Chicago Housing Marklet
April 22, 2010 4:15 PM   Subscribe

Just looking for some opinions on the housing market, specifically the condo market in Chicago. My husband and I are considering a purchase - we are renters now - before the tax incentives expire. We are living on a fixed income now. A longer term ARM, 7/1 or 10/1, seems to offer the best rates, but as we don't want to sink our whole nest egg into a down-payment, we are a little worried whether the market has really bottomed out and what will happen after all the incentives for first-time buyers disappear. We don't want to be upside down a year from now. ( housing market condo Chicago mortgage )
posted by Tullyogallaghan to Work & Money (10 answers total) 1 user marked this as a favorite
If I were you, attempting to buy a home in a market that may have bottomed out, but may not have bottomed out:

1. You are on a fixed income, so you should obtain a loan with fixed rates. Skip ARMs and go with a full-term fixed rate.

2. You are on a fixed incom, so if you can, buy a house instead of a condo, so that you don't have to worry about assessments.

2. Buy a house assuming you will be underwater for the next five-ten years. Which means you should buy a good, sturdy house/condo in a neighborhood you love, with a layout you love, with features you love, and so on, rather than something you can barely afford that you think you'll sell for a profit. Buy the house that, even if you can sell it for a profit, you wouldn't want to, because you adore it.

Beyond that: good luck!
posted by davejay at 4:26 PM on April 22, 2010

A fixed rate mortgage will have an interest rate higher than the prime rate, in order to compensate the lender for the extra risk that he takes on by lending at a fixed rate. Can you afford the extra interest payments? Of course, if interest rates rise from their present level, and they likely will, you will benefit over the longer term.

Also, a fixed rate mortgage typically requires a larger down payment and a higher credit score than an adjustable rate mortgage.
posted by dfriedman at 4:29 PM on April 22, 2010

If you haven't already, you should definitely check out the Cribchatter blog, which covers the Chicago housing market. The comments are especially useful for gauging how some people are viewing the market right now (caveat: most on that site are extremely bearish on the housing market, you won't find many cheerleaders there; that said, reading too many naysayer opinions will almost certainly serve you better in the long run than too much rah-rah-buy-now). Personally, I think the housing credits are artificially inflating the prices - if you look at statistics of who is buying right now, in Chicago, the only market segment seeing any real movement is the low end, which means a large percentage of buyers are first time homebuyers rushing to grab that credit. When the credit expires, not only is that segment no longer buying at such a frenzied pace, but also the same down payment is going to buy people $8k less house, which of course can only lead to depressed prices. Further, many people feel that interest rates will not stay low much longer. That, and additional factors like ARM resets and tightened lending standards, suggest that we are probably not at bottom and if we are, we'll be here for a good long while.

There are some deals out there right now though, and rates ARE very very good if you qualify. I just refinanced with Alliant Credit Union, which has the lowest rates I've seen AND they don't require you to escrow taxes and insurance with them, meaning you can set that money aside in your own bank account and accrue interest, as well as having a much lower monthly payment.
posted by frolic at 4:58 PM on April 22, 2010

A friend of mine is also looking for a condo in Chicago and was able to find an affordable fixed rate mortgage by applying with the developer's preferred lender. In this case, it ended up being MB Financial Bank and the rate was less than 5%. I was super surprised, so I'd suggest checking out the rates offered by the developer, even if the loan isn't with your regular bank.

Although I live in the city, I still bank in the suburbs at Consumer's Cooperative Credit Union. I don't have a mortgage with them (yet), but I can certainly vouch for their service. I've been with them for about 17 years.
posted by youngergirl44 at 5:15 PM on April 22, 2010

The tax credit expires at the end of the month. You would need to have a ratified contract within the next 8 days, and close by June 30. This probably isn't a decision you want to rush like this.
posted by procrastination at 6:18 PM on April 22, 2010

Why a condo? I will never buy a condo because they can come with dues (as much as $900/month!), possibly very annoying neighbors, possibly very annoying condo association, possible huge expenses if people all vote for outside lamps/planters/etc that all look the same, and a lot of condos have poor resale value. A house is so much safer.
posted by meepmeow at 6:27 PM on April 22, 2010

Why a condo?

Not everyone wants to live in suburbia.
posted by ripley_ at 10:56 PM on April 22, 2010

You need to put some numbers into the NYTimes Rent of Buy chart before you do anything.

And please don't go with an ARM. Interest rates are as low as they will ever get. Lock it in.
posted by kaizen at 5:13 AM on April 23, 2010 [1 favorite]

Regarding the ARM, you definitely want to compare the fixed-rate mortgage against the ARM. How much of a "discount" are you getting for going with the ARM, and how confident are you that you are going to sell the condo before the ARM adjusts? Interest rates are at a historic low, so if you think you'll be in the property long-term then the ARM may not make sense.

If you want to take advantage of the low interest rates and the low prices to pick up a property at a bargain price, great -- but be aware there is much risk if you have to move and sell the property. And if you're pretty sure you're not going to be in the property long-term, are you sure you want to buy? Factoring in transaction costs (including real estate commissions) and the risk you take from the market tanking even further...
posted by QuantumMeruit at 7:10 AM on April 23, 2010

Being upside down on a home only matters if you are planning on moving again for some reason. If you do have thoughts of moving in the next 5 years, then buying is probably not a good option.
posted by garlic at 8:07 AM on April 23, 2010

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