By Marilyn Kennedy Melia
Special to the Tribune
November 4, 2007
Just because this a buyer's market doesn't mean buyers have it easy. Here are some of their challenges:
FOLLOWING YOUR MONEY. Getting a mortgage is humbling again.
In the height of the housing boom, securing financing was hardly a worry, notes David Hanna, president-elect of the Chicago Association of Realtors.
Now, foreclosure-wary lenders are seeking more documentation to ensure they want to make the loan -- even as closing draws near.
"Because lenders have more conditions around their approval, it is sometimes necessary to get them more specific details," says Hanna.
It is part of a real estate agent's job to ensure that a closing is on track, Hanna explains. The agent may check with a lender and find that a buyer has to provide more pay stubs or brokerage statements, for instance.
Buyers who believe money matters are private can feel uncomfortable with the attention on their finances.
Real estate agents and all others involved in the purchase have an ethical obligation not to share your financial information, says Jack Guttentag, a consumer advocate who runs the advice sitehttp://www.mtgprofessor.com .
Furthermore, buyers don't have to give their agents specifics, such as the amount in the brokerage account the lender needs to see.
AGREEING TO THEIR TERMS. This is, as they say, a buyer's market. But when it comes to purchasing newly constructed homes in suburban subdivisions, most buyers sign contracts without taking it to their attorney first, says John O'Brien, chairman of the Illinois Real Estate Lawyers Association.
"It's common for the contracts not to contain an attorney-approval clause -- buyers have to ask for it," O'Brien says. But "after they spend all of their weekends for a couple of months looking at houses, most buyers don't want to hear an attorney point out issues."
Still, any time a buyer is contracting for a home to be built, there are risks, O'Brien notes. Considering some builders haven't been able to deliver homes because of financial troubles of their own, buyers who have certain provisions in their contract -- such as their deposit being placed in an escrow account to be returned -- are better off.
SEEKING CLOSURE. They call it a "closing," but the transaction between seller and buyer isn't necessarily over when the papers are signed and the keys change hands.
Sometimes, buyers and sellers make a reproration agreement, so they can settle the tab for property taxes later, says Arlington Heights real estate attorney Stuart Wolf (this sentence as published has been corrected in this text).
Especially this year, such agreements made sense because the exact amount of tax owed by Cook County sellers is uncertain, notes Chicago attorney John K. Norris, of the Illinois Property Tax Lawyers Association.
Sellers pay the tax for the time they lived in the home. It's confusing, considering tax bills mailed in 2007 are actually for 2006 levies. The first of two real estate tax bills Cook County homeowners pay arrives in March and is roughly half of the amount owed. The second, which typically arrives in autumn, represents it the balance due for the previous year.
When buyers and sellers include a reproration agreement, they will settle actual tax bills if they are higher or lower than the estimated amounts(this sentence as published has been corrected in this text).
Cook County residents are now just receiving their second installments. Until last month, the amount of taxes owed depended on whether state legislators would renew a law limiting the increases in assessed value for county homeowners.
Often, sellers don't want any further dealings with a buyer, so they oppose such a reproration agreement, says attorney Wolf (this sentence as published has been corrected in this text).
However, the agreements can work both ways -- sometimes sellers pay more than their share and are entitled to a refund. If a buyer or seller needs more money from the other, he typically works through the attorneys. Or the title company that handled the closing can establish an escrow account to cover the tax bill, and upon notice from the attorneys of amounts due, disburse the appropriate sums to the parties, Wolf says.
RETIRING ON YOUR INTEREST. If a buyer's credit or financial profile is shaky, mortgage lenders don't want their business -- but individuals who want to juice up their retirement savings may.
About 2 percent of Americans who hold individual retirement accounts opt for "self-directed" accounts that allow more exotic investment choices, including providing a mortgage to someone else.
With tighter lending conditions, more IRA holders are filling the gap, says Katie Lawrence, a spokeswoman for Guidant Financial Group, a Bellevue, Wash., firm that sets up self-directed accounts.
"Since the average account is about $150,000, not many individuals are providing the big, primary mortgage," says Lawrence. "But they're doing bridge loans for people who have bought a house and still hold their old one, and they also do home-equity loans."
These investors expect a healthy return -- "most of the loans carry double-digit rates," says Lawrence.
IRA holders are often advised to find prospects through mortgage firms, says Lawrence. And, borrowers can seek these private loans through sites such ashttp://www.prosper.com .
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