Chitownproperty

You may have read about the problems in the “subprime” mortgage market recently. Subprime mortgages are loans given to traditionally underqualified applicants, often with extremely low interest rates that skyrocket after a brief introductory period. Many buyers who took out such loans during the recent real estate boom are now in foreclosure, as they can no longer afford to pay their mortgages after the rates adjusted.

Many of these people who could not get a mortgage through conventional means could have avoided this problem by securing loans through the Federal Housing Authority. The FHA can back loans for underqualified buyers, increasing the likelihood of their getting a loan through a standard lender. But unfortunately, the FHA rules have fallen behind today’s market. They still require large downpayments, even though many lenders are willing to accept less money down, and the loan limits are not high enough for many urban markets. Consequently, people turned to riskier subprime lenders, and are now suffering. The U.S. House of Representatives passed The Expanding the American Homeownership Act to help modernize FHA rules, but the bill is currently stuck in committee in the Senate.

The FHA Research Center has more on this problem, as well as information on how to get an FHA loan.

You wouldn’t buy a used car without checking its maintenance and accident history would you? But many people purchase condos without carefully checking the building’s financial records, maintenance and assessment schedule, and board activity. Doing so can sometimes turn the most desirable home into a lemon, uncovering years of neglect or whopping assessments waiting in the wings.

As buyers, you aren’t expected to be able to pore over the building’s records to determine if there are any underlying issues, but your attorney should. Any good real estate attorney will vet the building and association documents for potential problems, but make sure you communicate with them about this very important step as you evaluate a home. It could save you some big headaches down the road.

With an uncertain market, that question isn’t as cut-and-dried as it used to be. Last week the New York Times published a fantastic online calculator to determine whether you should rent or buy, based on a number of variables like monthly rents, home prices, taxes, appreciation rates, and interest. Given these values, it computes the point at which the costs of buying a home make a better investment than renting. For the record, home price appreciation in Chicago expects to be around 4% for the near future.

The credit market is tightening up as home prices fall and lenders worry about the ability of borrowers to repay loans. To make sure you can still qualify for a loan at a good rate, CNN/Money offers some tips for shaping up your credit profile:

• Pay down any balances on credit cards, or better yet, pay them off.
• If you don’t already, make your payments on time.
• Resist new credit offers, like that enticing new store charge card that gets you 20 percent off your first purchase.
• Fix errors on your credit report.
• If you can’t fix your credit score in time, look for alternative loans, like those backed by the Federal Housing Administration.