Condo Mortgages - New (not-so-buyer-friendly) Guidelines

Since the market crash we've witnessed throughout 2008 and into 2009, the condo market has become a more risky in the eyes of mortgage lenders. The reason for this is manyfold:

1) Often times, a condo is not the primary residence of its owner. Frequently, people buy condos for investment purposes (to rent out), or as second homes. This isn't so much the case in a major city like Chicago but is often the case elsewhere. The problem with this is that when someone is in trouble financially, their investment property is usually the first to go. Generally, when faced with the inability to pay both mortgages, people will stay in their main home and let their investment property get repossessed by the bank. This has led to a higher number of foreclosures in condo buildings, especially in those that were built with the intention of selling to investors.

2) In an over-saturated market like we're faced with today, condos are tough to sell. For example, the Park Place building in Lakeview (655 Irving Park) currently has 53 units for sale! With about 900 units in the whole building, this means about 6% of the building is for sale. This is not uncommon to see in today's market. The problem is that a lot of big condo buildings are just floor after floor of the same unit. When there are 10 other condos on the market with the same floorplan as yours, the competition really increases, and prices start to come down. Lenders don't like to see this. And if one of those units is foreclosed on, the bank suddenly owns an asset where there is severe downward pressure on it's value.

Because of the increased risk of condo purchases, new Fannie Mae guidelines will be adding a fee of .75% of the loan amount on 30 year mortgages for condos with less than a 25% downpayment. This will be effective April 1, so if you're thinking about buying a condo this year, don't wait around!

Positive Signs in the Housing Market

According to Richard Bove of investment banking firm Ladenburg Thalmann, one of the country's veteran financial analysts, there is a positive dynamic taking shape in the current cycle:

• Bove said he expects “housing prices to stabilize and/or rise (in 2009) after a likely boom in mortgage refinancings as rates fall and loan applications increase.”

• Add in the expected massive economic stimulus package being put together on Capitol Hill with the incoming Obama administration – and there's a good chance we're going to see a gradual transformation of the downward cycle into a slow rebound over the coming several quarters.

• Mortgage rates continue to hover at 50-year lows – 5% and even 4.75% for 30-year mortgages, and still lower for 15- and 20-year mortgage terms.

• There are signs that housing prices are stabilizing in some parts of the country. The latest monthly Federal Housing Finance Agency index found home prices up by 0.6% in the Mountain states and by 0.2% in New England.

• We're all paying a lot less at the gas pump, and sharply discounted prices for retail goods and autos.

• Americans are actually saving again, the national savings rate took a nearly 3% jump last month. That might sound small, but it's hugely important if it is the start of a trend.

Keep your eyes open for the small positive signs that are accumulating out there … because all down cycles tail off and come to an end.

From: http://realtytimes.com/rtpages/20090106_realestateoutlook.htm by Kenneth Harney, Realty Times, Jan. 6, 2009

Changes to First Time Buyer Tax Credit - FREE MONEY!!

Great news for First Time Home Buyers in 2009!! The government proposed on Friday that the $7500 tax credit for first time home buyers will not have to be repaid for homes purchased after January 1, 2009! Originally this credit was essentially an interest-free loan given by the government and repaid over the course of 15 years.

Potential new tax law changes allow for NO REPAYMENT of this loan. It would apply to purchases of homes through July 1, 2009.

Think about it... on a $200,000 mortgage, that means the government will actually be GIVING you more than enough enough to cover a 3.5% down payment on a home (FHA loans still only require 3.5% down). Of course you'll have to front the money at the closing table, but if you file your taxes the next day, you won't have long to wait until that money is refunded to you by the IRS.

Toronto's Little House

Take a look at this one! No doubt it's the smallest house I've ever seen. This comes from an email that has been floating around for about a year saying that this house is in Brooklyn; turns out it's actually in Toronto. It was built in 1912 on the newly paved driveway of a neighborhing home after the city wouldn't allow the curb to be cut to accommodate the new driveway. It sits on a piece of land only about 7 feet wide! The interior is under 300 square feet, smaller than most studio sized condos in Chicago! And it carried a price tag of $179,000.

I'll walk you through a tour of this lovely palace.

This living room has plenty of space for your 12 inch flat screen TV. Good thing, because you're sure to be hosting a lot of guests in this party house!

Bed is here, then its gone, here, gone, here, gone. And what, the mattress is sold separately??

And how smart of them to fit a washer/dryer in the home as well.... I mean, with all that closet space, you're gunna have a lot of clothes to wash...

And then of course even a back patio overlooking the beautiful driveway of the neighbors. How relaxing.

Brown Earth Cow

2009 on the Chinese calendar is the year of the Brown Earth Cow (AKA Ox). On the calendar of real estate, I call it the year for first time homebuyers. In addition to the $7500 first time homebuyer tax credit, there are so many reasons why this year is a great time to jump into the world of homeownership! Home prices have fallen...and fallen...and fallen. Many homeowners in dire need of moving or selling their home have gone to short sale and sold their homes for less than they owe on the property. There comes a point when people decide that the benefit of moving/selling does not surpass the downfall of selling for a lower price, and they take their home off the market. When that moment hits, supply drops - and when it drops enough, that's when prices stop falling. It's just the law of supply and demand, we learned this in high school people!

Well, here's the pertinent info (based on 3rd quarter 2008 data from the Chicago Association of Realtors) - Seriously, READ IT, even if you don't like numbers -

Of 75 Chicago neighborhoods we have data for, 50 of them now have median home prices LOWER than the same quarter in 2004. Only 25 neighborhoods have a higher median price than they did in 2004.

28 (over one third) of the neighborhoods currently have median home prices lower than the same quarter in 2003.

Only going back to 2001 do we see that all neighborhood's prices are higher now than in that year. 2008's median home price is higher than 2001's prices for all 75 of the neighborhoods.

So this is telling me that we're back down to prices from around 2002...

Looking back at historical interest rates, current 30 year fixed mortgages are about the same level they were in 2002. So that means it is no more or less expensive to buy a home for a certain dollar amount.

So I could actually buy a home for the same price at the same interest rate that I could have 6 years ago? And I don't even need Doc Brown's Delorean for it?

If that doesn't give you a reason to save up 3.5% for a downpayment, what will??

Get more info on this Tuesday Jan 27 at 6pm at the Coldwell Banker office located at 1840 N Clark Street in Lincoln Park. It'll be a really good info session, don't miss!!

(This blog post was edited on 1/10 to reflect an error I found in data pull)