Sue Fox, @Properties. Direct 773.816.1788
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Archive for the 'First-time buyers' Category
It’s already March 17 — Happy St. Patrick’s Day! — which means Chicago’s spring home-buying season is well underway. And the market is truly bustling right now, with buyers out in droves, making offers and getting ready to close on their new homes.
The government’s first-time home buyer’s tax credit has done wonders for the Chicago housing market, but it expires in six weeks. And that’s exactly why anyone hoping to sell a home in 2010 ought to be hustling that property onto the market as soon as humanly possible.
It’s not just to take advantage of the wave of first-time buyers, who make up half of all buyers nationwide, by some estimates. Many buyers seeking the $8,000 tax credit (or earlier versions of the credit) have already found homes, and hundreds of thousands of them have already closed. But that means that hundreds of thousands of home sellers are now free to go buy something else.
This what I call the move-up theory: When someone sells her $300,000 condo, for example, she is now free to go buy that $450,000 house. Which then frees up the next seller to go buy something else, and so on.
Of course, not every seller has the equity, or perhaps the desire, to buy a more expensive property. But once some people are able to sell, the market loosens up again, breaking the massive real estate logjam that has been strangling our market since 2007. Properties start changing hands again. Sales volume increases. We are already seeing this happening on a broad scale in Chicago.
So if you are considering selling this year, the time is NOW! Many of those move-up buyers are already out and about hunting for their next home, which could mean a healthy late spring/summer for mid-range home sales in the Chicago area.
This week, I’ve invited Joe Burke, VP of Mortgage Lending at Guaranteed Rate, to share his thoughts on short sales. A short sale involves a homeowner who wants to sell but owes more on his/her mortgage than the property is now worth. In order to complete the sale, the homeowner must obtain approval from his lender to “short” the bank. As you can imagine, banks are less than thrilled at this prospect, and they generally take months to respond to a short sale offer — and they often say no.
Here’s Joe’s take on short sales:
So, do you want to make a Buyer’s Agent cringe? Wince? Run screaming for the hills? Just repeat the following to them at your first meeting: “I would like to start my search with Short Sales.”
Now, do you want to hear them laugh out loud? Follow up with “I also want to take advantage of the First Time Home Buyer Credit.”
I’m not kidding here. If you want to see a bunch of frustrated Realtors, just mention working with buyers interested in buying a Short Sale. It’s brutal out there and nobody seems to have the answers. It’s not that they aren’t trying. Every Realtor I know is actively trying to become an expert in working with Lenders and Servicing Agents so they can help potential buyers in the Short Sale and Foreclosure market. But, the obstacles are many and real.
You can search the web for an unlimited amount of information regarding how the Short Sale process is supposed to work, but truthfully, no two transactions are anywhere near the same. Every Lender has their own process for agreeing to a price and closing on a Short Sale. Even more frustrating is that each individual process does not always seem to work the same way twice.
So why all the fuss? Are you really getting a deal if you purchase a Short Sale? Are you really getting a property under market value? The answer varies from Yes to No and all points in between.
Let’s start with Yes. Yes, I have seen some buyers get a “deal” on a Short Sale. But, that’s a deal as defined by me, the lender. I have seen Buyers close on a property and the appraisal come in above the purchase price. I have also seen this take anywhere from six to ten months from offer to close. No kidding, no exaggeration.
Now, No. In most cases, the end Lender or Servicer is working with the same exact data that the Buyer and Listing agent are (and would be working with regardless of whether the Bank was being shorted.) The individual Lender or Servicer has a fixed process and percentage of the loan amount for which they will allow the loan to be shorted. When the Listing agent presents an offer to the Lender/Servicer, they are presenting that offer with a CMA (Comparable Market Analysis) to support the purchase price. If that fits into the percentage for which they will allow the loan to be shorted, in theory at least, the Short Sale is approved. Well, how is that any different from making an offer on a property where the bank isn’t involved? It isn’t any different. The fair market value of the property is still determined by the comparable properties presented, regardless of whether the decision maker is the property owner or the bank.
Now, the Sort Of answer. This is the part that most people don’t understand when it comes to Real Estate. Real Estate is not a fixed or constant market; rather, pricing is fluid. Every time someone gets a “steal” on a property, it affects every other property in the surrounding area, even properties that are not necessarily comparables, by decreasing the price per square foot in a market. This is the same rationale that pushed prices ever higher during the bubble, working in reverse. So, you get a deal and set a new value for properties in your market. The next buyer, for better or worse, will likely do the same to you. The current market is fickle when it comes to value. I have seen the same property appraise out higher and lower than the purchase price in a 12-month period over the last year. That was unheard of until now. There are so few comparables and there is no baseline for pricing, so the fluctuations are exaggerated in a way that we have never seen before.
So, should you look at Short Sales? Foreclosures? Yes, absolutely. I just don’t think you should think of them as being any different as any other property on the market when it comes to pricing. I also think that as a buyer, you need to sit down and put together a very specific plan in terms of time line and expectations. For instance, if you are trying to close in time to qualify for the soon-to-expire tax credit, I think it’s basically out of the question to start looking at Short Sales right now.
If your desire is to play the market and look for that once-in-a-lifetime investment opportunity, then frankly, the tax credit shouldn’t even matter. You are looking for your savings on the purchase price or the opportunity to get into a property that you wouldn’t be able to get in any other market.
— Joe Burke, Guaranteed Rate
Joe can be reached at 773-742-6707 or [email protected]
It’s a tricky time to be using FHA to buy a condo. Most Chicago condo buildings are NOT already FHA-approved, and the Federal Housing Administration recently changed its rules to eliminate “spot” approvals. This means that the whole condo building must be approved before FHA will insure any mortgages there, a process that now takes about a month.
Many buyers are attracted to FHA loans because they require low down payments (just 3.5%). But after a few weeks out looking at condos, people often tire of the FHA game, because (at the moment) it is severely limiting which buildings they can buy in.
But there is an alternative! If you have good credit and can come up with a slightly higher down payment, several Chicago lenders — including Guaranteed Rate and Wintrust Mortgage — are now doing condo loans with just 5% down. Northern Trust is also offering low down payment loans for people with good credit, although that program has some income restrictions.
Eventually, once many condo associations complete the paperwork to become FHA-approved, there will be a broader selection of Chicago condos for FHA buyers. But at the moment, with thousands of first-time buyers trying to close in time to claim their $8,000 tax credit, trying to find an FHA-approved condo in a hurry can be challenging.
Why limit your choices? If you can scrape together a bit more cash, you may be able to qualify for a 5% down mortgage that will work for a much wider selection of properties.
“INCREDIBLE financing incentive!! Spectacular views!! Great values!! Location, location, location!!” So went the email I recently received from the team marketing the SoNo development in Lincoln Park, where the developer and MB Financial have just teamed up to offer an extremely low interest rate for buyers who are able to put at least 10% down.
I’ve written about the price cuts at SoNo in the past (see my June 16, 2009 post), but this new mortgage deal should really light a fire under the remaining units. The developer and MB Financial are now offering a 3.99% interest rate on a 30-year, fixed rate mortgage with no PMI (private mortgage insurance), which is, I must admit, a fabulous deal. But do you want to buy at SoNo?
Almost 70% of the building’s 232 units have now been sold, and prices are quite competitive, with 1-bedrooms starting at $250,900 and 2-bedrooms at $421,900. According to one agent marketing the project, “The developer and building isn’t in any kind of trouble. In fact it’s quite the opposite…It’s a last push to get the project closed out in conjunction with the home buyer tax credit.”
Let it be said that although my @properties colleagues are marketing the project, I have absolutely nothing to do with this development. If you’re interested in living in a new high-rise in Lincoln Park (in this case, a pair of towers near North and Halsted) this could be a good opportunity. The low mortgage rate would save you hundreds of dollars per month, depending on the price of the unit.
If you’re interested in checking out SoNo, give me a call at 773-816-1788.
This week, my sellers finally closed on the sale of their Lincoln Square condo. I say finally because in this case, unfortunately, the couple who was buying the condo ran into some trouble getting an FHA loan. Everything seemed fine when they made an offer in October, but their first lender — A&N Mortgage — could not get the deal done.
We even gave the buyers an extra month to try to secure their loan. But despite what appeared to be solid jobs, good credit and hard work on the part of their loan officer, the loan was ultimately denied. The property fell out of contract and my sellers had to put it back on the market in January.
But wait! These buyers (and their realtor) did not give up. The realtor referred them to another lender — Bank of America, this time — and somehow the BofA mortgage sales manager Tammy Hajjar managed to get their FHA loan approved and closed six weeks later. Same buyers, same jobs, same down payment, same property … but a totally different outcome.
The difference in mortgage lenders, Hajjar said later, is twofold: how thoroughly the lender assembles the loan file (the front end of the process) and the access she/he has to an underwriter (the back end). “There is no room for a lack of detail these days,” she said. “You need someone who is thorough enough on the front side to really submit a good application and financial statements.”
At the same time, large banks like Bank of America, Chase, Wells Fargo and Citibank have in-house underwriters who work for them, so their mortgage lenders can quickly get questions answered. A broker like A&N Mortgage, Hajjar explained, has to “go through an extra step” of submitting the loan to an outside underwriter. That adds another level of interpretation to the loan file — and another place the process could potentially go awry.
This particular condo deal was a stark example of why it’s so important to choose an experienced lender with a track record of getting deals closed. It’s not all about getting the best interest rate (although, of course, this helps!) But many lenders offer comparable rates, and at the end of the day the interest rate is irrelevant if you can’t close the deal.
A good lender will patiently explain loan products and fees to prospective buyers and identify any red flags they see up front. Securing a loan entails crossing many little hurdles along the way, from the appraisal to underwriting, and an experienced lender will be able to navigate his/her way through them. One of the best ways to find a good lender is actually to ask your realtor, because realtors work with lenders all the time and after a while, most of us develop a go-to list of a couple great lenders that we know can get that loan closed.
I regularly refer buyers to a few good lenders I have worked with for years without a hitch. (I get nothing in return for the referral, by the way — except the knowledge that the loan is going to close.) Buyers should make sure their lender knows the business and has a solid record of closing deals, because it could mean the difference between scrapping the deal or moving into your new home.
Congress has already extended and expanded the $8,000 first-time home buyer’s tax credit once, and it’s unclear that lawmakers have the appetite to do so again. So if you are still considering buying a home, you now have about two months left to scoop up thousands of free dollars.
This is a great deal for buyers, but many of them aren’t quite ready to act. Here’s why they should:
1) First-time buyers (who earn up to $125,000 as a single person or $225,000 as a couple) can get $8,000 back on their taxes. This is free money, one of the primary ways the government is helping regular people rather than banks and other corporations. Buyers who have already owned homes can now qualify for a $6,500 tax credit if they purchase a home they intend to occupy.
2) Interest rates are phenomenally low right now. I just had a buyer lock in a rate of 4.83% on a 30-year loan! But we will not see rates of 5% and below for much longer, because the government has already announced its intention to stop buying the mortgage-backed securities that are keeping rates artificially low. Many experts predict mortgage rates will rise half a point to a full point this year, beginning at the end of March.
3) There are tons of real estate bargains out there right now. More foreclosures are hitting the market, holding down prices across the board, and even new condo developments in trendy neighborhoods like River North, Gold Coast, Streeterville, West Loop and the South Loop have seen dramatic price reductions in an effort to attract buyers.
Remember, to qualify for the tax credit you must sign a contract to buy the home by April 30 and close by June 30.
If you are thinking about buying a condo in Chicago, one of the main decisions ahead will be whether you prefer new (and small) or old (and big).
In many neighborhoods like Lakeview, Lincoln Square, Uptown, Andersonville, Edgewater and Rogers Park, it’s as simple as that: The same amount of money can fetch you a new (or, more often, gut-rehabbed) condo or an older, vintage condo with more space. Many buyers want a new kitchen with granite countertops and stainless-steel appliances, so the sleek new developments that feature such amenities (along with new marble-tiled baths with jacuzzi tubs) hold a lot of appeal.
Who can blame them? By the time they’re ready to buy, lots of Chicago dwellers have spent years living in vintage apartments. They have had enough of drafty wooden windows and creaky floors, clanking radiators and outdated kitchens. They don’t want to buy a condo that looks just like their rental apartment. They want something new.
I would say that the majority of condo buyers feel this way, and that’s why Chicago developers have spent the last decade merrily snapping up 90-year-old apartment buildings and converting them into newly-rehabbed condos. But developers are out to make a profit, and the more units they can fit in a building, the more money they make. This is why you rarely see much basement storage space in newer developments; the developer carved up most of the basement into “garden” units (otherwise known as condos in the basement). And even the condos above ground, while they may have lovely fixtures and finishes, are often rather small. The kitchen and living area are often combined, there is no separate dining room, and the second bedrooms are tiny.
How long do you plan to live there? How many people will live there, and are you planning to have children? How big is your furniture, and if it won’t fit are you willing to get rid of it? These are some important considerations when buying a newer condo. I can’t tell you how many times realtors sell a new 2-bedroom condo to a single person who calls them back in three years because now their girlfriend and two dogs have moved in, and they’ve already outgrown it.
So if space is important, consider a vintage condo. There aren’t as many of them out there anymore, but those that remain often feature separate dining rooms, sun rooms, and larger bedrooms. If you want a renovated kitchen, you can always upgrade the interior of your condo.
Still, in most older condo buildings it may be hard to add central air or a washer/dryer to your unit. So before you start condo shopping, think about what is more important to you: amenities or space. Because in the world of Chicago condos, that is often what your decision will boil down to.
Before I head out to a friend’s house for a combo Super Bowl Party/Baby Shower (don’t ask), I just wanted to say… Go Saints!
Actually, I wanted to say that Super Bowl Sunday kicks off our spring season in the land of Chicago home buying. This year, buyers have already been out and about for a solid month — I had six showings today, for two different sets of clients — because many of them hope to take advantage of the $8,000 first-time buyer’s tax credit.
Expect a busy spring for well-priced properties, because the credit is soon to expire. Buyers must have a property under contract by April 30 in order to qualify. This deadline also applies to move-up buyers who qualify for the $6,500 credit for those buying another home.
And you must close by June 30. That said, enjoy the game!
As I’ve noted in past posts, we are now seeing more short sales and foreclosures in areas like Edgewater, Andersonville, Uptown, Lakeview and Lincon Park. While this has been the norm for more than a year in some distressed South side and West side neighborhoods, it’s a recent — and growing — problem in the more affluent neighborhoods up north.
WBEZ, the Chicago public radio station, interviewed me about the trend and broadcast the story this morning. As I tried to point out, buyers should be careful about buying in condo projects where prices have been deeply slashed. I used Catalpa Gardens in Edgewater as an example; there are already 14 short sales and 6 foreclosure filings underway at this nearly new 126-unit building.
Unfortunately, dramatic price cuts by a desperate developer often spell financial ruin for the existing owners. These folks who bought the first units in the building end up so deeply underwater — having paid perhaps 50-100% more than the units now cost — that most of them will be forced into short sales or foreclosures if they need to sell anytime soon. They simply won’t have any other way to repay their loan, with prices so decimated.
That’s not going to be pretty for the newer buyers either, the ones who thought they got a great deal when the developer cut prices. Short sales and foreclosures throughout the building can lead to even lower sales prices if too many units are distressed, and the condo association may also run into trouble if some cash-strapped owners stop paying their monthly assessments.
So be careful out there, all you hungry condo buyers! And call me before you make a move, so we can check out the health of the building first.
Effective Feb. 1, the Federal Housing Administration’s new rules for insuring condo loans are just starting to flummox buyers who had hoped to use an FHA loan. Since FHA requires just 3.5% down, these mortgages have grown increasingly popular in the last year as other low-down-payment options dried up.
But using FHA to buy a condo always involved a few extra spools of red tape. Unless the condo building in question was already FHA-approved, buyers had to seek a “spot approval,” which meant more requirements to be met and paperwork to be filed by both the borrower and the condo association. Now, however, the government has abolished spot approvals.
To obtain an FHA loan now for a Chicago condo (or any other condo), the entire building now must be FHA-approved. This could throw a substantial monkey wrench in the works, as Chicago condo buyers and sellers scramble to win FHA approval in the next few months — especially before the home buyers’ tax credits expire at the end of April!
“I think it’s going to be a few rocky months until everyone gets their arms around this,” a Chase mortgage loan officer told me today. Basically, under the new rules, condo associations better have their ducks in a row or else they are cutting themselves off from approximately 25% of buyers now using FHA.
Among the FHA’s new condo rules:
• The property must be for residential use and occupied by the owner.
• At least 50% of the total units in the project must be sold.
• At least 50% of the units must be owner-occupied or sold to owners who intend to occupy the units.
• No more than 10 percent of the units may be owned by one investor. This will apply to developers who have rented out vacant and unsold units. For two and three-unit condo buildings, no single entity may own more than one unit.
• All of the units, common elements, and facilities within the project must be 100 percent complete.
• No more than 15% of the total units can be late on their condo assessments (more than 30 days past due).
• Projects in designated wetland and flood zones will not qualify for FHA insurance. There are also restrictions on condos located near airports, railroads, highways or landfills.
It’s ironic that FHA is tightening its rules now, with just three months to go until the home buyer’s tax credits expire. Will this push more buyers into single-family homes rather than condos? Or will they make do with the limited list of condo projects that have already earned the FHA approval stamp? Or will buyers will other means scrap FHA altogether and try to get a conventional loan with a bigger down payment?
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