Chicago South Side Market Activity – April 2017

Home Prices in Chicago South Real Estate for April 2017

Real estate market data for Chicago south side neighborhoods real estate provided by Millie Lumpkin of Stages Real Estate.

Overall, the Chicago metropolitan area as a whole (as well as the city of Chicago) continues to experience a seller’s market in the 12 months ending April 2017.  The seller’s market in the Chicago area is a trend that started in 2013.  A seller’s market indicates that the supply of homes on the market is tighter compared to buyer demand. The supply of homes in Chicago is 6.0% lower than April 2016 levels.

In the most recent 12 months, the median sales price in Chicago was $220,000 which is an increase of 9.5% over prior April levels. The median days for a listing to get to contract is 23 days overall which is 8% quicker than prior year.  A number of south side neighborhoods are still impacted by high foreclosure activity.

Although the overall market for Chicago remains fairly strong, there are some neighborhoods which experienced a decline in the number of closed sales.   There are also some that have significantly longer time to get to contract. This is often indicative of homes being overpriced.  Just note that market activity may differ across neighborhoods.

Listed below is market activity for detached single family homes in several neighborhoods on the Chicago south side. For other Chicago neighborhoods and suburban areas, click here for full list of market activity by community.

Chicago South Real Estate Market Statistics

Detached Single Family – April 2017 (12 months ending)

chicago south side market activity

Find Homes in Chicago South Real Estate Market

Visit my website to search for homes in the Chicago South real estate market or to be notified when homes come on the market.

To find out what your home is worth in the current market, email me or call/text at (312) 217-5644.

Millie C Lumpkin
Broker
Stages Real Estate
Phone: (312) 217-5644
Email:     millie.lumpkin@gmail.com
Website: ChicagoSouthHomes.com
Blog:       ChicagoSouthRealEstateBlog.com

 

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Are You Planning to Sell in Spring 2017?

 

Many homeowners target spring as their timeframe for selling their home?  For some, spring makes sense in terms of children’s school schedules. Some don’t want to show during the winter months with the mess of snow. Then, many just see spring as the start of the peak season for buyers. All of these are valid reasons. If you plan on selling your home this spring, there are some things you can do now to prepare.

Find Out How Much Your Home Is Worth

Finding out how much your home is worth in the current market really should be your first step when selling your home. It’s a good idea to have an experienced realtor work with you to give you an estimate of your home’s value. There is a lot of information available online in terms of real estate activity. However, a realtor will make sure you are basing your opinion of value on comparable homes and will adjust for differences in the comps that affect the value of your home. This can make a difference if the homes include ones that have been rehabbed or upgraded.  Comparable means similar condition, square footage, style within a certain distance and sold within a certain time frame.

It may be tempting to set your price higher than market value to see if you can get more for your home. However, overpricing your home is not a good idea. Overpriced homes sit on the market longer and often end up selling for less than they could have if initially priced right. Buyers have access to a lot of information about real estate activity. If you have not been in the real estate market even in the last five years, a lot has changed.

Once you know your estimated sales price, you can calculate the expected net proceeds from the sale. The net proceeds reflect the sales price minus the mortgage balance owed, real estate commission, mortgage escrow payments for property taxes and insurance and other closing costs. Your realtor should be able to provide a net sheet with these figures. These net proceeds are what will be available to you for a down payment on your new home or whichever other use you have in mind for the funds.

Determine if Repairs Are Needed

Now is a good time to go through your home and make a list of any repairs are needed. Check for needed plumbing repairs, unfinished DIY projects, holes in the walls, minor mold issues in the laundry room, seeping water in the basement, etc. It might also be a good idea to have the furnace serviced, remove old wallpaper, clean the carpet, buff up the hardwood floors or paint. Even if you are not doing major upgrades, it makes a difference if your home can present as well-maintained.

Do You Need to Declutter?

Clutter can be a real turn off for buyers. You want them to visualize themselves living in your home and clutter is a major obstacle in that picture.  Too much clutter may make your home feel confined.  I’m not necessarily talking messy. Think about the kitchen counter that has canisters, a toaster, dish rack, blender, etc.  You want buyers to see how much counter space and closet space you have.

Also, maximize floor space. Think about the living room that has several over-sized pieces that overwhelm the room — great for living in but not for selling. This is also the time to address the clutter in the basement and garage.  Do it before buyers come through with negative feedback and that clutter causes your home to sit on the market longer.

Curb Appeal Is Important Too

Most buyers today begin their search on-line.  Not only do they start on-line but many buyers will drive by the home before scheduling the showing appointment with their agent. If the exterior of your home is not appealing, many buyers won’t bother making the appointment to see the inside. Early spring is a good time to pull the weeds, add mulch, paint the trim or add some flowers. Another good reason for paying attention to the exterior is to make sure that there is no peeling paint. Buyers with FHA financing may get a flag if there is peeling paint on the exterior (including window and door trims). FHA also considers the garage as part of the home when assessing condition. If the garage roof or gutters are in bad condition, FHA buyers may find it difficult to get financing approved.

How Is Your Exit Plan?

Before you put your home on the market, you may want to check out the market of the new neighborhoods that you are considering for your new home. Are you finding homes that fit your price range? How are the schools? You should also speak to a lender early to make sure of the amount of loan you would be pre-qualified for and whether there are any issues that need to be addressed. Make sure of your exit plan for when your home is sold.

Depending upon your reasons for moving, selling your home can be exciting if it means moving on to a new phase in your life. For some, a growing family is the reason or the financial means to move into a bigger home. However, whether the move is welcome or just a necessary evil, being prepared can make selling your home easier.

 

 

Millie C Lumpkin
Broker
Stages Real Estate
Phone: (312) 217-5644
Email:     millie.lumpkin@gmail.com
Website: ChicagoSouthHomes.com
Blog:       ChicagoSouthRealEstateBlog.com

 

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Are You Planning to Buy in Spring 2017?

 

home for sale

Many potential home buyers still use spring as their target to “start looking” for their new home.  If you are planning to buy your home this spring, there are some things you can do now to be ready to GO in the spring.

Speak to A Mortgage Lender

Speak to a mortgage lender now to see if there are any issues with your credit, debt levels or income. A good loan officer will outline any “tweaks” needed and give you a loan amount you should qualify for if everything is in order.  Qualifying for a mortgage involves more than a good credit score and decent income.  An early start in making sure your finances are in order will make for a less stressful home search later.

In your conversation with your loan officer, you should also have a discussion about the different loan products available. Many people will automatically go for an FHA loan (which is great for a lower down payment) but you should also consider whether the other loan alternatives may be a better option.   Also, are you getting the best interest rate?  Note that there are other loans other than FHA which have lower down payments.  Conventional loans are now available as low as 3% down.  Conventional loans also don’t have many of the property condition requirements that FHA loans have.  Finally, conventional loans definitely make buying a condo or townhome easier.

Loan Down Payment

Regarding the down payment, most loans will require a down payment.  Down payments generally range from 3.5% for FHA up to 20%.  If you don’t already have the money saved, you will need a plan for getting it or closing the gap of what’s needed.  Your loan officer should also let you know about closing costs for your home purchase.  Typical closing costs are mortgage origination fees, attorney costs, escrow of property taxes, etc.  Expect about 3% of the purchase price.  Often, these can be negotiated as part of the offer but not always.  Again, you should have a plan for taking care of this cost.  You may also want to talk to your lender about available public funds (such as the IHDA down payment assistance program).

Interest Rates

Interest rates rose in the last weeks of 2016. In addition, the Federal Reserve announced that it expects to increase rates further in 2017. However, forecasts don’t expect rates to rise past 5% by year end 2017.  The importance for buyers is that an increase in mortgage increase rates may affect the selection of homes that are available to you.

Property Taxes

Property taxes may make a significant difference in how much home you can afford so you want to pay attention to this figure when you are looking at homes. In Chicago, taxes are fairly affordable (especially for homes valued under $250,000).  However, in some of the suburban communities, property taxes can be pretty significant for even modestly priced homes.

Selling Before Buying

If you will need to sell your home before buying, there are some things that make sense to do now. If needed, now may be a good time to do those small repairs around the house that might be issues for potential buyers.  Are there rooms that would show better with a little de-cluttering and fresh paint?  Is your furnace more than 20 years old? Are the harvest gold kitchen appliances screaming from the 80’s?  Is the carpeting soiled or worn?  You may not be in a position to make major investments in the home you are selling but are there affordable investments that will counter the impression of your home being dated or lacking proper maintenance?  The investments made toward improvement or repairs should increase either the marketability or market value of your home.  Talk with a realtor so that you get a feel for the impact of these changes on the marketing of your home.

List of Wants and Needs

Now for the fun part …. Determine your wants and needs for your new home. It will help maximize your home search time if you already have a good idea of what’s important to you.  Think about location, schools, your lifestyle and which architectural styles appeal to you most. Do you want a family room, attached garage, big backyard, updated kitchen, etc?  What are your deal breakers?  The clearer you are in what you want, the easier it is for your real estate agent to help you find your dream home.

Exit Plan from Current Home

Finally, what’s your exit plan for your current residence? If you rent, how will you handle it if you close earlier or later than your lease expiration date?  Do you need to discuss this with your landlord?  If you own your current home, do you need to sell it first? If you are selling your current home, call a trusted realtor to determine the value of your current home and get an idea of what you can expect to net from sales proceeds.

Buying a home requires some planning.  If you’d like a consultation to discuss buying your new home, please contact me.

Millie C Lumpkin
Broker
Stages Real Estate
Phone: (312) 217-5644
Email:     millie.lumpkin@gmail.com
Website: ChicagoSouthHomes.com
Blog:       ChicagoSouthRealEstateBlog.com

 

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Is it a good idea to remodel before selling?

couple-remodeling-home
Is it a good idea to remodel before you put your home on the market?  The answer …. “It depends.”

The goals with remodeling your home before selling it are to increase the value of your home and to attract more buyers.  Generally, upgrades to your home should achieve both goals.  However, before starting a major remodeling project, start with a walk through of your home.  Are there repair projects or other deferred maintenance that need to be addressed?  Are there cheaper updates that can increase value without a major outlay of cash.  You may want to start with the lower cost projects rather than an extensive kitchen or basement remodel.

Deferred Maintenance / Repair Projects:

There are three primary issues created from deferred maintenance or repair issues in the sale of your home. First, deferred maintenance and needed repairs can reduce the value of your home.  Secondly, buyers may either pass over your home or discount their offer price based on condition. Finally, these property condition issues might present a flag for the buyer’s appraisal or home inspection.  For an FHA appraisal, property conditions can prevent the sale if they fail FHA property standards. In addition, in many suburban Chicago areas, villages perform an inspection prior to sale. A poor village inspection can also block the sale.

Some deferred maintenance/repair projects to consider include:

  • Check the roof, gutter and downspouts (for both the house and garage)
  • Service the furnace
  • Fix any plumbing issues
  • Removal of mold or mildew
  • Repair any holes in the walls, windows or screens
  • Peeling paint around exterior windows or doors (FHA flag)
  • Check the deck and porch
  • Unfinished projects
Cheaper Updates

There are also some cheaper “updates” or projects that can result in a higher value for your home or at least increase the pool of buyers.  remodel homeThese projects can include:

  • DEEP CLEAN if needed
  • PURGE the excess and clutter to create the feeling of more space
  • Paint – fresh paint can go a long way to make your home feel less dated. This includes painting over that old wood paneling in the basement.
  • Remove old wallpaper and wallpaper borders
  • Replace the carpeting or get a good commercial cleaning (if there are hardwood floors under the carpeting, consider pulling it up)
  • New kitchen appliances
  • Sand and refinish the hardwood floors if stained or damaged
  • Change or add kitchen backsplash
  • Replace old vinyl tile flooring in kitchen or bath
  • Replace older faucets in the kitchen and bath
  • Replace kitchen cabinet door handles or pulls
Remodeling

There is no question that a quality remodel will generally increase the value of your home and attractiveness to buyers. However, before embarking, check out other homes in your area to see how much updating is expected in your neighborhood. If granite is not the norm or expected, then save your money and go with laminate counters.  This is a guard against “over-improvement”.

You also want to know upfront how much of an increase in value can be expected from your remodel. Consult with a real estate agent to pull comps of improved homes.  You don’t want to spend too much on improvements that are not justified by an increase in market value.   Again, guard against “over-improvement.

One last word on the decision about remodeling. There are many investors with the resources to do a complete “gut rehab” for the homes they “fix and flip”.  When you are comparing to sold properties in your neighborhood, choose those with similar condition and quality of remodeling. Don’t expect a “high end” price unless your improvements merit the comparison.  This frontend market research can aid you in directing your sweat and funds to projects that make the most sense.

Millie C Lumpkin
Broker
Stages Real Estate
Phone: (312) 217-5644
Email:     millie.lumpkin@gmail.com
Website: ChicagoSouthHomes.com
Blog:       ChicagoSouthRealEstateBlog.com

 

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Do You Need to Buy and Sell Your Home at the Same Time – Don’t Stress.

 

buy sell home

The process of buying your new home is way more complicated when you have to sell your current home too. Many homeowners are either intimidated or confused about the process but you can avoid some of the stress.

The ideal situation, of course, is to be able to purchase your new home first and then deal with selling down the line.  However, for most people, that is not realistic. Unless your current loan is paid off, you would be responsible for paying two mortgages.  In addition, outside of the financial burden, two mortgages are also likely to kick your debt to income ratio above acceptable levels for mortgage qualification.

Most buyers will need to buy and sell simultaneously.  This is doable with some advance planning.

Know the Market First

Before you start, make sure you have a solid understanding of both  the local housing market where you live and where you are planning to buy.  Is the market weighted toward buyers or sellers? This will affect both the pricing strategy for selling your home and set expectations for buying in the new location. You’ll also want to have a market analysis or appraisal done for your current home so that you have an estimate of the market value and expected proceeds from the sale of your home.  You’ll want to be sure that the proceeds from the sale of your home can not only pay off your existing mortgage but leave enough for the funds needed to purchase your new home.

Talk to a Lender

Mortgage guidelines have likely changed since you bought your current home.  Your credit score and income might be great but if you bought during the housing bubble, you’ll find the process and guidelines much tighter than before.  Income documentation, debt to income ratios, impact of student loans are all things that may have changed and may impact your loan qualification. The lender will also be able to let you know the loan amount that you qualify for.

Decide Whether You Will Buy or Sell First

Should you buy first, then sell – or vice versa? Both options have their pros and cons.  Selling first makes getting a mortgage easier, but it also means you’ll need to find a temporary place to live.  Buying first means moving will be easier but you’ll be carrying two mortgages. This may not be financially feasible and it may make it harder to you to qualify for a new loan. Whichever order you decide, figure out how you will handle any wrinkles that may arise.

Know Your Solutions

If you are selling first, you’ll need to plan for the storage of your stuff and find options for a short term rental. One possible option to avoid two moves is the inclusion of a post-close possession clause in the contract.  With this option, you would make an agreement with the buyer of your home that allows you to stay in your home after closing and pay rent to the buyer for the period of time needed for you to close on your new home. This option may be less likely to succeed in a buyer’s market where the greater supply of available homes gives buyers less incentive to make this compromise.

If you are buying first, there are a couple of different options to decrease your financial burden and risk:

  1. Contingency on the Sale of Your Home – You may be able to include a contingency in the purchase contract where there is an agreement that the purchase of your new home is contingent on the sale of your existing real estate. This is more acceptable to the seller if you already have an accepted contract on your existing  home.  The option may be a challenge in a seller’s market where the stricter supply of homes favor sellers and make them less likely to make the compromise.
  2. Bridge Loan – A bridge loan is a short term loan that gives you the additional funds needed to carry two loans. The loan would be paid off from the proceeds of the sale of your existing home.  You would need to make sure that the sales proceeds allow you the funds needed to purchase the new home and pay off the bridge loan.  Do your research before committing to this option.

Don’t Let Fear Push You into a Bad Decision

Some of the uncertainty in this process can be managed by planning carefully. As stated above, know your market so you can price your home appropriately which should reduce the time on market. Take the extra step of getting pre-approved for your home loan rather than just pre-qualified. Also, plan upfront for the potential of things not going smoothly so that you won’t be forced into making a bad decision.  You may want to know your options for a short term rental (or staying with family) in case you end up selling before taking possession of your new home. Finally, have more than one home in your basket of alternatives for purchase in case there is a problem with your first choice.  If you don’t plan, you may feel forced into accepting a low bid on your current home or compromising on the things you want in your new home.

Selling and buying a house simultaneously can be stressful – but careful considering and planning can help mitigate the stress.

Millie C Lumpkin
Broker
Stages Real Estate
Phone: (312) 217-5644
Email:     millie.lumpkin@gmail.com
Website: ChicagoSouthHomes.com
Blog:       ChicagoSouthRealEstateBlog.com

 

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Renting vs Buying Your Next Home

Renting vs Buying Your Next Home

renting vs buying

Renting vs buying your next home is completely a personal decision.  There is no right or wrong just what feels right or wrong for you.  Each option has its own set of pros and cons.

Pros of Renting:

  1. Not tied to the home – if you are new to a city and unfamiliar with the different neighborhoods, renting allows you to get to know your new home city before settling on a neighborhood or subdivision.
  2. Your desired neighborhood or community is too expensive for you to buy in but there are affordable rental options.
  3. Not responsible for home maintenance – renting puts the responsibility of home maintenance on the landlord

Cons of Renting:

  1. Limited control – it’s the landlord’s property so he/she makes decisions about whether you can paint the walls or have family or friends move in temporarily.  They also control how quickly things are updated or repaired.
  2. No tax deductions on rent – Your landlord gets the tax benefit from owning the home not the tenant.
  3. No control over paying the mortgage – You are paying for the right to occupy the space.  However, the landlord is responsible for paying the mortgage. This was a harsh reality during the foreclosure crisis. There were many instances during the crisis where the tenant responsibly paid the rent but the landlord was not as responsible about paying the mortgage.

Just as renting can be the right decision for some, buying your next home can be the right decision for others.

Pros of Buying:

  1. Your monthly mortgage payment is often less than rent – the mortgage (principal + interest) for a $200,000 home in today’s market is less than $900 per month. Interest rates are typically less than 4%. Even with property taxes included, your monthly mortgage can be significantly less than rent for a similar home.
  2. A monthly mortgage is a fixed payment compared to a rental payment which often has an annual increase. You can also pay off the mortgage and eliminate the expense (leaving just the property taxes). Renting is a perpetual expense.
  3. Owning a home often gives an increased sense of stability. Homeowners generally feel a stronger commitment to the community and feel more security about their home.
  4. Control over your property – paint the walls polka dot, upgrade the kitchen or feel free to have guests and family move in for a few weeks or a few months.
  5. Tax benefits – owning a home allows deductions for mortgage interest and property taxes which can be significant. This is an important benefit for many people.

Cons of Buying

  1. Short term costs of buying – although the monthly payment may be less than renting, buying a home involves having enough for the initial down payment and closing costs. Many renters find it difficult to save for the initial costs of buying a home.
  2. Home Maintenance – if there’s a leak in the pipes or the furnace goes bad, you are responsible as the homeowner.
  3. Tied to the home – there is less flexibility in terms of moving when you own versus rent.  Relocating for a job or changing neighborhoods for a better school district is more complicated when you have to sell before moving.

There’s just no right decision in regards to renting vs buying your next home. It just depends upon what’s important in your life and what are your current circumstances.

Millie C Lumpkin
Broker
Stages Real Estate
Phone: (312) 217-5644
Email:     millie.lumpkin@gmail.com
Website: ChicagoSouthHomes.com
Blog:       ChicagoSouthRealEstateBlog.com

 

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Chicago Condo Market Stats – July 2016

Home Prices in Chicago South Real Estate for July 2016 – Condos/Townhouses

Real estate market data for Chicago South real estate provided by Millie Lumpkin of Coldwell Banker Residential.

The Chicago metropolitan area condo market continues to experience a seller’s market with a median sales price for twelve months ending July 2016 of $183,500. This was 4.9% over prior year levels.

In Chicago, the median sales price for the condo/townhouse market is $305,000, a 0.3% increase over prior year levels. In addition to the basically flat price growth, the number of closed sales was a modest 2.8% higher than prior year levels.  The average days on market for Chicago condo/townhomes is 74 days.

The median sales price for Chicago overall is heavily weighted by condo prices on the north side and the Loop area.  These areas contain roughly 2/3 of the condo inventory in the city of Chicago.   These neighborhoods also tend to have a lower supply of inventory in relation to demand.

The inventory of condos in some south side neighborhoods reflect a more balanced supply than the citywide average of 3.3 months of supply.  Bridgeport, Bronzeville, Kenwood and South Shore have supply levels compared to be in balance with buyer demand.  The impact of higher supply in these areas appears to have resulted in average days on market in some neighborhoods to be significantly higher than the citywide average.

Listed below are some select neighborhoods south of the Loop.  For other Chicago neighborhoods and suburban areas, click here for full list of market activity by community for condos/townhomes.

 chicago condo market stats july 2016

 

Find Homes in Chicago South Real Estate Condo Market

Visit my website to search for homes in the Chicago condo market or to be notified when homes come on the market.

To find out what your home is worth in the current market, email me or call/text at (312) 217-5644.

Source: Midwest Real Estate Data

Millie C Lumpkin
Broker
Stages Real Estate
Phone: (312) 217-5644
Email:     millie.lumpkin@gmail.com
Website: ChicagoSouthHomes.com
Blog:       ChicagoSouthRealEstateBlog.com

 

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The Perils of Over Pricing Your Home

pricing home to sell

“I Don’t Want To Give My Home Away!”

In almost every conversation I have with potential sellers, the conversation begins with the line “I’m not going to give my home away!!”   Despite the comps, there is the perception that they are being cheated on the price.  Typically, the conversation will include a list of all the past projects and improvements made on the house.  If it was purchased during the peak of the market, the owner will mention how much they paid for it.  There is also, of course, the issue of the seller’s plans for the sales proceeds. You want to price your home to sell.

Market valuation– whether you are talking about stocks, cars, housing or anything else—is determined by what buyers are willing to pay.  The price that buyers are willing to pay is primarily based on the asking and sold prices of alternate choices.  If a buyer can buy a similar home in the same neighborhood for less, they will choose the alternative.  In addition, in order for the home to be financed by the buyer’s lender, the sales price must be supported by the appraised value (value indicated by comparable sales).

You are not giving your home away if you sell it at market value.  However, you can be guilty of giving away some of your price if it is listed too high. If you insist on initially pricing your home higher than the market value, you give away some of your price because over time buyers lose interest and view homes on the market longer with a perception of declined value. In fact, small incremental price changes often result in homes being sold at less than market value.   As a seller, you want to capture buyers at the peak of interest.  This is usually the first few days on the market.

You also might be guilty of giving away a little bit of your price when your home is not presented well.   Exterior curb appeal and a nice interior help your home stand out in any market.  Although the current market has a tighter inventory of homes, buyers can still be picky.  This is a big investment for buyers.  Most buyers prefer a home that is in better condition so a little sprucing up helps in marketing your home. Also, with the internet, many buyers will drive by the home before requesting a showing. An unappealing exterior view will stop some buyers from asking to see the inside.

Finally, you may be giving away some of your price if you don’t allow interior pictures.  Most buyers start on-line and interior pictures are a big part of marketing your home on the internet.  It is documented that homes with few or no pictures are not clicked on (viewed) as often as those with more interior pictures.  Buyers and even some agents assume that a lack of interior pictures is an indication of problems with the condition of the home.  They never even request the showing to see how lovely your home actually is.  You want your home properly marketed in the place where buyers are looking.

For those still focused on the costs of past improvements and projects of their home, you just have to let go of the idea that you will get a dollar for dollar return for those past expenditures.  Actually, in most cases, you never get a 100% return of your costs.  What those projects will do is make your home more attractive to buyers. Also, homes in a better condition or with upgrades will sell at a higher price than one still sporting that 90’s sponge painting treatment or evidence of needed repairs.

As a seller, you are marketing a product. Put yourself in the shoes of a buyer. Based on the available choices, would you pay what you are asking for?? 

Millie C Lumpkin
Broker
Stages Real Estate
Phone: (312) 217-5644
Email:     millie.lumpkin@gmail.com
Website: ChicagoSouthHomes.com
Blog:       ChicagoSouthRealEstateBlog.com

 

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Are You Financially Prepared to Buy Your New Home?

home financing

In general conversation, there is a lot of emphasis put on the credit score when it comes to discussing financing qualifications. However, this is not your only concern in being financially qualified to buy.

  • Down payment – The days of no down payment are largely gone. Lenders expect you to have some “skin in the game” when purchasing a home. Expect to need 3.5% for FHA loan. Conventional loans will require down payments ranging from 3-20%.  Note also that there may be down payment assistance programs available. Your lender should be able to advise you on the availability of programs.  Although the loan product will define the minimal down payment needed, keep in mind that a higher down payment will lower your monthly mortgage payment.
  • Closing costs – Closing costs for buyers include such expenses as attorney and appraisal fees, loan fees, title costs, property tax and insurance escrow. Expect this to be 3-6% of the purchase price.  Often negotiations with the seller include asking that the seller either partially or completely pay for these costs but that is not a guaranteed outcome.
  • Debt levels – Lenders will require that your debt levels be limited to a certain percentage of your income. For FHA loans, your housing costs should generally be no higher than 31% of your gross monthly income.  Housing costs include Principal, Interest, Taxes and Insurance (PITI). Total revolving debt (housing costs plus credit cards and loans) should be no higher than 43% of gross monthly income.  If you carry high amounts of debt, this is the time to start paying it down.  The ratios for conventional loans are even stricter.  Housing costs should be 28%. Total revolving debt is limited to 36%.  Conventional and VA loans have different ratios.  Speak to your lender to see if you need to reduce your debt in order to qualify for the desired loan product.
  • Credit report – Different loan products have different credit score requirements. Credit scores for FHA can be as low as 620.  Credit score requirements for condos are generally higher.  In addition to the score, the specifics of the credit report are also important. Late payments, bankruptcies, judgments and previous foreclosures also affect whether you will qualify for a home loan.  FHA has more lenient qualifications than conventional but recent late payments will knock you out of consideration.
  • Income – Income will be based on your average adjusted gross income (per your tax returns) for the last two years. This becomes an issue if your income has varied widely in the last two years or if you have tax deductions which significantly lower your adjustable income (not usually a concern for W-2 employees).
  • Interest rate – Interest rates remain at historically low levels. They are expected to rise so you should be aware of the impact of interest rates on your monthly mortgage payment.  Information is easily available on line about what to expect in terms of the interest rate on your mortgage.  Note though that interest rates change constantly and your individual credit score and other qualifying factors may impact the interest rate you pay.

The above is meant to give you a basic grounding for getting your finances in place to purchase your home.  It is best to meet with a lender early in the process.  In addition to assessing your qualifications, a lender will give you a dollar amount of how much you can expect to get.  You will also need a prequalification letter in hand in order to submit an offer.

On top of whatever you are told by your lender, you also need to look at your individual obligations.  You need to factor in tuition payments, child care costs, retirement savings, emergency savings and any other obligation that determines how much you can afford to pay for a mortgage.  These are not included in the bank’s debt to income calculation but may be part of your monthly household budget.

It’s a lot to consider but buying a home should not be an impulse decision.  It is an absolutely great time to buy.  Rates are still historically low and prices are still great.  This is an incredible time to buy that dream home, downsize, purchase an investment property or second home.  Seize the moment!

Millie C Lumpkin
Broker
Stages Real Estate
Phone: (312) 217-5644
Email:     millie.lumpkin@gmail.com
Website: ChicagoSouthHomes.com
Blog:       ChicagoSouthRealEstateBlog.com

 

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Different Inspections in Home Buying Process   

 

home inspections

You’ve finally found the home you wanted and have an accepted contract.  There is a flurry of activities done in the first few days and there may be some confusion about the significance of why certain things matter.

One thing that confuses some home buyers is the difference between the different inspections needed during the home buying process.

Home Inspection

The initial home inspection is done during the first few days after the contract is accepted.  This inspection in Illinois is not mandatory but it is very highly recommended.  This is where you hire a home inspector to inspect the home’s systems such as the heating and cooling, plumbing, and electrical systems. He is also looking for items of concern – signs of leaks, structural problems in the basement, future or immediate repair items.  Finally, he will give you tips on home maintenance and where things like the main water valve and stuff like that is located.  This is also your opportunity to ask questions.  The home inspection should be scheduled at a time where it is convenient for you to attend.  Occasionally, a client will ask me as an agent to attend the inspection for them.  This makes no sense.  As a homeowner, you will want the information first-hand from the inspector.

The inspector will create a report that you can reference later.  The information is good in three ways. First, the information is good for you to reference once you are in the home from a home maintenance standpoint.  Second, if the items that need repair or improvement are more than you want to take on, this is your opportunity to withdraw your offer.  Generally, the inspector will not provide a quote for the repairs but can let you know if costs to repair are likely to be significant.  Finally, you may want to negotiate with the seller to repair some items.  The inspection report can be your guide to determine which issues are the most problematic and identify the deal breakers if not repaired.

Expect to pay on average $300-500 for the home inspection. Some home buyers are tempted to pass on the inspection if the home looks well maintained or if it is a rehab.  However, this may end up being a mistake.  It is worth $300-500 to find out if the roof needs to be replaced or there is structural damage in the basement.

Appraisal Inspection

The appraisal inspection is ordered by your lender for the primary purpose of determining an opinion of value for the home.  The value is determined by comparing your home to other similar or comparable homes sold recently within the same neighborhood with similar square footage, room count and architectural style.  The appraiser is not an inspector.  They will check whether the furnace is working or utilities are on but won’t be able to tell you if there are functional problems.  If you are getting a FHA or VA loan, the appraiser will also check to ensure that the home meets the property condition standards required for these loans.  FHA and VA loans require that homes not have peeling paint, missing handrails for the stairs, holes in the wall, damaged roof or gutters, etc.  If the property conditions for a home do not meet FHA standards, the lender will require correction of the issues by the seller or a 203K loan which will provide the funds to fix the problems after you move in.  You do not have the option of buying “as-is” for the items flagged in the FHA appraisal report.  Note that conventional loans do have some property condition standards but they are not as extensive as FHA/VA.

In addition to the appraisal inspection flagging property condition issues, there can also be a problem with the appraised value being lower than the sold price.  The lender will not approve a mortgage on a home that has a sales price higher than the appraised value.  For this reason, your realtor should have provided you with a market valuation prior to making your offer on the home to ensure that your offer price is in line with the market value. Many deals are lost because of appraised value.  It’s often a difficult conversation to ask the seller to reduce the price because of a lower appraised value and often sellers are reluctant to do so.

The cost of the appraisal should be between $300-400.  The appraisal is ordered by the lender.

Again, the primary purpose for the appraisal inspection is to set an opinion of value for the lender. It is not to assure the home buyer regarding the condition of the home.

Village Inspection

The city of Chicago does not require an inspection prior to sale but many of the suburban communities do.  Check with the village where you are purchasing to see what additional requirements are needed.  As a note, some suburbs are stricter than others so don’t wait to take care of village inspection.  The village inspection should not be considered as a substitute for a home inspection.  Home inspectors are licensed by the state and have continuing education requirements to maintain knowledge.

Millie C Lumpkin
Broker
Stages Real Estate
Phone: (312) 217-5644
Email:     millie.lumpkin@gmail.com
Website: ChicagoSouthHomes.com
Blog:       ChicagoSouthRealEstateBlog.com

 

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