When it comes to buying a foreclosure home or condo, there is much to be aware of in this new market place. There are plenty of opportunities in Illinois foreclosures if you hold the right cards in your hands and understand the rules of the game.
If you are looking at buying real estate that is foreclosed on using conventional lending, you must be aware of several guideline changes. High credit scores are a must, preferably over 690. That would be the bottom floor for financing. Anything higher is an Ace in your hand.
Loan to values are now at a maximum of 75%. Now that is based on the appraised value and appraisers are having a rough time getting a good value for most homes for a couple of reasons: #1- the range of recent home sales has been reduced from 2 miles down to a half mile, #2- recent sales must be within the past 6 months, and let me tell you not much has moved; #3- if the home value is over $500,000, a second appraisal is necessary at the client’s expense, #4- all appraisals go into an appraisal review with all lenders to verify values and they will kick it back if there is anything suspicious.
Condominiums in foreclosure are great deals right now! Look for those condo association dues, though. You will find those dues went up and up and out of reach in some buildings. Always do your due diligence and review the condo association for reserves and increases. And remember that mortgage interest rates will be different from a high rise condo building to a low rise condo building.
Any new investor needs to look out for this new change in guideline. If you are a new real estate investor getting into the business and have never owned another piece of property except for the one you live in, the underwriter will qualify only the investor without the rental income. That means an investor would have to be able to afford two mortgages without rent and that is even with 25% down. This is for anyone who has not already been an investor for 2 years. All rental income has to be reported on tax returns. If it’s not on there, be prepared for that ouch. Oh and by the way, you would still need to have a Debt to Income ratio under 45% with both mortgages and without rental income.
As for tax returns, all investors know how they can really deduct so much from the properties and off set rental income. Not anymore. If you show a loss on income properties that have been owned, the underwriter may use those losses to lower an already lowered income even more just to make absolute certain a borrower will not default. I have seen a loan get declined the day before closing due to quality control reviewing tax returns differently now. Investment properties will have to show in the future that they make money and not lose money. This will be the wave of the future.
By Patrick Villalobos; Licensed Illinois Mortgage Planner
Patrick Villalobos is a Mortgage Planner for Integra Financial Group. He has been in the mortgage industry for 12 years and it is his passion and love. If you have any questions, please contact Patrick at 773-792-0000 ext 31, or his cellular at (773) 354-3135. Patrick also carries an insurance license for Life, Accident, Health, and more for Illinois.