In recent months I’ve had a fair number of client relocating from other parts of the country with job transfers which is a good sign for our local Chicago economy. Some of these transferees are moving directly into a rental, and some have opted for a short-term or one year lease. The median rent prices in Chicago has gone up 10% since 2009. Jed Kolko, Chief Economist at Trulia reported in February that in all 100 of the major metros, it is cheaper to buy than to rent. On average, it’s 38 percent cheaper. It’s hard to find a 2 bedroom rental on Chicago’s Near North Side for less than $3000.
Another reason to consider buying instead of renting is that financial experts are saying that interest rates are going to be close to, if not greater, than five percent by this time next year. The FED Chairman, Janet Yellen recently announced that instead of prolonging the stimulus, she will continue tapering, pulling back on the stimulus throughout the year. As soon as she made that announcement, interest rates began to tick up.
If you are debating which way to go, please give me a call 312-953-7811!
Home prices on Chicago’s Near North Side are back to the Peak levels of 2005-2006, at a sustainable pace. The purchase mortgage rates rose in 2013, and are expected to rise in 2014 as well. Homes values are expected to continue to rise this year too. This chart offers a look at Purchasing Power. If you want to see what your money will buy, please give me a call! Seize the day – seize the opportunities!
Below is a summary of some of the government services impacted by the government shutdown, and how the shutdown will effect Real Estate deals you may have in progress.
FHA Case Numbers: – FHA Connection is operational through the government shutdown.
Flood Insurance: – Flood insurance through FEMA will not be obtainable. Any closings on properties in a known flood zone that don’t already have Flood Insurance in place will be delayed until the shutdown is over. All lenders require a FEMA flood cert for their loans.
IRS 4506T Processing: – A 4506 is a transcript from the IRS lenders use to verify that the tax returns submitted by a borrower for loan approval are exactly what the borrower submitted to with the IRS. The IRS will not process them until the shutdown is over. All lender’s investors including Freddie Mac and Fannie Mae require IRS transcripts for the transfer of loans. In the meantime, Wintrust Mortgage has revised our policy to accommodate deals to make sure this issue will not be a hang up for you or your clients.
For Conventional, VA and FHA loans, we will accept the following in lieu of transcripts:
- Tax returns provided by the borrower.
- A letter (email is fine) from the borrower stating the tax returns provided to us are exact copies of what was filed with the IRS.
- A copy of the cancelled check paid to the IRS for corresponding years of returns provided, (or proof of receipt of a tax refund).
USDA Underwriting Approvals: – Due to the government shutdown, the GUS system is inactive and USDA personnel are not able to facilitate the issuance of a Conditional Commitment. A USDA loan is unable to proceed to closing until the USDA offices are reinstated.
Appraisal systems: All appraisal systems will remain functional throughout the shutdown.
Social Security Administration: – The SSA has indicated their staff will be reduced significantly and the service they offer to verify identity/social security numbers via the
SSA-89 form will be limited, or non-existent. Most lenders don’t use the SSA on all loans – only loans where Fraudguard calls for us to verify a social security number discrepancy. In cases where Fraudguard calls for a SS number verification, and we can’t get one due to the system being down, our underwriters will make the determination on a case by case basis whether or not we will close without one, and obtain the form after closing.
Again, this is a fluid and evolving situation. We’ll continue to send updates as new info become available. Any questions regarding any of the above or on files in progress, please feel free to call our offices directly at 1.866.535.1942.
By knowing how much mortgage you can handle, you can ensure that home ownership will fit in your budget.
1. The general rule of mortgage affordability
As a rule of thumb, you can typically afford a home priced two to three times your gross income. If you earn $100,000, you can typically afford a home between $200,000 and $300,000.
To understand how that rule applies to your particular financial situation, prepare a family budget and list all the costs of homeownership, like property taxes, insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family, such as day care costs.
2. Factor in your downpayment
How much money do you have for a downpayment? The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home’s cost, you may not have to get private mortgage insurance, which costs hundreds each month. That leaves more money for your mortgage payment.
The lower your downpayment, the higher the loan amount you’ll need to qualify for and the higher your monthly mortgage payment.
3. Consider your overall debt
Lenders generally follow the 28/41 rule. Your monthly mortgage payments covering your home loan principal, interest, taxes, and insurance shouldn’t total more than 28% of your gross annual income. Your overall monthly payments for your mortgage plus all your other bills, like car loans, utilities, and credit cards, shouldn’t exceed 41% of your gross annual income.
Here’s how that works. If your gross annual income is $100,000, multiply by 28% and then divide by 12 months to arrive at a monthly mortgage payment of $2,333 or less. Next, check the total of all your monthly bills including your potential mortgage and make sure they don’t top 41%, or $3,416 in our example.
4. Use your rent as a mortgage guide
The tax benefits of homeownership generally allow you to afford a mortgage payment—including taxes and insurance—of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.
Here’s an example. If you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 monthly mortgage payment after factoring in the tax benefits of homeownership.
However, if you’re struggling to keep up with your rent, consider what amount would be comfortable and use that for the calcuation instead.
Also consider whether or not you’ll itemize your deductions. If you take the standard deduction, you can’t also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a “what if” tax return, can help you see your tax situation more clearly.
More from HouseLogic
More on the mortgage interest deduction
More on the tax advantages of homeownership
In the US there are over 12,000 homes are selling every day , and nearly 9,000 buyers are receiving mortgages every day. Last month the Wall Street Journal reported, “Homes sales data provided fresh support for the view that the strong start to the spring home buying season, marks the beginning of a recovery, not a temporary blip due to unusually warm weather.” The spring market is typically the strongest market, and we have seen a lack of inventory. The decrease in supply has been driven by two factors: foreclosure property not yet released to the market and an increase in demand as rates remain low and consumer confidence rises.