You’ve fallen in love with the Windy City (who wouldn’t?) and made the decision to settle down and buy your first home in Chicago. Home buying can be tricky, and you probably have a lot of questions. This guide will answer some of those questions and give you some tips for buying your first Chicago home.
Before Anything Else, Get Your Finances in Order
The very first thing you need to figure out is how much home you can afford. According to a recent report, potential homebuyers need to make a little over $54,000 annually to buy an typical house in Chicago.
This doesn’t mean you absolutely have to make that much. For example, if you’ve been saving up for a few years, that money could make up for some of the income gap.
Here are a few calculations you can use to estimate how much you can afford to spend on monthly mortgage payments:
Figure out your gross income–salaries plus any tips, bonuses, interest payments, and any other miscellaneous income. If you have no outstanding debt and a good credit history, you can estimate how much house you can afford as roughly 2.5 times your annual gross income.
Income Plus Debt
If you have outstanding debt–other loans, insurance, car payments, alimony, etc.–you need to take these into account.
Mortgage lenders often use what is called the 28/36 Rule. This rule states that your monthly housing costs should not exceed 28% of your monthly gross income, and that your monthly housing costs plus your other debts should not be more than 36% of your monthly gross income.
Performing these calculations on your own will give you a better idea about what to expect from a mortgage lender.
Get Pre-Approved for a Mortgage Loan
After you have assessed your finances, it’s time for lenders to do so. Getting pre-approval for a mortgage doesn’t guarantee you will get the loan, but it will give you an idea about the kinds of terms you can expect and also will demonstrate to the seller that you are likely able to pay for the house.
Learn more about getting pre-approved for a mortgage.
Resolve Any Inaccuracies in Your Credit Report
Check your credit. During the pre-approval process, the lender may run a credit report. If not, request one yourself so you can double- and triple-check it for any discrepancies or mistakes.
Your credit will determine your mortgage’s interest rate and, thus, your monthly payment–so it’s important that your credit information is accurate.
Consider All Your Costs
It’s easy to get wrapped up in thoughts about monthly payments and loan amounts, but don’t neglect the other costs of buying a home. You need to consider closing costs, property taxes, homeowner’s insurance, and a number of different fees in the cost of buying your first home in Chicago.
And don’t forget about moving expenses. Moving, especially from out of state, can cost quite a bit and it’s an expense that is easy for new homeowners to neglect until the last minute.
Think About Where You Want to Live in Chicago
Once you have your budget locked down, you need to think about where you want to live in Chicago.
The suburbs offer more space for a lower cost, but not everyone wants to have to commute to the city for work or entertainment. The city, on the other hand, is close to nightlife and potentially to your job. However, you probably won’t have much of a yard, and city living can feel a little cramped to some. So figure out your preferences for location and lifestyle.
You should also think about the future, especially if you have or are planning to have children. If you want to start a family within the time you plan on living in your first home, think about what you will need for space. Also make sure you are satisfied with the school district. It may not be important right now, but that doesn’t mean you shouldn’t prepare.
Make a “Has to Have/Nice to Have” List
In addition to figuring out your priorities regarding place, you also need to differentiate between what you need your first home to have and what you like it to have. Going in blind can be overwhelming and can lead to buyer’s remorse in the long run.
A “Has to Have/Nice to Have” list is exactly what it sounds like. In one column, write down all of the things your new home absolutely must have–for example, garage/close parking, central heat and air, washer and dryer, and so on. In another column, write down all the things that you would like to have in your home, but that you can be flexible about–ample closet space, hardwood floors, large windows, fireplace, etc.
This list will prove invaluable as you are weighing the various options.
Get an Agent
Find a Chicago real estate agent who will best serve your needs. A good agent will take your budget and your “has to have/nice to have” list into consideration. They should work to get you into the best home for you and your family, not just any home in your price range.
Real estate agents often have many listings at their disposal and can offer suggestions that you might not have considered. For instance, if you always imagined living in the city, but one of your “nice to haves” is a backyard, the real estate agent could find a happy medium such as a house or a condo near Washington Square Park. That would give you greenery while still allowing you to live in the city.
Real estate agents can also answer most of your questions about the home buying process, especially when it comes to making an offer. Agents are pros at negotiating and the best ones can get you into your dream home for a fair price.
Take Notes and Pictures
Chances are, you are going to look at a lot of houses before making your purchase decision. Even if you only see three or four homes, it is still wise to take notes and take pictures.
Use your “Has to Have/Nice to Have” list and take notes on each property. This will help you understand what each house has to offer, how it matches up with what you want, and what areas need improvement. It also helps keep the different properties straight in your mind.
Have your camera ready at all times. Pictures are especially useful for documenting any damage to the property or aspects you would want to change. Your own pictures will be much more reliable than those you find on online property listings, which are, of course, taken to show the home in its best light, not the most accurate one.
When you take note and photos, be sure to record information not just about the house, but also about the neighborhood and surrounding area. These are easy to overlook when you see many properties in a row, but they are important because they will affect both your happiness with where you live and the property value.
Look for a Home’s Potential
The house you buy might not be exactly what you want, but it could have a lot of potential. Buying a fixer-upper could save you money in the long run, as long as you know what you’re getting yourself into.
Houses that need some renovations are usually cheaper than ones that don’t. But you’ll need to add the cost of renovation to your budget as well as consider how much time and effort you’re willing and able to put into renovating.
If you want to save money, but don’t want a huge project, consider buying a house that needs minor renovations or renovations that can be spread out over several years. Knocking down walls and building additions are huge undertakings, but redoing the floors and changing appliances are smaller, more affordable projects.
Pay Attention During the Inspection
The home inspection is an extremely important step in the home buying process. The inspection will tell you if the house is up to code and what you’ll need to do if it’s not.
It will also give you a chance to see if there is anything wrong with the house that could affect your price negotiations. A faulty water heater, water damage or mold, or cracks in the walls or ceilings can all go unnoticed and could end up costing thousands of dollars to repair–it’s much better to get those thousands knocked off the asking price.
Here are a few tips for getting a home inspection:
- Be present. This means not only being present physically, but actually being engaged with what’s going on.
- Follow the inspector. See exactly what they are talking about when they mention certain problems.
- Take notes. Don’t leave the details up to your memory. Taking notes will benefit you in the negotiation stage.
- Ask questions. Even if they seem like silly questions, it’s better to know what’s going on than to miss important information because you didn’t want to ask a “dumb question.”
Negotiate and Make Your Offer
If you have an agent, negotiating will be much easier than if you are going it alone. In either case, consider the prices of neighboring houses and similar houses in the area. Also consider the house’s condition (this is why your inspection notes are important). Finally, take the seller’s motivation into account. If they are in a rush to sell, that could benefit you in the negotiation stage.
Keep in mind that your offer isn’t just one simple amount that you will have to pay. It also includes information on the down payment, closing costs and the closing date, who will pay for any repairs that have to be made, and a timetable for the purchase.
Buying your first home is a fun, rewarding, and challenging time. Preparation is the key to your success — make sure you understand the steps of the process, as well as the people and other resources available to you, including our mortgage specialists here at Oak Bank.