Credit cards, credit scores, and mortgages....Oh My!

The average American household has $9000 in credit card debt and more households are spending a higher percentage of their income just to stay on top of their credit card bills. Naturally, this effects their spending in other areas of their life, including home purchase decisions. Not only does the amount you owe effect how much of a mortgage you can get, but also can effect the mortgage rate that a bank will give you. All this thanks to a handy little tool called a credit score. A major component of your credit score is related to your credit card habits and can play a big, though somewhat complicated role when you're trying to obtain a mortgage. A history of on-time payments is nothing but positive and that is an important thing to lenders. It's the signs of financial "weakness" in that history that can hurt. Often it's not a single factor that will hurt your credit score, but the combination of those factors. So if you're thinking of buying a home in 3 months or 3 years, a little preparation can't hurt. One easy thing right off the bat is to not apply for new credit cards for at least few months before your home purchase. Simply put, it makes the lender wonder why you need the additional credit. I've always thought it best not to let lenders wonder....they have very vivid imaginations. The other factor to focus on is your utilization rate. Basically, this means how much of your total available credit you use on each card. For example, let's say you have a Visa card with a $5000 credit limit and you have $4000 charged on the card. Divide $4000 in charges divided by the $5000 credit limit and you get .80 or 80%. This is your utilization rate. In an ideal world it's good to be as close as possible to a 50% or less utilization rate. A final factor lenders consider is your "total expense ratio." This is the sum of the mortgage payment, property taxes, insurance, and any other debt service you have including, but not limited to credit cards, student loans, etc, all divided by your gross income. This number ultimately helps the lender determine how much you can afford. The lower the number the better, but even if your number is higher than you like it only effects the amount you can borrow not your actual ability to get a mortgage.

Also, we just added this amazing mortgage dictionary to our website. Check it out and you too can speak the language of mortgages!

If you want to see what your credit score is, here are links for the three major credit reporting agencies....Experian, Transunion, and Equifax. Or you can pull your entire credit report for free at www.annualcreditreport.com.

The tearing up of Milwaukee Avenue

As if there weren't enough construction projects going on in the Chicago, the city decided to add Milwaukee Avenue to their list. They are planning on resurfacing Milwaukee from the Kennedy Expressway to North Avenue. The project is slated to start Monday, August 28th, give or take a week knowing the city, and is expected to take 40 days. So in other words, it might be wise to avoid Milwaukee and join the slow procession of traffic down either North or Division. Mind you, I'm only half complaining. I drive down Milwaukee frequently and there always seems to be a new patch or some other bump to help loosen the bolts on your car engine, so while my car appreciates it, my schedule hates it since it's going to take twice as long to get through the area.

The good news with foreclosures?

I'm sure everyone has heard the hoopla about adjustable rate mortgages (ARMs) resetting and the anticipation that there could be a substantial increase in foreclosures in coming years. Over the past few years ARMs have become increasingly popular with their attractive initially lower rates and their ability to allow buyers to buy more house. Especially in areas like California where home prices were increasing at exponential rates, sometimes it was the only way people could buy the home they wanted. Whether this was wise or not is a whole different story. Like most other things in real estate, foreclosures will not affect the country uniformly. Not only do foreclosure laws vary from state to state, but local factors including unemployment come into play. But the news is not all bad. According to an article written by Charles DuBow in Business Week magazine, "a new study by RealtyTrac, which publishes the nation's largest database of pre-foreclosure and foreclosure properties, the situation is not all that bad. In their survey of foreclosure rates in the 100 largest metropolitan statistical areas (MSAs) in the U.S., the second quarter of 2006 actually saw fewer foreclosures than in the first quarter. While Indianapolis, Atlanta and Dallas saw the nation's three highest metropolitan foreclosure rates, other areas, such as Chicago and Portland, Ore., saw a 60% and 188% decline, respectively, from the first quarter." I can't predict the future, but as I see it, it's a good start.

ALERT! A Balanced Story in the Chicago Media!

Since I gave the media a hard time in one of my recent posts, Media Schmedia, I thought it was only fair that I give them credit when they actually presented a impressively balanced story. Last night on the 10 o'clock news on ABC Channel 7 in Chicago this miraculous event actually occurred. Not only did they present a national viewpoint but also presented a Chicago specific perspective from local experts! While they are somewhat inflammatory about interest rates, remember 6% is still historically low, I can forgive them this once. For the whole article go to ABC 7 Chicago's website.

Home inspection...don't buy a home or condo without it!

I'm really not trying to sound cliche, but the home inspection is truly an essential part of the home buying process. Now, if you're going to tear down whatever property you buy, then please be my guest, feel free to go without an inspection, but if you're like most people you actually want to live there. Consider for a moment the size of the investment that your making, the average home (including condos) in Chicago is over $500,000, a few hundred dollars for an inspection is worth the piece of mind. A good inspector will check everything from the electrical and plumbing systems to making sure the appliances work properly. And don't think that because you're purchasing in a high-rise building that an inspection is not necessary. I was recently at an inspection with my client who was purchasing a unit in a 1950s high-rise. It was a fixer upper, but during our inspection we discovered that the electric panel in the unit had never been updated and those funny little "plugs" were definitely not circuit breakers, they weere fuses. As if that wasn't bad enough one of the fuses was double-tapped, meaning it had two wires running into a single fuse. This is a potentail fire hazard. And yes, the easy solution is that you can just add another fuse, the key being if they even make this particular style anymore! If the needed fuse couldn't be obtained a whole new electric panel would need to be installed which would likely cost in the ballpark of $1000! We have asked the seller to resolve this potentially issue and he has agreed. What an costly surprise that would have been for my client when it was discovered down the road or when there was a fire.

Media Schmedia

One of the most frequent questions I've been asked lately has been is what I think about the market in Chicago, by clients and non-clients alike. Well, I know it doesn't seem like a surprise to be asked that kind of question, but there has been one specific common thread to all these conversations....the media. The media whether it is print, television or on-line has been droning on about how the housing market is slowing down and oh, no the world's going to end because interest rates are higher than they were 4 years ago! And while both of these are true to varying degrees I believe in many cases the message the media sends is out of context for two reasons. One, the housing market is very much a local phenomenon, but the media largely uses nationwide and regional generalizations. There are so many factors that affect housing and many are specific to that local. There are even differences between Chicago and the Chicago suburbs! One factor is demand. The demand or need for housing is not the same across the country. For example over the past few years demand for housing on the East and West coasts has driven the 20 and 30% price appreciation they had been experiencing, while in Chicago, demand was high and price appreciation was significant, it was not of the same intensity. While Chicago's growth was steady, the activity on the coasts is what fueled much of the talk of the housing bubble and leads me to my second point. Everyone seems to forget that the past five years have been a period of record housing growth fueled in part by record low mortgage rates. Well it's no surprise the market is slowing down, how long can record growth be sustained? Eventually it has to balance out and that's exactly what's happening. Is that a bad thing? From my perspective, no, balance is a good thing especially when it doesn't have to be the result of some "catastrophic" event. On a somewhat lighter note, in such good times, we often forget what "normal" is. Until the past few years 9 or 10% on a mortgage was considered a great rate and there actually was a period about 20 years ago where interest rates were 18%! Gasp!!!

Going Green in Chicago

At one of my open houses this weekend I was asked about what it would take to cover the garage rooftop with grass instead of traditional decking. Having not done it myself or known anyone who had I didn't have the answer for him, but it really peaked my curiosity. More and more buyers are looking for a home with outdoor space, whether it's a balcony or the rooftop of the building they live in, but I have yet to see a grass rooftop. In most cases, garages, which is a "must have" for so many buyers, have practically wiped out what little backyard was there could have been. So why not create a "backyard" on your rooftop? The idea sounded great to me. Like a little kid, I still love the feeling of grass between my toes and having lived in the city for so many years I feel pretty nostaglic about grassy feeling. And no, the patches of grass that line the sidewalk outside my home don't qualify. The fertilizer provided by the neighborhood dogs certainly doesn't add to the appeal. So what would it take to create the "rooftop backyard?" Apparently I'm not the only one that is curious. The City of Chicago set-up the Chicago Center for Green Technology, located at 445 N Sacramento. Not only is it a prototype for green building design, but more importantly the go to place for people with questions about the "how to." Rooftop backyards or gardens are only the beginning when it comes to going green. Bamboo flooring, dual flush toilets, tankless water heaters and the list goes on. If you want more information on going green in Chicago, check out the links below.

City of Chicago Department of Environment
Green Roofs for Healthy Cities
Greenmaker Supply Company