full and borrowers cannot be delinquent on taxes or student loans. They will not be eligible in those cases.

VA Loans

For detailed information about VA loans, visit the VA Mortgage Center.com. If you are serving in the Military or are a Veteran, you are most likely eligible for a VA Home Loan.
The VA Loan Requirements:
• $0 down payment.
• Must certify that Veteran is occupying home as primary residence.
• No private mortgage insurance required.
• Easier qualification because your loan is guaranteed by the Department of Veteran Affairs
• Loans are available for renovations and energy efficiency updates.
• Farm residences and condominiums are eligible.
• Cannot be used for land loans, investment properties, non-residential items such as houseboats, cars or RVs.
• Not allowed to purchase multiple units unless the Veteran will be using all units as part of his or her primary residence.

VA Loan Limits and Eligibility Guidelines
As of October 10th, 2008, the Veterans’ Benefit Improvement Act of 2008, allows for a $0 down payment on loans in qualified counties up to $729,750 for loans closed through December 31, 2011. For 2009, qualifying customers can now apply for a regular VA Loan with $0 down up to the VA Loan Maximum in qualified counties. There is also a VA Jumbo loan available for qualifying borrowers with a loan limit up to $1,000,000 utilizing the VALoans.com Super Max program. To check the limits in your State, visit the VA website. You must obtain a certificate of eligibility from the military.

Debt to Income Ratio
The maximum debt to income ratio to qualify is 41%.

Credit Issues
Same guidelines as FHA pretty much.

Renting vs. Buying

Buying a Chicago home is an investment. When you rent, you are just tossing money away every month when you write your monthly rent check. Owning your home allows you to deduct your mortgage loan interest on your federal tax return and usually your state tax return. You will also save money on your property tax deduction. Also, you are building up equity in an investment that hopefully will grow over the years. Lastly, you have pride of home ownership. If you do decide to purchase a home, the following is a guide to help you get started with the process:

Steps to Home Buying

Step 1 -Clean up Negative Credit Issues

To start your home buying process, you will need to get a copy of your credit report to see if there are any negative items and to find out what your credit score is. Lenders base their decisions to loan on a borrower’s credit worthiness and ability to pay back the loan. The higher the credit score you have, the better interest rate you will qualify for.

Once you know your credit score, if you find any negative items on your report, you should write to the credit reporting agency and request the negative items be deleted if they have been paid or do not belong to you or any other disputes you may have with the credit. Be sure to explain why the item is incorrect and attach copies of any cancelled checks verifying payment. As soon as you are done with credit items, then it is time to talk to a lender.

There are loan programs available for not so perfect credit scores so don’t be entirely discouraged if your score is not perfect. Ask your lender what loans are available or check online in your area for first time home buyer assistance programs in your City.

Step 2 – Talk to a Lender

Talk to a lender and have them prequalify you for a mortgage so you know what price range to be looking at and what your monthly payments will be. When you do find a property, then you can also figure in the taxes, insurance and if it’s a condo or homeowner association, the monthly or quarterly homeowner dues. If you are working with a Realtor, your Chicago Realtor can recommend a lender to you.

Step 3 – Work with a Realtor

You should work with a knowledgeable Chicago Realtor in your area who can help you with the home buying process and locating a property. Realtors have access to the local MLS and also network with other Realtors and Sellers in the area so it is recommended that you work with a Realtor. There is a lot of paperwork involved in buying a home and a Realtor will be able to assist you with your negotiations and the paperwork. Generally, the seller pays the Realtor’s commission so it is a relatively free service to buyers. Some real estate companies have a nominal administrative processing fee that they charge their customers for storing and handling the paperwork which is usually under $300.00 and payable at closing. Your Realtor will disclose this fee to you at the time you make your offer.

Negotiations and Contingencies

Be sure to negotiate contingencies for inspection and loans in the contract and also review of homeowner documents if applicable. If you are purchasing a short sale property, make sure the offer has a short sale addendum or contingency that the offer is contingent upon the seller’s lender or third party approving the contract. Your Realtor will know what contingencies to include in the contract, but if you are trying to negotiate with the seller yourself, this is very important to make sure you have included the necessary and appropriate contingencies. Pretty much in today’s market, all properties are sold in an “as is” condition, which means the seller is not making any warranties about the condition of the home or its systems. It is up to the buyer to make their own investigations and conduct inspections.

Home Inspections

During your contract period, you will want to have your home inspected by a licensed and certified home inspector. Your Realtor can recommend one to you or you can check the yellow pages or the Internet for a referral. The home inspector will inspect the home and its systems, inside and out and give you a report on the condition of the home with any recommendations for repairs or other inspections that he or she feels is necessary. Knowing the condition of the home you are purchasing is important so there are no surprises after closing. This way you can determine if you want to purchase the home or ask the seller for a price reduction or credits. If the home is sold in an “as is” condition, the seller is not obligated to make the repairs unless they are a health or safety issue or an item that is required by law to be repaired under local City codes and ordinances such as smoke alarms, strapping of water heaters, installation of gas shut off valves or low flow toilets and showerheads. Each city has different rules and regulations. Your home inspector is knowledgeable about this information and will advise you if something is not in compliance.

Title Company and Escrow Holder

You should always use a third party as an escrow holder. The title company or escrow company will act as the escrow holder or the seller’s attorney or buyer’s attorney can be the escrow holder. Be sure you purchase title insurance in case there is a problem with the title or an easement or encroachment issues comes up later after closing. If you have title insurance, the title company will insure the title against any defects. An easement might be something as simple as a shared driveway. An encroachment may be a fence or building encroaching on your property from a neighbor’s property or your fence or building encroaching on the neighbor’s property. A title report or title commitment will be issued by the title company for your review at closing. The title policy will be prepared after closing. All lenders require the buyer purchasing title insurance insuring the lender’s interest as well.

Obtain a Survey

If you are buying a single family home, duplex or commercial property, you will need to obtain a survey which shows you the boundary lines of the property, any easements as discussed above, restrictions such as zoning restrictions, building set back lines, encroachments, whether the property is located in any hazard or flood zones, fire areas, earthquake, wind (hurricane), etc., and is usually certified to the buyer and their lender. There are different kinds of surveys and the prices vary so check around. The lender will usually require a survey except when you are purchasing a condo or townhouse, then you can ask the title company or Realtor to get a copy of the plat map for your review.

Insurance

You will need to obtain insurance for the structure if you are purchasing a single family, duplex, apartment, commercial property, etc. For condos and townhouses, find out if the condo association includes building structure insurance in the dues or if you are responsible to get your own. Also, you will want to insure the inside of your unit for fire, theft, etc. Have your Realtor refer you to an insurance agent to find out what types of insurance you need.

Home Warranty Plan

It is a good idea to purchase a home warranty plan which costs around $375.00 for a condo and $450.00 for a single family home for basic coverage, and there are extra items that you can add on depending on the plan such as roof, swimming pool, etc. For a nominal fee of approximately $50.00 - $75.00, you can call the home warranty company to come out and check the systems that are covered if something breaks, and if the item is included in the home warranty plan, they will fix it or replace it for you. All you have to pay is the service call fee. Your Realtor can give you information on home warranty plans and the prices. You need to purchase the plan at the time you purchase the property or shortly thereafter. Some home warranty companies give you a certain time period after purchase to buy the plan; otherwise the plan is not available if you wait too long.

With tight or literally no financing continuing to wreak havoc on the commercial real market, commercial real estate is losing ground. There is widespread expectation that commercial real estate market prices are going to continue to fall throughout 2009.

Investors are waiting
A report released by the London based research firm Preqin, found that private equity realty funds plan to allocate up to 36%, or $92.5 billion, of the $253 billion in capital they are seeking to distressed real estate opportunities. However, investors seem to be waiting at the moment because they don’t have much incentive right now.

It’s too early in the game and it appears that potential sellers and lenders have not felt enough pressure in the market place yet to offer deep discounts like the residential market. However, they will soon be feeling the effects if the commercial market prices keep falling and tenants file for bankruptcy.

According to Realpoint, a Pennsylvania based credit agency, in January 2009, the commercial mortgage-backed security delinquency rate was at 1.2%, or almost $11 billion. By the end of first quarter 09, Realpoint estimates the delinquency rate to rise to 1.5%, or close to $15 billion.

Shopping Center Tenants/Owners Financially Affected by Chain Stores Closing
Smaller shopping center tenants are being greatly affected by big box chain stores/anchor tenants closing their doors and breaking their leases. Many smaller tenants are filing for bankruptcy according to the National Real Estate Investor. It’s also putting a huge financial strain on the shopping center owners. Just look around and you will see many empty stores in shopping centers and strip malls.

Apartment Owners are Giving Incentives
Many apartment owners are giving incentives such as free rent and low move in costs to fill vacancies.

Distressed Market Until 2010 or 2011
Experts predict that the commercial real estate industry will not rebound until 2010 or 2011, when a large amount of short-term commercial real estate loans reach maturity, commercial property prices have bottomed out and any government intervention will by that time have helped to affect the stability of the commercial real estate market. So expect a number of investors to sit back and wait. The commercial market is in for a stormy time unfortunately.

Chicago Commercial Construction Down
Because of the credit crunch, Chicago Commercial Construction is down and expected to remain stagnant during 2009. Chicago office tenants and building owners are looking to down size their office space to make it more usable and efficient. Cosmetic changes are taking place right now according to many Chicago contractors. Since it’s a tenant’s market, owners have to do whatever it takes to attract good tenants.

According to Transwestern’s 2008 year-end market report, industrial and office construction have suffered significant losses. Industrial space is down approximately two-thirds from last year, with 5 million square feet in progress at the end of 2008, compared to 14.2 million square feet at -end of 2007, according to the report. Office space numbers are not as bad. There are 2.1 million square feet under construction in suburban Chicago, compared to 2.5 million the end of 2007. Construction in Chicago’s central business district is maintaining it same level.

Before buying a Chicago home, you may want to check out the list of local Chicago home buyer programs offered by iTown Realty in partnership with Parlay Mortgage.

Chicago New Condo Developers That are Offering Incentives
Many Chicago Developers are offering incentives and discounted prices in new condo developments around the city. Buyers have taken advantage recently of weekend sales at One Museum Park and Library Tower. Other buildings to check out for buyer incentives are Emerson, CA23, the Chicago Spire, Trump Tower and Michigan Avenue Tower II.

Here are some interesting Chicago neighborhoods that you will want to consider as well:
Northside encompassing Lincoln Park, Lakeview and Wrigleyville.
The Northside boats upscale restaurants, lots of boutiques, and one of the most progressive theatre companies, the Steppenwolf. The older buildings have been transformed into beautiful condos and stylish new apartments are springing up on empty lots as well.

Nearby Wrigley Field adds to the lively atmosphere of the neighborhood bars whether or not the Cubs win. There is also the incredible lakefront, which runs along the Northwide’s eastern border where you will find sand volleyball and a beach bar in the summer.
You will also find Lincoln Park Zoo, Chicago’s second most popular attraction after Navy Pier. Lincoln Park is known for its row houses, which are several small buildings attached to each other on the block De Paul University is also located in Lincoln Park.

Lakeview is on the North Side of Chicago. It is most famous for hosting the World’s Columbian Exposition in 1893. The Hyde Park Hotel was a landmark social center until it burned in a fire in 1879.

The City was named for Hotel Lakeview built in 1853, so the legends say. Lakeview has a diverse culture. The architecture style is both modern and vintage with dating back to the 1800’s. Very charming with a city atmosphere, Lakeview attracts young professionals and 20+. Many families are making Lakeview their home as well.

In Wrigleyville you will find many rehabbed Victorian greystones, two- and three-flat buildings and condominiums. Alta Vista Terrace is known for its beautiful row houses make you feel you are in an old English town.

Rogers Park
Rogers Park is located in the most northern section of Chicago and known for fabulous view properties built next to the beach. It’s the only Chicago community with direct access to Lake Michigan. Also Rogers Park has convenient access to downtown Chicago via Lake Shore Drive. CTA’s Red Line and also access to the suburbs of Chicago. Metra’s train line also offers transportation to downtown Chicago.

There are eight beautiful beaches in Rogers Park as well as many recreational activities such as swimming, boating, fishing and walking around numerous small parks along the lake.
Rogers Park is an eclectic neighborhood that has some great shopping, many cultural influences, terrific restaurants and art and coffee houses, especially along Sheridan Road. In the summer, you will find many family festivals.

Printer’s Row
In the late 1970’s developers saw the potential of developing this neighborhood, which was once the center for printing, into snazzy lofts and condominiums that were once warehouses.

Hyde Park
Hyde Park is located on the South Side of Chicago seven miles south of the Chicago Loop. You will find the University of Chicago in Hyde Park as well as the Hyde Park Art Center, the Museum of Science and Industry, the Oriental Institute and the Renaissance Society. Two U.S. Senators came from Hyde Park, Paul Douglas and Carol Moseley Braun.

Kenwood
Barack Obama owns a Georgian mansion in Kenwood. Kenwood is a mix of old mansions, medium sized homes, vintage flat apartments, some of which have been converted to condos. Known as the Lake Forest of the South Side.

Sauganash
Sauganash is located in northwest of downtown Chicago in the Jefferson Park area. It was named after the Sauganash Hotel (1831). The borders are Devon, Bryn Mawr, Pulaski and Cicero. Many buyers choose Sauganash because of its variety of architectural styles such as Vintage, Cape Cod, Georgian, bungalows, ranch, older frame homes, and of course condominiums and multi-units. Sauganash Park is in the heart of the area and provides a combination of art and sports to the community and it is the reason why many families choose to live here. Sauganash is conveniently located to the Kennedy Expressway (routes 90/94), CTA and the trains.

East Garfield
East Garfield is located on the West Side of Chicago. It has many vintage homes and is centrally located to downtown Chicago with access to two mass transit options. Its great quality and affordable housing developments has transformed into one of Chicago’s hottest neighborhoods. Developers’ rehabs of old vintage buildings and new high-end luxury condos can be found throughout the neighborhood.

South Loop
South Loop runs from Congress Parkway to Cermak Road. It is one of the most dynamic urban neighborhoods in Chicago. Over the past decade, Chicago’s South Loop has transformed into a neighborhood of great homes, good restaurants, and cultural attractions. The transportation system in the South Loop is easy to find with buses, the “L” and trains via Chicago suburbs.

The real estate market has changed over the past 10 years with old structures being rehabbed and mid-rise condos, townhouses, residential and commercial lofts, and high rise condos with world-class amenities. Some of the wealthiest residents in Chicago live here and you will also find some of the poorest residents as well. Expect to find decaying and abandoned buildings in the area too.

The South Loop is more affordable than River North, and it is generally comparable economically to the West Loop. However, the West Loop and River North don’t have as many parks and are further from Lake Michigan than South Loop. If you use those standards, then South Loop is a much more bargain neighborhood. Because of its close proximity to downtown Chicago, it is gaining popularity.

Whether you are an existing homeowner or new home buyer, you will want to explore your mortgage options to take advantage of today’s low interest rates. Let’s discuss mortgage options available to new home buyers:

Home Buyers and First Time Home Buyers’ Options

In today’s mortgage market, if the borrower has good credit and can put down a larger down payment like 25% or more, they will have better results with getting their loan approved.

There are many mortgage products available such as a 30 year fixed, 15 years fixed, 5/1 ARM, 30 year fixed jumbo and 5/1 jumbo ARM. Chicago home buyers should be careful when choosing a variable rate mortgage as the interest rate changes depending on the base interest rate and you may not be able to afford the mortgage payments when the loan readjusts itself if the rates go up. It can also work in borrower’s favor if interest rates go down.

Seller Financing

Some sellers are offering seller financing as an incentive to get buyers to purchase them home that are not otherwise qualified to obtain a traditional mortgage. However all Chicago home buyers should be careful not to get in over their head because that’s what caused this sub-prime mortgage mess to begin with.

Existing Homeowners Options

Reverse Mortgages

A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into a tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. Instead of making monthly payments to a lender, the lender makes payments to the borrower.

Refinance

Refinancing works best on a variable interest rate as long as the interest rate on the new loan is at least one point lower than your existing rate otherwise it is not worth the costs and fees involved that the lender charges to refinance.

Mortgage Modification

Mortgage modifications have become extremely popular these days with homeowners who are upside down on the mortgages. Meaning their mortgage rate reset and they cannot afford the new monthly payments, they have a hardship such as a job loss or pay cut, illness, death in the family or a divorce and need to sell the home, but cannot because they owe more on the mortgage than the home is worth.

When negotiating a mortgage modification, the borrower is asking the lender to reduce the interest rate or extend the loan term and take the default amount and add it to the back end of the mortgage or forgive the default amount entirely. A mortgage modification differs from refinancing because a mortgage modification is a modification of an existing loan and a refinance is an entirely new loan. Also mortgage modifications are granted when the borrower is usually in default and heading for pre-foreclosure or foreclosure. Refinances are given to borrowers that have equity in their property and are not in default.

Short sales can be good investments for your Chicago buyers. Chicago Realtors that are working on short sale transactions should explain to their buyers the short sale process because most buyers are not familiar with short sales.

Short Sale Process

The buyer makes an offer with the seller. The offer is contingent upon the seller’s lender approving the offer. The seller can take other offers from additional buyers and submit all offers to the lender for their approval. The property is usually sold in as is condition. The process can take anywhere from 30 days to 6 months before you get a response from the lender. There is no guarantee that your Chicago buyer’s offer will be approved. The lender may counter to your buyer’s offer and other buyer’s offers at the same time. If your buyer has the time and money to wait, a short sale can be a good investment because the property can be purchased at a discounted price.

Buyer’s Obligations Under the Contract

In the meantime, the buyer must perform their obligations under the contract such as inspections and loan contingencies as if they were purchasing the property. The disadvantage for your Chicago home buyers is that they may incur inspection and loan application and appraisal costs which they will not be reimbursed for if there offer is not approved by the seller’s lender. If the offer is approved, then the transaction will close shortly after lender approval so that is why the buyer must perform under their obligations under the contract so they will be ready to close when the lender says the deal has been approved.

Realtor’s Role

If you are the Chicago listing agent, then you will work closely with the seller, the seller’s lender and the seller’s attorney if applicable. If you are the one negotiating with the seller’s lender, then you must submit the short sale package to the lender on the seller’s behalf or give the seller the short sale package information so that they can submit it. The short sale package should include the following items:

1. Sellers authorization letter allowing a third party to negotiate and receive information on their loan. The third party can be you and the seller’s attorney or one or both.

2. Seller’s hardship letter.

3. Seller’s financial information such as last two paycheck stubs, last two year’s tax returns and W2’s or 1099 statements.

4. Copy of the offer and a copy of your brokerage listing agreement. The lender must approve both. The lender will have to approve the commissions as well. Typically, they end up reducing the commissions so you need to advise the selling agent that they may be getting a lesser commission.

If you are the negotiating party, then you must follow up with the lender on a daily basis to make sure that a negotiator is assigned and that the lender is going to respond to the offer.

If you are the selling agent, then your role is to make sure that the buyer performs his or her obligations under the contract, and keep following up with the listing agent or the seller’s attorney to make sure you are kept aware of the status of the short sale transaction.

In order to assure that your Chicago property purchase is successful, here are 10 steps to follow. First time home buyers will especially find these steps helpful.

1. Make sure you obtain a copy of your credit report and know your credit score. If there are any negative items, try and have them removed first before applying for a loan. Your credit score will affect the interest rate that you are able to obtain.

2. Talk to a mortgage broker or your bank and get pre-qualified. This can be done over the telephone by answering some simple questions and giving the lender your social security number and authorizing them to run your credit report. Then you will know exactly what price range you qualify for and how much your monthly mortgage payment will be.

3. Check the Internet or drive around the area where you want to purchase a home. Narrowing down your home search to begin with will save you time and your Realtor.

4. Work with a knowledgeable Chicago Buyer’s Agent who will represent you and look out for your interests in the transaction.

5. Do your home work and check comparable sales in the area in the last three to six months to make sure you are not over paying for the property. Your Chicago Realtor can do a CMA (comparable market analysis for you) which will tell you what homes have sold for, which homes are under pending contracts and what other homes are listed at in the area.

6. Make sure you or your Realtor negotiate an inspection and loan contingency in your offer so that in case you find out the home needs major repairs or the property does not appraise, which is common these days, you may be able to get out of the contract.

7. Conduct physical inspections on the property you are buying. This means hiring a licensed physical inspector who will give you a report on the property condition so you know what you are getting into in case there are major repairs or other structural issues. Even if the seller is selling the home in an as is condition, you still need to know if there is something wrong with the home so you can decide if you want to purchase it or ask the seller to repair an item or give you a credit towards repairs.

8. Conduct mold, radon gas, asbestos or lead based paint inspections if the physical inspector thinks there might be an issue.

9. Purchase title insurance that protects you against any issues that may come up after the closing such as encroachments or easements, title ownership issues, that type of thing.

10. Be sure to do a final walk thru before the closing to make sure the home is in the condition that you saw it when you made the offer and that it is broom clean. Also, if there are tenants on the property, make sure they have moved out.

The President’s new stimulus bill now allows a tax credit for first time home buyers who purchase a home from Jan. 1, 2009 through Nov. 30, 2009, for up to 10% of the purchase price or $8,000, whichever is less, and the loan does not have to be repaid as long as you stay in the home for at least three years.

The credit is also refundable, which means if you don’t pay that much in taxes annually, you will receive the rest of the total amount as an IRS refund.

This differs from the stimulus credit of $7,500 that was passed by Congress last summer as a part of the Housing Recovery Act, which gave first time home buyers a $7,500 credit that would require that the tax credit be repaid over 15 years. It was basically a no-interest loan.

There seems to be a bit of confusion because first-time homebuyers can treat a credit-eligible purchase that is made during 2009 as a purchase being made on December 31, 2008, which means the credit can be claimed on their 2008 return.

Taxpayers should check with the IRS as to whether they are supposed to use the current Form 5405 to claim the credit or a different form.

This may create some delay for the home buyer to file their 2008 return and get their refund in order to help stimulate the economy though.

New Stimulus Plan – Will It Help to Jump Start Chicago Home Sales?

Hopefully this new version of the tax credit will help the economy and jump start the housing market nationwide again.This is great incentive for first time home buyers who were previously waiting to purchase a home, and should help Chicago home sellers because it will increase the number of home buyers to purchase their Chicago property.

Realtors are already seeing more activity in the market now that interest rates are so low.

Buying a home during the Holidays can be challenging, but also very rewarding. 

Major Pro:

Great Deals!!! - Sellers are usually very motivated if they are selling their home during the holidays.  There is usually a time concern associated with their decision.

Cons:

Trucking around in the bad weather is not always ideal.

If you have children, moving in the middle of the school year can be very challenging.  Your family may have to deal with the stress of moving to a different school, meeting new friends, and organizing new after school activities.

When moving during the Holidays be sure to wear a Smile:) because whether your getting a Great Deal, or dealing with the weather remember that summer is not far away!

If you are a first-time homebuyer, you definitely have the advantage in today’s real estate market. Right now it’s a buyer’s market. This means there is more supply than demand.So once you have made a decision to buy vs. renting, now what?
Well, here is what you can expect.

Where to Starting your Home Buying Search?

According to the National Association of Realtors, 80% of most buyers today start their home search on the Internet. Defining your search criteria is as simple as clicking your computer mouse.

You will want to narrow down your geographic area, price range, and features and amenities. If you have children, then you will also need to choose a location by it’s school district as well, unless you plan on sending your children to private schools out of the area. Most homes that are listed for sale will be listed in the Chicago MLS. There are some properties that are for sale by owners (FSBO’s) that may not be listed in the MLS.

You may also want to drive around the neighborhoods you are interested in and check the newspaper ads as well. But before looking at any property, I recommend choosing a real estate agent to represent you.

Why Work with a Real Estate Agent?

1. Because real estate laws are so complicated these days and there are so many disclosures, it makes sense to work with an experienced real estate professional that knows the ins and outs of buying and selling homes in your area.

2. Finding a good Chicago Realtor to work with will save you time and money in the long run.

3. You should choose an agent that specializes in the geographic area you are interested in because the agent will have special neighborhood knowledge about homes that are for sale and have sold in the area and other market conditions such as price per sq. ft., average days on the market, etc. Your Realtor will be able to help you compare and analyze the information to help you make your offer and purchase your Chicago home.

4. Chicago Realtors network with each other and share information about their listings and properties coming up on the market that are not listed yet. Having an edge about a lead on a property can be quite valuable especially in a seller’s market, where there is more demand than supply.

A Chicago Realtor that specializes in a particular area, may also know about for sale by owner properties or expired listings. Expired listings are properties that were listed, but for whatever reason did not sell.

There is something to be said about the power of a third party negotiator. Your real estate agent will not be emotionally involved in the transaction. It is easier for your real estate agent to be a buffer between you and the seller and the seller’s agent.

Your Chicago real estate agent will be experienced and trained at negotiating and representing your interests by presenting your offer in the best manner and will keep your offer confidential from other buyers’ offers.

Real estate agents handle the paperwork. They are trained professionals who are used to filling out the contracts and are aware of all the disclosure forms that are required in a real estate transaction, unlike the average person, who does not have a clue about completing and negotiating a real estate purchase and sale agreement. Also, there are state and federal laws that need to be complied with that an experienced Chicago real estate agent will have knowledge of. Completing the paperwork correctly in the first place can save you a lot of hassles and money later on. You may also want to have your real estate attorney look over the contract as well.

A Chicago Realtor will be able to help you with the closing paperwork once your offer gets accepted and help you find a good mortgage broker should you need to obtain a loan.

9. Your agent will also be able to refer you to other real estate professionals such as a home inspector and contractor.

Future business relationships. You may need your Chicago real estate agent in the future when you decide you want to trade up or down for another home or a friend or family member needs a referral.

How Do You Obtain a Home Mortgage?

After you have selected your real estate agent, you need to get pre-qualified for a mortgage if you are not going to be paying cash. This means completing an application with a mortgage broker or lender and authorizing them to run your credit report and submitting documentation such as W-2’s or 1099’s and bank statements. Your FICO score and credit will determine what type of loan and the amount you qualify for. I suggest getting a referral from your Realtor, family or friends for a good mortgage broker or lender. The function of a mortgage broker is to put the borrower together with the lender. Once you have been pre-qualified, then you and your Chicago Realtor will know what price range you should concentrate on.

What Does Lock in an Interest Rate Mean?

If interest rates are low you may want to ask your lender to lock in your rate. Since interest rates fluctuate daily, locking in a rate means you are guaranteed that rate on your loan. However, lenders usually will not lock in rates for more than 90 days. Otherwise you can wait and let the rates float. Sometimes that can be a bad strategy if interest rates are higher or going up.

Besides getting an interest rate, you will need to decide on how long of a mortgage period you want. If you are planning to stay in your Chicago home for a long time, then you want a 30-year fixed mortgage.

If you are only planning on staying less than five years, then you want to get an adjustable 5-year arm. There are also interest only loans, which will keep your payments low. You should consult your mortgage broker or lender and let them help you decide which is the best loan program for you.

However, you should not over extend yourself financially. That is what has happened to many borrowers recently with the sub-prime mortgage crisis.

They received adjustable loans which readjusted to higher interest rates and mortgage payments that they could not afford, coupled with the fact that home prices declined. Some borrowers could not afford to sell their homes or make their mortgage payments and have lost them to foreclosure. So be careful when choosing your loan. Read all the fine print, and ask questions if you don’t understand anything. It is a good idea to have your attorney look over the loan documents too.

How Long Does it Take to Close the Transaction?

At the closing, the seller signs over the deed to you. From the time you make an offer until the time you close the deal, the process can take anywhere from 15 days to 90 days. Typically many transactions close after 30 or 45 days depending on the parties needs.

On closing day, the seller officially signs over the house to you and give you the keys.Try and schedule a closing date that is convenient for you. Allow a few days before and after for moving just in case you don’t close on time. If you are renting, I suggest you make the closing date a few days before your lease expires. This way, if the transaction does not close on time you don’t need to move your furniture and personal items into storage.

Your title company and mortgage broker will give you an estimate of your closing costs a few days prior to the closing. Have your Realtor and your attorney review the closing statement. Also go over the costs with your mortgage broker or lender.

You will want to have your Chicago Realtor schedule a final walk through of the property prior to closing. The walk thru is usually a day or two before closing to make sure the home is in the same condition as when you made your offer, and to check if any repairs that you requested have been made.