Late last year the FHA let it be known that their reserves had dropped below 2%.  As Congress set this minimum the news that the reserves had dropped below it spawned a call to bolster the weakening FHA.  Currently a vast majority of new home buyers purchase their first home with FHA loans.  As such any changes to the FHA will undoubtedly effect this huge group of potential new buyers.  While no changes have been announced yet, the National Association of Realtors claims this week we will see major changes to the program.  This announcement comes after months of delay and while Congress and the powers that be have the best intentions the proposed changes have many people a little worried.

Their goal is to improve loan quality, increase mortgage insurance premiums, change requirements for lender eligibility, and overhaul it’s approach to risk management.  Here is a break down of the FHA guidelines now from the buyer’s perspective.

FHA Borrower Guidelines Now:
-3.5% Minimum down payment
-Money may be gifted at any amount
-Borrower can ask for up to 6% closing cost credits from the seller
-Minimum credit score of borrower: 620
-Up-front premiums are currently 1.75%
-Up-front insurance premiums (MIP) can be financed

Possible New FHA Guidelines:
-3.5% minimum down payment - remain the same or slightly higher
-Money may still be gifted
-Reduction of closing cost credits (seller concessions) to as little as 3%
-Higher credit score requirement
-Raise up-front Premiums to 2.25%
-Borrowers may no longer be able to finance up-front insurance premiums
-Impose a loan-to-value maximum based on credit score

Let’s discuss a few of these changes:

Down Payment
First of all, the down payment requirement of 3.5% has been one of the most attractive features of FHA loans.  Combined with closing cost credits of up to 6% of the loan value a buyer could essentially buy with almost no money out of pocket.  This seems great from the buyer’s perspective however starting off upside down on a mortgage is a scary concept to those who look at the bigger picture, especially given that thousands of similar loan scenarios are written every day.

Closing Cost Credits
As it stands a borrower can ask for up to 6% closing cost credits from the seller.  If the closing costs do not equal 6% of the purchase price a borrower is not entitled to the remainder.  That is, there is no “keep the change” provision.  Currently,  at least in the Chicago market, it is rare that closing costs would go anywhere near the 6% mark.  As such a reduction to 3% would only effect a portion of those seeking FHA loans.  This is because of two reasons: Not every negotiation results in closing costs being granted to the seller and when they are, not all negotiations result in the full 6%.  For those who would benefit from the 6% they will be the most significantly impacted and in some cases may not be able to move forward with their purchase.

Higher Credit Score Requirements
Right now there are some potential home buyers that have a lot of money to put down but have for one reason or another acquired a blemish or blemishes on their credit report and do not qualify for a conventional mortgage despite their large down payment.  Currently these type of people have one way to go; FHA.  If the minimum credit score is raised it is conceivable that a buyer looking to put down, say 30-50% may not be able to qualify for a mortgage because of that $200 medical collection they’ve had since college, or the divorce they had two years ago, etc.  While it is true that credit improvement efforts may be enacted many of those efforts may not come to fruition in time for the buyer to take advantage of the low prices and interest rates that were motivating them to buy now, when we need it most.

Loan-To-Value Ratios Based on Credit Score
While it is easy to understand the motivation behind this change it may have similar effects as the previous example by eliminating those home buyers that had an unfortunate event lower their credit score but not diminish their ability to pay a mortgage.   There are so many examples of scenarios that can ruin a person’s credit that have nothing to do with their ability to pay their bills and this change could prevent them from obtaining the one type of loan that could get them in a home.

Increase MIP and Elimination of the Ability to Finance MIP
The MIP is basically the FHA’s version of mortgage insurance.  As it currently stands the borrower may finance this expense and therefore does not have to come up with this money out of pocket.  This proposed change would not only increase this expense by half a percent, it would take away the borrower’s ability to finance it.  It goes without saying that this would eliminate potential new home buyers due to insufficient capital to close.

Over all these changes mean one thing for the borrower and potential new home owner; MUCH higher higher out-of-pocket expenses.  Conversely it means a much more secure future for the FHA program and therefore a more stable and accountable system for those who do still qualify.  It is hard to deny the importance of a more stable housing sector.  That said, buyers, sellers, Realtors and mortgage brokers must prepare themselves for these, and other unannounced changes to come to fruition and change the playing field.  One thing of note is that these changes may only be temporary to pull the FHA out of it’s sagging financial situation, but they’re not making any promises one way or the other.  Whether or not these changes will be enough to slow down an already struggling housing market remains to be seen.

Does your Chicago home have a hot water recirculation system? If not, you may be missing out on an opportunity to save money on your utilities bill this January.

A hot water recirculation pump is a device that delivers hot water to faucets faster than the usual low-pressure system. In speeding up the process, you get hot water within seconds of turning on your faucet. This conserves water because you no longer have to let the water run for minutes at a time while waiting for the temperature to go up. It also saves energy because you can set the device to only run when you need it (for example in the evening before you do the dinner dishes). There is an on/off switch that allows you to manually turn on the pump, or the devices often have a timer or thermostat that lets you set the pump to automatically go on and off when desired.

The system also takes water that has been sitting in the hot water lines and has already cooled and sends it back to the hot water heating tank via the cold water line. So the water is recycled rather than discarded through the drain, which is what happens when you run water through the faucet waiting for it to heat up. By some accounts, adding a hot water recirculation pump can save up to 10,000 gallons of water annually (dependent on the size of your home).

The hot water recirculation pump can be used with your current setup and should not require any alterations to your plumbing system. Handy homeowners can probably install the pump on their own. But less experienced do-it-yourselfers may want to consult a professional. The recirculation pump system can be retrofit to your existing plumbing for as little as $200. You should be able to purchase the components at any big box home improvement store or online.

The big benefit of a hot water recirculation pump may be to reduce water consumption and decrease energy use… but just think how nice it will be to have that hot water ready and waiting on those cold wintry days!

Are you thinking about putting your Chicago home on the market? Here is some helpful advice on what your listing should include and how to make it as attention-grabbing as possible.

1.) Include a well-written, error-free detailed description of your Chicago home. Mention the most enticing features upfront (think about what attracted you to the property when you bought it) and try to paint a picture for people reading the listing.

2.) Post property photographs that were taken with sufficient light and good composition. The angle, steadiness and lens of the camera can greatly affect how your property looks, so have a professional do the job to get pictures that really showoff your Chicago home.

3.) Put your listing on the Chicago MLS. This will be done by your listing agent. It ensures your listing is part of the main database of homes for sale in the Chicago area. The MLS is used by realtors to list properties for their sellers and locate properties of interest for their buyer clients. Consumers can also access these listings through certain Chicago real estate websites.

4.) Provide complete property detail information. The more info you display in the listing, the more likely you are to get buyers who are seriously interested in what your home offers – as opposed to those who realize when they arrive that the property doesn’t have the attached garage they wanted, for example.

5.) Explore additional opportunities to get your listing more online exposure. Before hiring a listing agent, inquire about their web site’s Internet ranking and how they can promote your property through email blasts, web positioning and other e-marketing options.

An extension of the homebuyer tax credit was enacted in early November. It is now available until April 30, 2010. The credit was also expanded to include “move-up” and “trade-in” buyers. Non-first-time buyers must have owned and lived in their current home for at least 5 consecutive years of the last 8 to be eligible. First-time homebuyers can still receive up to $8,000, while the max for repeat buyers is a $6,500 tax refund.

Under the newly instated tax credit extension, homebuyers have until the end of April, 2010 to secure a written contract and until the end of June, 2010 to close. The previous deadline was November 30, 2009. The 5-month extension is expected to boost the number of sales during the typically slow winter selling season.

October home sales increased drastically over the previous year – a sign that the first-time homebuyer tax credit did, in fact, persuade buyers to come down off the fence. In Chicago, condo sales went up 29% last month from the same month a year ago. Purchases of existing single-family homes and condos saw a 28.5% jump in the city and a 33% rise in the Chicagoland area.

New stipulations of the extended homebuyer tax credit include a home price cap of $800,000 and real estate transactions between close family members are no longer eligible. The income caps for both individuals and married couples, however, were raised. Now, individual taxpayers making $125,000 or less are eligible for the full amount, as are married joint filers who do not make over $225,000 per year. In all cases, buyers have to submit documentation of their home purchase with their tax return to get a refund check.  

The tax credit is for 10% of the home’s purchase price, up to $8,000 for first-timers (which includes those who have not owned a home used as a principal residence in the last 3 years), and up to $6,500 for repeat buyers. Buyers can consult an accountant for more specific details and to find out whether they qualify for the tax credit.

A single-family home in the North Side neighborhood of Lincoln Park sold for $5.6 million in August—the highest price paid for a Chicago residence in 2009.

Lincoln Park is one of Chicago’s exclusive luxury markets. The tree-shaded blocks are prime real estate lined with multimillion-dollar houses and high-end condominiums. So it’s not surprising the city’s priciest home sale of the year occurred in this posh pocket of upscale dwellings.

The spacious 12,000 sq. ft. mansion that brought in top dollar is located on the 2000 block of North Howe Street, right in the center of Lincoln Park. It’s a newly constructed brick and limestone home with 6 bedrooms, 5.5 bathrooms and a 4-car attached garage. The four-story floor plan is equipped with an elevator and includes a home theatre, bar and billiards room, deluxe kitchen, and a rooftop putting green. As you might expect, the residence enjoys top-of-the-line finishes and state-of-the-art amenities. Dark wood and custom details flow from one room to the next. Spa-like bathrooms incorporate natural stone and oversized soaking tubs. Every square foot is awash with elegance and first-class style.

The selling agent for the Howe Street residence was Christine Carr from Dream Town Realty . It was on the market for less than 2 months and sold for $399,000 below the list price. The property hit the MLS late May and was under contract by mid July. It closed on August 25^th for $5,600,000, making it the most expensive 2009 home sale in Chicago to date.

You can view available Chicago luxury home listings here.

Quick Facts

Price: $5,600,000

Address: 2021 N. Howe Street

Neighborhood: Lincoln Park

# of Bedrooms: 6

# of Bathrooms: 5.5

# of Rooms: 17

Square Footage: 12,000

Year Built: 2007

Parking: 4-car attached garage

Exterior: Brick and Limestone

Days on Market: 56

List Date: 5/21/09

Close Date: 8/25/09