Like the national market, the Chicago real estate market is on an upturn, although it does seem that, with every bit of good news, there is always some bad news that follows it. But for now, Chicago new home buyers may have a reason to be optimistic.
Lower Down Payments for Purchases are Coming
Fannie Mae and Freddie Mac are now allowing consumers who buy property to close with as little as three percent down—a miniscule amount in the post-recession housing market. The amount was recently five percent. The end result is a boost for buyers who may lack huge cash at hand. But in addition to making it easier for cash strapped buyers, the change also makes it easier for lenders to lend money.
Fannie and Freddie purchase loans made by lenders, and then resell them on the secondary market, often as securitized assets. The practical result on the street is that lenders know that when they make a loan, they will get paid for it, relatively quickly, by Fannie or Freddie. In addition to that security, the Fannie and Freddie purchasing allows banks to have more cash flow at any one time. Overall, it means more loans are given, thus more home purchases, thus a stronger real estate market, thus a stronger economy overall.
Still Some Problems in the Real Estate Market
Still, even with the reduced down payment, borrowers will need credit. The average borrower FICO score was between 744-742 for Fannie and Freddie. And those lower down payments may mean mortgage insurance is required, which could increase mortgage payments slightly. The lowered down payments are an attempt to stimulate the housing market, which is expected to show a 10 percent decrease this year compared to last year in home sales. And foreclosures, although not on the rise, also did not declined, but rather leveled off for the past three months in the Chicago area.
Billionaire Warren Buffett expressed amazement that the housing market has not picked up. Buffett suggests purchasing property as a safer investment than a traditional Wall Street investment, although there is some complex math to that, and it is not readily apparent yet whether that is true.
One problem may simply be time–that is, the time needed for all those borrowers who filed bankruptcy or whose homes were foreclosed upon, to rebuild their credit. Many are employed again, but until more time elapses, Fannie and Freddie will not make loans to those with these items on their credit (although the waiting period to purchase property after filing a bankruptcy or foreclosure was shortened by the two agencies recently). But the message is clear: Government agencies and lenders are starting to make it easier to purchase property. And if you’re looking to do so, this may be a good time to go for it.
Interested in buying a home or building? An experienced real estate attorney can guide you through each step of the process and advise you if there are problems. Contact The Slater Firm LTD to discuss your situation and make sure your closing is safe and simple.