Buying a home is an unquestionably thrilling process, but the details are overwhelming the first (or second) time around. We anticipate and welcome your home buying questions at any point, even if you’re not a current client. Even so, preparing ahead of time and learning more about the process helps home buyers feel confident and collected throughout the exciting journey toward homeownership!
Here are the most common questions Z Chicago real estate agents have encountered over the years:
- How much home can I afford?
Although this is the most important question of the home buying process, the answer wholly depends on your personal finances, desired home size and the neighborhood(s) you want to live in. Fortunately, there are a few general guidelines to help you get started on planning your home buying budget before you even speak to a lender.
First, most conventional monthly mortgage payments are equivalent to or less than the going rent for similar units. That means that you’ll likely pay more per month if you rent a 2-bedroom apartment in Chicago as opposed to buying a 2-bedroom condo in the same neighborhood. Combined with the wealth-building potential of owning your own property, lower monthly housing payments drive many renters to become homeowners.
Let’s look at the numbers. The current median 2-bedroom rent in Chicago is $2,260 while the median sales price is $308,000. If you were to get a conventional 30-year fixed mortgage at a 3.83 percent interest rate (current average), your total monthly payment would be just $1,458 per month. That estimate includes principal, interest and residential property taxes. Essentially, you’re saving over $800 for every month you own your home.
Keep in mind, to get that low monthly mortgage that costs less than your current rent, you’ll have to put $61,600 down upfront. That’s probably you’re biggest initial financial hurdle.
- Do I have to put 20 percent down?
Continuing with the example from question no. 1, assume you don’t have the cash to put down upwards of $60,000 upfront. You could opt for a low down payment mortgage with just 10 percent or $30,800 down upfront, and still save on your monthly housing payments.
At the same interest rate with a 10 percent down payment, you’d be looking at a total monthly payment of $1,755 per month for a median-priced home. That figure also includes private mortgage insurance (PMI), which lenders require for borrowers putting less than 20 percent down. You’re still saving over $500 per month.
If this seems convoluted, we can help you figure out a budget based on how much you want to pay per month and the cash you can realistically put toward your home purchase. If you already have a price range in mind, use a mortgage calculator for a personalized monthly payment projection.
- Do I have to get pre-approved for a mortgage?
We highly recommend that every buyer planning on financing their home purchase receive preapproval from a lender before submitting offers. A pre-approval letter means that a lender has reviewed your credit history, employment status, and income to determine your buying power. Your buying power includes the total amount you can borrow, the loan programs you qualify for and the interest rates available to you. When you’re granted a pre-approval, your lender writes a letter that says your loan is approved after you make a purchase offer.
This step is pertinent in two ways. First, you’ll have a strong idea of how much home you can afford. Why waste your time searching for listings that are out of financial reach? This will speed up the home search process and maintain realistic expectations. Second, in a competitive sellers’ market, a pre-approval letter helps your offer stand out among the rest. Many mortgage borrowers compete with all-cash buyers. The seller needs assurance that you’re serious and qualified to purchase the home, and unfortunately, your word isn’t going to cut it alone.
- How many homes should I see before making an offer?
There’s no magic number of homes you’ll see before the right one comes along. Thanks to the internet, home shoppers can view hundreds of Chicago homes for sale without making an in-person appearance. Plus, narrowing your search with must-haves saves time and populates listings that’ll suit your lifestyle. You can also set up an automated home finder with property specifics to have new listings sent directly to your email inbox. These steps will help shorten the process so you don’t waste time visiting open houses or scheduling showings that aren’t a good fit, for whatever reason. On average, home shoppers check out 10 properties in-person before they make an offer. This varies depending on the buyer and the current market conditions. Right now, Chicago is a seller’s market with serious home buying competition. You might be apt to make an offer sooner rather than later so you don’t miss out on attractive opportunities.
- How fast should I act after viewing a home?
Because competition is high, we recommend making an offer very soon after you’ve decided the home is the right one. If you make the decision to put an offer in, we’ll immediately schedule a phone call to talk price and contingencies. Then, we’ll draft up the offer letter and call the listing agent the same day of your decision. We want to move swiftly, but smartly, which is it’s important to work with a highly responsive and devoted Chicago Realtor. Efficiency and expertise is the key to helping you secure the home of your dreams at the right price. Whatever the conditions, do not make an offer or feel pressured to make an offer if you are not 100 percent comfortable with the sale.
- What’s a fair offer?
Currently, the average home for sale in Chicago is selling very close to list price. Per the latest Chicago real estate market report, condos in the South Loop sold above their initial asking price at 101.4 percent in June. Out of the top downtown neighborhoods, condos in the Loop are generating the lowest percent of asking price at 97.4 percent. If you’re making an offer on a standard listing (i.e. not a foreclosure or short sale) in solid condition, prepare to pay close to, at or slightly above asking price.
The good news is that most asking prices in Chicago are moderate compared to other major metropolitan areas. Plus, many homes in the greater Chicago metro have not recouped to their pre-recession peaks, which keeps affordability high. Although home prices are not at their peak, home values are on the rise, which gives new homeowners the chance to build equity and generate returns when they sell in the future. It may be a sellers’ market, but there’s plenty of opportunities for home buyers to make sound investments.
- Do I need a home inspection?
After your offer is accepted and the sales contract is executed, both you and the home sellers enter a period called “attorney review.” This is when the home inspection will take place. The first step is to schedule your home inspection as soon as possible, preferably within a few days of signing the contract. Condo inspections take a few hours at most. Single-family home inspections may take a little longer because the inspector will need to closely examine the detached structure and all its intricate components. You’ll receive the inspection report within one to two days of the assessment. During, the attorneys on each side of the deal review the contract and will factor in the inspection results for negotiations. Your agent may negotiate changes to the contract based on the inspection findings, which is why we always recommend buyers include a home inspection contingency in the initial contract. If you put an offer in a home at full price and the inspector uncovers expensive and necessary repairs, the attorneys can go back and negotiate credits to be given at closing or allow you to back out of the deal without losing your escrow money.
- Can I change my mind?
That’s what contingencies are for! Unless you have contingencies in place, the buyer cannot back out of the contract without being financially penalized, thus forfeiting a portion or all of the earnest money. Earnest money (put into an escrow account) is usually 1 to 2 percent of the home’s decided purchase price and is deposited in two waves. There are two contingencies to include that protect you from losing your earnest money if the sale falls through. First, the home inspection contingency states that the buyer is entitled to their deposit if the home inspection reveals needed repairs. There’s also the appraisal contingency, which is necessary when buying a home with a mortgage and recommended in any case. If the home is worth less than the agreed upon purchase price, you don’t have to go through with the sale or lose your escrow money. Your lender won’t increase the total financing amount to overpay for a property, but fortunately, you won’t be forced to finalize the transaction in that case. However, if you’re head over heels with the home and had good reason to buy, you could always pay the difference between the appraised value and the purchase price out-of-pocket.
