After saving up diligently for years, it’s finally time to purchase your very first home. A first-time home purchase is a big milestone, and one to truly celebrate and cherish. But it’s also a decision that requires careful research.
While there may be a litany of advice and resources online about purchasing a home, take it from a local expert who knows Chicago’s real estate market best.
Here are answers to some frequently asked questions about buying your first home. You can also click here for a glossary of some common terms you’re likely to encounter as a first-time buyer.
What kind of home do I want?
It’s important for any first-time homebuyer in the Chicago area to understand exactly what type of property they want to search for. Within the city – and throughout many suburbs – there are many housing types: condos, multi-family flats, row homes, single family homes, and more. Each presents a unique lifestyle, as well as varying degrees of responsibility that come with being an owner. For example, owning a multi-unit building will require you to manage maintenance, rent collection, and tenant needs, whereas living in a large condominium building is relatively turnkey.
Other important considerations include location and the features and amenities that come with the home and surrounding neighborhood. Try to picture what’s best for your lifestyle and make a list of the pros and cons of the types of homes you’re considering. This will save you a lot of time in your search.
How do I apply for a mortgage?
There are a variety of options for obtaining a loan to buy your first home. Most consumer banks and credit unions offer a menu of standard mortgage products. An independent mortgage broker, on the other hand, will help you shop for the best interest rates and loan products among a variety of sources.
Some mortgage brokers handle the entire process online. Others work face-to-face while using technology to streamline the process. If this is your first home purchase, it’s always nice to have a human being you can talk to. There are also a number of programs out there designed to help buyers purchase their first home. These programs might offer lower down payments, more lenient qualifying guidelines, and even cash grants. Ask your loan officer.
How much will I need for a down payment?
Again, there are a lot of different ways to look at down payments. Federal Housing Administration (FHA) loan programs require as little as 3.5% down. On the other hand, the prevailing wisdom for many years was that buyers should put down 20%. And the reality is, homebuyers do everything in between.
Lower down payments will translate to higher monthly costs and vice versa. Get the picture? It’s all about you, your financial situation, your comfort level with monthly payments, your timeline for when you want to buy, and other factors. And, not to complicate things, but it’s also worthwhile to consider the cost of money. Interest rates are incredibly low right now. More sophisticated buyers might want to think about whether extra cash they could use to increase their down payment would earn a higher return in other investment vehicles like the stock market.
The bottom line is talk to your @properties agent, talk to your mortgage broker, talk to your accountant, financial advisor or other confidants, and come up with the strategy that’s right for you. If you’re ready to buy a home, there’s almost always a down payment amount and a loan program that will meet your needs.
What about the condition of the home?
When researching properties, and especially when viewing homes, it’s important to get a holistic look at a home. This means looking past the new stainless-steel finishes and quartz countertops and getting an idea of the condition of important structural features and mechanical systems. When was the last time the roof was replaced? How old are the water heaters and furnace? What kind of wiring does the home have? What’s the condition of the plumbing? And, if you’re buying a condominium, what’s the financial condition of the association? Is there a looming special assessment?
It’s necessary to go beyond the surface to make sure that you’re getting a good value and a home without unnecessary or unforeseen headaches. That’s why buyers are advised to request a home inspection prior to closing. Your real estate agent can provide recommendations for a licensed home inspector, who will thoroughly examine the structure and systems of the home. Learn more about the inspection process here.
What happens if my offer is rejected?
Your @properties agent will help you make the most appealing and thorough offer on a property. Most transactions involve at least some negotiation.
If your offer is rejected, your agent will continue to seek information from the seller’s agent to determine the best course of action. If there’s more room in the budget and you’ve found the home of your dreams, it’s usually best to make your best and final offer upfront. However, if the sellers have decided on a different offer or simply aren’t interested in countering, it’s a sign to move on and continue the search. And while losing a home to a better offer can be discouraging, take it from us – things usually have a funny way of working out for the best. The home you ultimately buy will be better than the one you missed out on.
What happens at closing?
Making it to closing day is like getting to the last couple of miles in a marathon. The end may be in sight, but it’s crucial to stay focused on your goal until all documents are signed and the keys are in your hands. Your @properties agent will work with you, your lender, your attorney, and the seller’s agent to ensure a smooth and efficient closing.
At the closing, you will be responsible for bringing the balance of your down payment and the closing costs, such as any loan origination fees, attorney fees, an appraisal fee, transfer tax fees, and title insurance, to name a few. Closing costs vary but typically range from 2% to 5% of the purchase price. Your attorney will guide you through all the documents that need to be signed, and before you know it, you’ll be preparing for that big housewarming party.