Your Ultimate Guide to Buying a Home in Chicago
Are you interested in buying a home in the Chicagoland area? If so, this blog is for you! In it, we will cover everything you need to know about the process.
We'll start by discussing loan programs and assistance programs available to Illinois home buyers. Then we'll move on to the actual buying process, from finding a lender to getting the keys to your new home. So whether you're just starting out or are ready to buy now, this blog has everything you need!
In this Home Buyer Guide, we will be suggesting a variety of different programs and resources. All the relevant links you'll need are provided in the description box below! Our primary focus will be the Chicagoland area, but the resources will be available to anyone looking to purchase in the state of Illinois.
We suggest reading this blog in its entirety as we review important information not covered in other guides.
Why You Should Buy A House
Buying a house is a major investment and can be daunting, but the benefits far outweigh the risks. Homeownership isn’t just an important financial decision—it also provides stability and security for families, neighborhoods, and communities.
Some of the advantages of buying include:
Fulfilling the American Dream
- Owning a home is often seen as the epitome of the American Dream. It's a symbol of accomplishment, security, and stability for many people across the country.
- Owning a home also comes with some great tax benefits, such as being able to deduct interest payments on your loan and property taxes.
- As a homeowner, you will increase your equity with each payment made on your home loan. This equity can be used to fund repairs and improvements or even be converted into cash if needed.
Hedge Against Inflation
- Since they are not making any more land, real estate is considered a hedge against inflation. Owning your own home can protect you from rising costs of living and other economic factors.
Inflation-Induced Debt Destruction
- When inflation rises, the actual cost of debt decreases. This is a great advantage for homeowners with a long-term mortgage because as time goes on, your debts become easier to pay as inflation rises.
Now that you know some of the advantages of buying a home, let's move on to Chapter Two, where we will discuss loan programs for first-time and repeat home buyers.
Loan Programs for Home Buyers
If you are ready to purchase a home, many loan programs are available to help you buy today.
Across the nation, five loan programs are widely used; however, each of them has its own specific criteria and requirements. Before you look for a lender, you should understand these five primary loan programs:
Typically offered to first-time buyers, these loans are insured by the Federal Housing Administration (FHA) and require a smaller down payment than most conventional loans. With a credit score of 580, you can get a loan with as little as 3.5% down!
Offered by the Department of Veterans Affairs, these loans are available to active duty service members and veterans with qualifying credit scores. This program allows you to purchase with a 0% down payment.
These loans are offered to buyers in low-income rural areas that meet certain eligibility criteria set by the United States Department of Agriculture. If you're curious to know which areas are eligible for this program, be sure to have a look at their website.
These loans are not insured by the government and typically require a higher credit score and down payment than other loan types. If you can qualify, this is a great program and the best program to use. You will need a credit score of 620 or higher.
These loans are typically used to purchase high-end properties. Jumbo loans often require a higher credit score and down payment than standard loans. In 2023, single-family mortgages with an amount exceeding $726,200 will be viewed as jumbo loans.
Here is a comprehensive chart of how each of these programs compares.
Down Payment Assistance Programs
Let’s discuss purchase assistance programs and loan programs available to Illinois home buyers!
The Illinois Housing Development Authority (IDHA) provides multiple loan programs for first-time homebuyers in the state of Illinois. These programs are designed to make it easier for buyers to purchase a home with low down payment options and other incentives.
IHDA offers three different programs, a forgivable, a deferred, and a repayable down payment assistance program. The programs provide anywhere from $6,000 to $10,000 in assistance. To qualify for these programs, you must have a credit score of 640 or higher and not have a household income of under $111K for most counties.
If you would like to learn more, you can check out their website or watch our most recent video, all about the 2023 downpayment assistance programs.
City Loan Programs
Many cities in Illinois also have their own loan programs for first-time homebuyers. These loans can offer help with down payments, closing costs, as well as other incentives. To qualify, you must meet certain criteria set by the city and meet income requirements.
It is important to research these loans before applying because terms and conditions vary from city to city. Numerous towns, including Chicago, Aurora, Joilet, and Romeoville have first-time home loan programs. These programs are usually in high demand and fill up quickly so you must look into them right away if interested! Make sure to act promptly.
Two national lenders are very popular with home buyers.
The first one is the CHENOA program. The CHENOA loan program is a great option for those looking to purchase a home with limited resources. It offers two Down Payment Assistance options - one repayable and the other forgivable, which can be accessed by borrowers with credit scores as low as 600.
The program also doesn't have an income limit, but the home price limit must be below the FHA loan limit for your area. CHENOA makes it easier to purchase a home with their down payment assistance of 3.5% and 5%, offering more flexibility for those looking to buy!
The second is NACA. NACA is The Neighborhood Assistance Corporation of America program. This is a program that offers 100% financing. Although the NACA process may be lengthy, for those who are dealing with low-income issues, it is definitely worth considering. Despite its time-consuming nature, you can rest assured that the extra effort will pay off in the long run.
Big Banks & Local Banks
In addition, many large banks, like Bank of America, offer Down Payment Assistance programs for those who qualify.
The qualification requirements vary from bank to bank but generally include income limits, debt-to-income ratios, credit scores, and loan limits. You’ll need to speak with a bank representative to get more information about their specific program and requirements.
Explore Interest Rates
The most common question I hear from most buyers is what Interest rate I should expect. Rates are consistently changing. However, the Consumer Finance Protection Division gives you an estimated calculation of what you can expect in your state based on your credit score, home price, and loan type.
Choosing A Lender
Once you have figured out what programs you might be interested in, you want to contact a lender familiar with the program you are considering. You want to ensure the lender is approved to provide those loan programs you are inquiring about. The lender can provide more information and guide you through the application.
I suggest not searching for the best rates; it's much more important to seek out a lender you feel comfortable with.
This person will be guiding you through one of the largest purchases in your life, so it's important to make sure that they understand your needs and that you feel comfortable with their advice. You want your lender to have the heart of a teacher and always be available to answer your questions.
Remember, your lender is a key piece to the puzzle; they can make or break any deal. So make sure to choose wisely and find the right lender for you!
Finding A Loan Officer
Friends and Family Referral
Documents Needed To Get A Loan
I have gone through the home buying process multiple times, and by far, the most hassle is the paperwork. You will need to provide a lot of documents for you to get approved.
Some of the documents you will need include the following:
- Pay Stubs from the last 30 days
2 Year Tax Returns
Bank Statements from the last two months
Divers License Or Photo ID
As soon as you have the documents in hand, your lender will get to work with those documents and start the pre-approval process.
- Your lender will begin the pre-approval process, which can take 5-10 business days, depending on the lender. During this time, your lender will verify all of your information and determine if you are a good fit for the loan program you have chosen.
Once you get approved, the fun really begins!
- Your Pre Approval will give you an idea of what Loan program you qualify for, your max purchase price, your estimated interest rate, and an estimated monthly mortgage, often referred to as your PITI payment.
Being Pre- Approved before looking at homes is very important, it will give you an advantage over other potential buyers, and both sellers and realtors will take you more seriously.
Your Realtor is the key to success during your home-buying journey; they will help you find the right home in the right location and within your budget. Your realtor will help guide you through the entire process as well as negotiate on your behalf.
Finding a good realtor takes time, so make sure to ask around for referrals and interview them for the job.
Where to Find A Realtor
- Friends and Family Referral
Remember, Choose A Teacher, Not a Salesman
If you are in the Chicagoland area and would like assistance finding a realtor near you or would like to use our services to help you through the process, please contact us.
Once you have found a realtor, let them know you are Pre-Approved so they can show you homes in your budget range.
Questions to Ask Your Realtor
- How long have you been an agent?
Full-Time or Part-Time
How many clients are you working with currently?
Do you have a team or do you work independently?
What is the market like in this neighborhood?
What’s your specialty?
How Much Do They Cost?
A question often asked by home buyers is the cost of using a realtor. It’s typically free for home buyers to work with a realtor. The seller pays the commission, typically 2-3% of the sale price, and the commission is split between their agent and yours.
So don't be afraid to ask questions and make sure your Realtor is right for you! The agent won't get paid unless he or she does their job and gets you into the house you are looking for.
Working With An Agent
The relationship between you and your realtor is very important. You shouldn't be looking at a lot of homes. Instead, you and your realtor should be zeroed in on precisely what you are looking for and find the best fit. Let them know your must-haves and your deal breakers, and move quickly when you see a great opportunity.
Once you find a home you like, your realtor will help you from start to finish every step of the way.
Your realtor’s job is to negotiate on your behalf and get you the best deal possible. Having an experienced agent at your side makes all the difference in a successful home-buying experience, especially in a competitive market like the one we are experiencing today.
Negotiating the Deal
Your Team of Pros
Your team of professionals includes your lender, attorney, home inspector, and realtor. Will be what you will be relying on. They are there to help you get the best deal possible. Make sure to have an open line of communication with your realtor and lender so that they can keep you informed on what is going on at all times.
Your Realtor will also be able to provide their expertise when it comes to coming up with a good offer. Negotiating the deal comes down to using all your resources and a team of professionals
What is Earnest Money? Earnest money is a good faith deposit you make when submitting an offer to show you are serious about buying the home. It varies but is typically 1-2% of the purchase price.
In most cases, your earnest money will be credited back to you at closing, or in some cases; it can be forfeited if you don’t meet the terms of your contract.
It’s important to note that the earnest money you deposit is generally held in an escrow account with a title company or attorney.
A contingency is a condition of your offer that must be met before the contract can become binding. Common contingencies are home inspections, loan approval, and insurance requirements.
To Submit an offer, you must include your pre-approval and contract. The terms, including your contingencies, close date, earnest amount, and loan type, all factor in when submitting an offer.
To be competitive in a tight market, understanding the market and getting the best terms to make the deal work is vital. Rely on your pros here as well and learn the general terms of the standard real estate contract.
Price vs Value
Price is the amount you are offering for a home. Value is what the home is worth to you and it takes into account condition, location, neighborhood comps etc…
Your realtor can also help you figure out if the asking price is reasonable and if it’s fair market value. Price and Value are different. Your realtor can be the best resource for helping you determine this.
When making an offer, price should not be the only thing you are considering. Make sure to look at the whole picture and consider all factors when submitting an offer.
The Buying Timeline
Once your offer is accepted, the process isn’t done yet! You will need to go through the inspection period and appraise the property to approve your loan.
This process is typically 30-45 days, but it can vary depending on the lender and the market. Your realtor will be able to provide more information about timelines in your local area. Here is a breakdown of the timeline.
5-Day Attorney Review
After you have an accepted offer, your realtor will submit the fully executed contract to the attorney. You will have 5 Days to review the contract with the attorney and make any changes that are needed.
5-Day Inspection Period
The inspection period is typically 5 days long. During this time, you can have the property inspected for any possible issues. If any problems arise during this time, you may be able to ask for repairs or a reduction in price from the seller.
3-5 Days to Deliver Earnest
Within three to five days of the purchase agreement, you must deliver earnest money to the attorney, title company, or seller's brokerage.
Secure Financing 30-45 Days
You will have 45 days to secure financing or five days before the closing date whichever comes first. If you are unable to secure financing, the contract will be null and void.
Closing 30-45 Days
Closing usually takes 30- 45 days. During this time, your lender will be working on securing financing, and the title company will be preparing all the documents needed for closing.
Working With Inspectors and Real Estate Attorneys
Once you have an accepted offer, it's time to start finding inspectors and a real estate attorney. Your realtor can recommend good people to work with.
Inspectors typically charge $300-$500 for the inspection, depending on the size of the house. You will want to schedule two inspections, one is a structural/mechanical inspection, and the other is a radon gas test.
Your real estate attorney will help you with paperwork and ensure everything is going smoothly during the process. They can also help advise you on any legal matters or questions you may have about your purchase. It's important to have everyone in the process able to communicate and work together.
Once you are past the five days due diligence period and Attorney review, you will then move on to the underwriting process. Underwriting is a process that banks and lenders use to evaluate the risk of making a loan. Your lender will review your credit history, income, assets, and other financial information. This process can take up to 20-30 days before you receive approval or denial from the bank.
Your lender will be monitoring the process and will keep you updated as to what is happening. This way, there are no surprises when it comes time for closing.
If you have an FHA loan, you will need a separate FHA loan inspection at this time. This process can take from 30-45 days, depending.
Your lender will also order a home appraisal before closing. This process can take from 5-7 days to complete, and the results will determine if the loan is approved or denied.
What if the Appraised Value is Below Purchase?
Often I am asked what happens if the home doesn't appraise for the agreed price. If the appraised value comes in below your purchase price, you can either try to renegotiate with the seller or put more money down to make up for the difference. This is why it's important to do your research when offering a price and ensure you are not overpaying for a home.
Often in most cases, the difference is split between the two parties, but if the seller is not willing to lower their price, you may need to consider other options.
Total Out Of Pocket Expenses
- Earnest Money Deposit- 1-2% of the home
Attorney Fees- $600- $700
Down Payment- 0%- 3.5%, 3.0%, 5.0%
Insurance- $1,000- $2,000
Closing Costs- 2-3% of Home Price
The rule of thumb is to have 6% of the purchase price saved up to cover all your out-of-pocket expenses. It’s essential to have a realistic budget when considering purchasing a home.
The Closing Table
After all the work and time you have spent looking for a house, it’s finally time to go to the closing table. This is when you sign all the paperwork, pay your fees and officially become a homeowner.
At this point in the process, money is typically due at closing. Closing costs can range from 1-3% of the purchase price, but can be much more depending on the loan program you are using. You will need to have enough cash saved up or a large enough line of credit to cover these costs.
At the closing table, you will be signing some important paperwork. Let's go through those individually in more detail.
What is Title Insurance
Title insurance is a policy that is given to you that covers your interests in the property. It protects you from any past claims or liens on the title of the house and makes sure that you have clear ownership. This cost can range from $300 to $1500 dollars depending on the purchase price.
What is a Mortgage
A mortgage is a loan taken out to pay for the purchase of a house. The terms of the loan are usually based on your credit score, income, and debt-to-income ratio.
The average mortgage can range from 15-30 years and is a lien against the property in case you don't pay your mortgage.
Understanding a Deed
A deed is a legal document that transfers ownership of the house from one person to another. It will list all the parties involved in the transaction, as well as any liens or encumbrances on the property. It’s important to make sure that all information is correct before signing off on it.
Buying a house is a big commitment and can be overwhelming at times. It’s important to take your time, do your research and make sure that you understand every step of the process. Ask questions and be proactive so that you can make an informed decision when making such a necessary purchase.
You have made it through one of life's biggest milestones, and you can be proud that you have finally accomplished the goal of homeownership!
If you have made it to the end of this blog, congratulations, you are more prepared to purchase a home than almost every other home buyer. We hope this blog was of some value and you have a better understanding of the home-buying process.
If you would like a one-on-one consultation discussing your specific situation, feel free to reach out.
Posted by Rafael Velasco on
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