It is not a good idea to simply look at what the current owner is paying because there are many variables.  In Chicago, we typically tell our clients to expect a tax bill at about 1.5% of the purchase price.  In Du Page County, the range is from about 1% in Oak Brook all the way up to nearly 3% in Glendale Heights. Oak Brook is home to many large corporations and of course Oak Brook mall which helps keep property taxes low.

So, how did we come up with the 1-3% range?  Below is the formula used in Du Page County to calculate property tax.

Du Page County Tax Calculation

1. A home’s fair market value:  $5000,000 – Fair Market Value is defined as the amount a buyer would be willing to pay for the property.
2. Tax assessor’s adjustment:  $500,000 x 33% = Equalized Asessed Value – In Du Page county, the assessor uses of 1/3 of a homes fair market value in determining DuPage County property taxes.
3. Equalized assessed value: $165,000  –  This is the adjusted fair market value of your property used for property tax calculation purposes.
4. Property tax rate: 5% **Rates vary by city as indicated in the table below – 5% used as a simplification for example.
5. Property tax calculation:  $165,000 x .05  -  Equalized assessed value multiplied by a property tax rate of 5% .
6. Total property tax :  $8,250

Du Page County Real Estate Property Tax Table

In communities where there are more than one township, the higher of the tax rates is shown in the table above.

• The banks will now tell the borrower (or borrower’s real estate agent) the net figure required to complete the sale prior to the borrower listing the home.  This is huge, since in the past in most cases borrowers had no idea what amount the bank would accept and the home sat on the market because it was overpriced or the bank took more than a month to respond.
• The new laws requires banks to fully release borrowers from future liability for the first mortgage debt.  No cash contribution, promissory note, or deficiency judgment is allowed.
• New forms were created to standardize the process.  With the new forms comes standardization of responses times for each step in the process.
• HUD now provides financial incentives to get the short sale completed –  $1,500 for borrower  as “relocation assistance”, $1,000 for servicers to cover administrative and processing costs, and up to $1,000 for investors.

Oh, and a nice bonus included in this program is that banks can’t ask the real estate brokers to cut their commission anymore.  That is if the broker is charging 6% or less on the listing agreement.   And ya know, 3% is fair compensation to an agent having to guide a buyer or a seller through the short sale process.

Officially, the program does not take effect until April 5, 2010.  However, banks can start offering this earlier if they meet requirements.  In fact, I’m certain that they are already using the new process because we have more than one client in this situation.  You can learn more about the government programs at MakingHomeAffordable.gov.

This number can be found on the taxpayer’s property tax bill or tax assessment notice. Taxpayers who pay their property taxes through a mortgage may need to contact their lender for a copy of their bill, or obtain the number from their county assessor’s office. If you have trouble locating your PIN, feel free to contact Lucid Realty and we would be glad to help you determine the correct number.

• Extend the first time buyer credit worth up to $8k (read about the current program)
• Offer a new credit of up to $6,500 for existing homeowners given the home buyer has lived in their current residence for 5 out of the last 8 years (consecutively)
• Raise the qualifying income limits to $125k  for single taxpayers and $250k for joint taxpayers (Current is $75k and $150k)
• Have sales agreements April 30,2010 and close by June 30, 2010

This isn’t a done deal, this agreement still faces votes in the Senate and the House.  Increasing the duration of this program will certainly continue to help sales of homes under $400k.  Adding the credit to existing homeowners should help stimulate the “trade up” market.

According to the IRS “scenario”, if a first time home buyer who otherwise qualifies for the tax credit purchases a duplex, then he or she is entitled to a tax credit equal to 10% of the purchase price allocated towards the unit the buyer will be occupying as primary residence.   There is still a maximum credit of $8,000.  Simply put, if you buy a property with two equal units, then half of the purchase price would be the basis for the 10% credit.  A purchase of a building that costs $160k or more and has two equal units will allow the homebuyer to achieve the maximum credit. 

Oh, and in case you were wondering, if a homebuyer buys a travel trailer and it is attached to land, he or she also qualifies for the credit.

There are several hypotheses as to why it was rescinded.  The first is that law makers believe buyers should have some of their own money invested in the property.   They believe that one of the factors that led to the sub prime meltdown was 100% financing.  When a buyer has their own money invested in a property, they may be less likely to default.  Currently, FHA requires a 3.5% down payment.

The second reason seems to rest on the “bridge loan.”  While in theory, the loan seems safe to the lender, because the IRS is paying the tax credit.  However, they questioned how they would get reimbursed  after the buyer received it.

In the end, it was rescinded.

There have been rumors that third party non for profits like NACA may somehow get involved.

Nonetheless, the $8000 tax credit is still a HUGE incentive.

As we all have just experienced, the rules are changing at a torrid pace, sometimes daily.  It is essential that we all stay up to date so we can provide the best customer service.

If you have any questions you can contact Marc at marcj@aandnmortgage.com.

Up until now, home buyers were only able to obtain the credit at tax filing time.  The goal of this change is to allow the FHA home buyer to have upfront access to funds when they close on their home.  By permitting this ”early” credit, many more people will be able to purchase homes.  It also may mean people can spend more on their new home as a result of having up to an additional $8,000 for their down payment.  Saving a down payment is often the challenge of the first time home buyer.

Eligible home buyers will be able to access the funds immediately at the closing table because FHA’s approved lenders will be permitted to monetize the tax credit through short-term bridge loans.

While this attempt to further stimulate the market is a valiant one, it may mean that irresponsible buyers could simply use that tax credit to buy the home, default on the mortgage without ever have invested a dime of their own money.  Unless the use is still restricted on a certain percentage of the money for purchase comes directly from a buyer’s bank account. 

The restrictions/limitations on this new plan have not yet been published.  I will follow up when the details are publicized.

• 2124 Dewey Ave. in Evanston is a 2 flat with a list price of $250,000 and annual property taxes of $14,416. That compares with other similarly priced 2 flats with property taxes in the range of $4,000.
• 6412 Gray Hawk Dr. in Matteson is a townhouse with a list price of $114,900 and annual property taxes of $6,794. This compares to other similarly priced homes with property taxes in the range of $2,000 or less.

In general, property taxes may be high because the previous owner didn’t/couldn’t apply for the homeowner’s exemption or the assessed value is just way too high given the current market. If property taxes are too high by $4,000 per year that is equivalent to an increase in the purchase price of $62,000 at a 5% interest rate, which prices many people out of the market for these homes.

Of course, someone could buy these homes and then try to get the taxes fixed – appeal the valuation or apply for the proper exemptions. Alas, we are dealing with the government here and consequently the process is convoluted and there are no guarantees. For instance, there are rules about how long you need to live in a place before you can apply for the homeowner’s exemption and it could be 1 1/2 years before you can get anything done. Similarly there are numerous different processes for appealing your valuation and some of them are only available to you during certain times of the year. I tried talking to these people and it was like something from Alice In Wonderland – the white knight was talking backwards. Something about this board and that board and the county and the township and the window and I should call this other number – and plenty of attitude for someone who works for me. Bottom line: you can go months without getting any tax relief. And then, as I said earlier, there are no guarantees. You could be stuck with high taxes the rest of the life of your home. It’s a huge risk for people.

So these homes just sit and sit.

Article reprinted with the permission of Geno A. Tucci, Sr.