Are You Ready for Chicago Home Ownership?
Whether you're buying a condo, a townhome, or a house, becoming a homeowner is a major step in your life. For many, home ownership represents the last step in the process of becoming an adult, as your home will make you fully independent. For others, the significance of home ownership comes from its status as the first major investment a person makes—and for most people, property investments will be the biggest ones they make throughout their lifetimes.
Owning a home, even a condo, is superior to renting in a number of ways. Whereas renting limited your options to redecorate or renovate to what your landlord would allow, you'll have much more freedom to make choices about your home when you own it. Better yet, your monthly payments will go to reducing your debt and building equity, rather than simply straight into the landlords pocket—in fact, buying a condo is often more financially sound than renting an apartment in the long-term.
That said, there can be some downsides to home ownership, and to avoid them, it's best to be prepared. While you'll have freedom and independence, you'll also have responsibilities, such as mortgage payments, condo fees, and property taxes. Furthermore, you'll be more strongly tied to one place, as selling your home to move elsewhere is a lot more complicated than simply moving apartments. We've prepared this extensive guide to help get you up to speed about everything you need to do to buy your first home. And if you decide that you're not ready, that's fine—we'll be here to help in a few years when the time is right.
The first thing to think about when you're considering buying a home is what you can afford. Between taxes, fees, and compound interest, it can be daunting to figure out exactly how much you can afford, but leaving those steps for later will tend to cause disappointment or even a financial blunder. Buyers who don't know their budget often waste time looking at (and falling in love with) homes they can't afford, or worse—they commit to a purchase price that's not realistic for them in the long-term.
You can avoid these mistakes by calculating exactly what you can afford. First, take stock of your income—and if you're buying a home with a partner, look at your combined incomes. Experts recommend keeping your overall housing debt to less than 32% of your gross income, to keep your finances secure (and your overall debt should be no more than 40%). What this means is that your combined mortgage payments, property taxes, and condo or home owner association fees should amount to no more than 32% of your income over the course of any given year.
Once you know what kind of mortgage payments you can afford, you can use our mortgage calculator to find what kind of loan and budget is right for you. Better yet, go over these numbers with a financial advisor. Finally, get pre-approved for a loan so that you can show sellers you're serious—let us know if we can help you by connecting you to one of Chicago's best lenders.
Set Your Expectations
Once you know what your budget is, you can focus on preparing for the less quantifiable parts of the process. Setting realistic and clear expectations will help you be efficient in your search, and will pay off by ensuring that you find exactly what you need.
Defining Your Needs
A big part of preparing for a home search is figuring out the difference between the things you need and the things you merely want. In other words, you should know what aspects of a home you need to have as opposed to those aspects that would just be nice to have. Usually, you'll have to compromise on some of the nice-to-haves in order to be able to afford a home with everything you need. However, it's fairly common, especially in Chicago, to buy a condo to live in for a few years, and then to sell it and move into a nicer home (or even just a nicer condo). So don't worry if you're first home isn't perfect, since you may only live there for a few years.
Needs and wants can take different forms. For example, you may want a second bathroom, or an extra 500 square feet of space. However, you may need a parking spot. When you're considering a condo, you might be attracted to ones that have the things you want, even if they don't have everything you need. But if you know exactly what you need, you can overcome the appeal of condos that don't meet those needs, no matter how nice they seem.
Keep in mind that your needs and wants will extend beyond the home itself to the neighborhood. Think about your commute to work, and your proximity to key amenities like grocery stores and parks. Think about the rules of the home owner association or condo association. Consider which aspects of these conveniences are deal-breakers and which are simple a sacrifice worth making.
Ideally, you will generate these lists of need-to-haves and nice-to-haves in cooperation with your buyer's agent. Not only can your agent help you to think of aspects of your future home that might not have come to mind—they can then take your list and make sure to only show you properties that meet your criteria.
Setting Your Expectations
In addition to figuring out what you need, you should work to set your expectations. For all the positives of home ownership, it still comes with responsibilities. These responsibilities are typically greater for a single-family home or a townhome than they are for a condo, due to the fact that condo owners tend to pay fees that take care of maintenance for the building. That, and condos don't come with yards.
However, it's not just the time or money to maintain your home. You should also be prepared for what it will be like to live in the neighborhood. This includes adjusting to your commute, to the types of neighbors you'll have, and to other local amenities like schools. Luckily, you can look into all of these factors before making an offer, so you know what you're getting into before you commit to it. Having this advance knowledge will help to prevent you from feeling like you made a mistake later on.
The Next Steps
Once you have your finances and your expectations in order, there are a few simple steps to follow to make sure that you do your due diligence and avoid any problems down the line.
1. Hire a real estate lawyer. Many people inexperienced with real estate will have never considered hiring a real estate lawyer, and some might even think of them as a waste of money. However, real estate lawyers are experts in helping you avoid any complicated legal problems during your deal. It just makes sense to have a lawyer look over the documents when you're making the biggest purchase of your life. If you're looking for a good real estate lawyer, contact us and we'll refer you to the best in Chicago.
2. Make a strong offer. A key moment in the process of buying a home is the moment when you make an offer. As there are usually competing offers, it's important to make yours attractive so as to outshine the other potential buyers. At the same time, you don't want to offer more than you can afford or more than a home is worth. Finally, there are other aspects to an offer than just the amount of money, such as the amount of your deposit. While not every offer will be accepted, a good buyer's agent will help you have the best chance possible to get the home you want at the right price.
3. Get all necessary inspections done. You might think that a newer home or condo doesn't need inspecting, but that's not always the case. Newer homes, and especially those that are brand new, often have problems that have gone overlooked because no one has lived there for very long. To avoid getting stuck with the bill for fixing these problems down the line, make sure to get all relevant inspections done. Your buyer's agent will help you to know what inspections to get and refer you to trustworthy inspectors.
4. Do a final walkthrough. You and your agent should be sure to do a final walkthrough of your new home before closing the deal. Think of the final walkthrough as the last precaution—its purpose is to make sure that everything you agreed on with the seller, such as repairs or renovations, have been taken care of. Without a final walkthrough, there's always a small chance that something will be amiss, and you won't find out until it's too late.
Home At Last
Once you've closed the deal, you'll be a home owner. Congratulations! It may seem like a lot of work, but that feeling at the end will be completely worth it. As you walk through your new home, think about the independence and long-term financial gain that your investment represents. And most of all, think about the life you'll have in your first home for years to come.
A good real estate agent is an essential guide through the process of buying your first home. Luckily, Magellan Realty has Chicago's best!