Why should I use the mortgage company or an attorney recommended by my Realtor?

Last year I was at a closing that could have been a real disaster. For whatever reason, the mortgage money showed up $30,000 short. It was clearly an error but could have taken a day or two to fix. The sellers had entered into a purchase of their own and were planning to use their proceeds for that purchase in the next hour. I called my loan officer and he immediately hand delivered a check for the $30,000 and then went back to fix the error. Do you think that would have happened if he didn’t know me? I assure you it would not. The reason your agent recommends someone is because they have a track record of service and will go the extra mile to solve a problem to keep them happy. Agents do not get kickbacks from the people they recommend. It is illegal to do so.

You have searched for a month for the right home, negotiated a great deal, and now you are going to jeopardize it all to save $100 on a cheap attorney? I have worked with attorneys that NEVER answer their phone. We even joked once that one of them had actually died and his secretary was covering for him. Turns out he was in rehab! When you think you have found a better deal in a day than your Realtor has found in years, think twice. Some lenders offer a great rate but then charge high fees to make up for it. Some attorneys have a low fee but make it up on overpriced title expenses. Listen to your agent…you chose them for a reason.

Should I finance my purchase FHA?

With interest rates still close to historic lows and many sellers anxious to move their properties, this is a great opportunity for home buyers. For the first-time buyer, the government is adding an $8,000 tax incentive besides. Conventional lending, however, has become more difficult to qualify for and there are new limitations especially regarding condos. Some mortgage companies will not even lend without a 15% down payment or more on condos. This should not discourage buyers who cannot save enough to cover this amount.

Government-backed loans (FHA-Federal Housing Authority) allow buyers to put down as little as 3.5% and receive up to an additional 6% back from the seller in closing costs. You must intend to occupy the property as your primary residence.

Thus, a $200,000 home could be purchased as follows: Conventionally with $30,000 down  or FHA with $7000 down.  Assume  the closing costs are about $4000.  If the seller on the FHA provides only a 3% credit (which is common), your total cash outlay is $5000 on the FHA deal compared with $34,000 on the conventional loan.

But now you have a $193,000 mortgage vs a $170,000 mortgage.  At the current rate of 5.5%, the difference, however, is only about $130 per month. ($965 for principle and interest on the conventional loan to $1095 for the FHA loan).

So, what’s the catch? The property to be purchased must be FHA approved. This does not mean the property has to be in a depressed area. Most single-family homes will qualify as long as all the systems are in good working order. Condos, however, have different requirements. At least 51% of the units must be owner occupied and the association may not have “first right of refusal” on potential buyers. This means exactly what is says. FHA interprets this as a possible means of discrimination. Unfortunately, many buildings in Chicago have this in their association even though they have seldom exercised the right. Be sure you have investigated this possibility before attempting to purchase using FHA financing.