Chicago, along with most major U.S. cities, is a city of renters, constituting 55% of the Chicago population. However, as residents consider the possibility of buying their own home and settling down, they can be faced with a daunting amount of information.
When looking to buy a single family home in the city, real estate agent Ben Lalez said it is important to consider that the market can vary a lot depending on what you are looking for and in which part of town.
“Real estate is local, and particularly in Chicago when you’re made up of 77 [community areas], it gets really hyperlocal. After you dive into the neighborhoods, it can get street by street,” Lalez said of the current market.
According to real estate agent Clarissa Vega, the market for single family homes on Chicago’s southwest side is “competitive” due to its proximity to important features such as schools, prominent highways, and in many cases, buyers’ families.
“You can get a nice entry-level home for maybe $250,000, and the best thing about it is you don’t have these extremely high taxes,” she said. “Taxes increase every single year, but for the most part, we’re not paying $10,000 in taxes like other areas.”
However, with rising prices and a competitive market, real estate agent Dixie Cook said people are tending to start buying their first home at a later age — instead of 25 or 27, they are now closer to 30 years old. No matter what age people are deciding to own a home, La Raza has compiled a guide to help answer basic questions about the process.
How do I know if I am ready to buy a home?
When someone starts to look into their budget and decide what they can and cannot afford, Lalez said it is important to talk to someone at a bank or a lender and share financial information — income, liabilities, student loans and things of the like. He said it is important to get the perspective of a real person in the business rather than just an online calculator.
“They have essentially formulas to help derive what they think you can afford on a monthly basis,” he said. “You may agree or disagree, you may want to be more aggressive or less aggressive… but you have to start with a professional, in our opinion.”
Vega also said speaking with professionals about a budget is imperative, and buyers should not be in a situation where they need to live paycheck to paycheck in order to pay off a mortgage. In Illinois, the required down payment on a house can range from three to five percent for traditional loans, which Vega said is good to know for buyers just starting to crunch numbers.
Who do I need to talk to throughout the process?
“It’s about assembling a team,” Lalez said. “You need a great real estate agent, you need a great lender, you need a great lawyer, you need a great inspector.”
Vega said buyers should be upfront with their realtor about everything they are looking for — necessary school districts, home types, or anything else important to them. This way, they can find realtors that have the capacity to show buyers what they need.
When vetting lenders and lawyers, Lalez said buyers should ask them if there are any real estate agents they work with regularly, and then reach out to speak with them about their experience. Once someone’s chosen a lender, Vega also recommends checking with them about what a buyers’ credit should look like going into the process in order to make sure they remain on track.
How much time do I need to allot for the homebuying process?
According to Vega, the average time it takes to buy a home is 30-45 days. However, Cook said homebuying can happen as quickly or slowly as buyers want.
“Just to be safe, say you’re renting and your lease is up in six months, I would say three to four [months] is a good cushion,” he said. “[You’re] not feeling rushed when buying a home, and you feel comfortable with moving and finding a new tenant.”
What are common misconceptions about buying a home?
One of the main misconceptions Cook said he sees in his position is people who do not realize there will be many more costs than just a down payment. He said he once had a client who did not end up buying because he did not know he would end up with $8,000-$10,000 of closing costs.
“I feel a lot of people think, ‘Oh well, I just need a down payment,’” Cook said. “But there’s a lot more things that come to the buying process: closing costs, lender fees, inspections, attorneys, and a lot of people don’t know that.”
Even with these costs to consider, Vega said buyers should know the down payment itself does not need to be as big as they might think — and their credit scores do not need to be flawless in order to get a loan. If they are ready to buy a home, there are options available to them to make it happen.
“If you’re buying a house right now, if you can afford the payment, then do it,” she said. “Real estate is going to flourish over time, you’re going to build that equity over time, versus waiting for the ‘perfect time’ The ‘perfect time’ is whatever is suitable for you and your current situation.”
When deciding on a mortgage, the Federal Reserve recommends five tips:
- Determine what is affordable for you.
- Compare different lenders.
- Make sure you understand the upcoming fees.
- Know your options for how your mortgage can work.
- Get help from your attorney or other trusted source.
Property Taxes 101
The State of Illinois has no set a rate for property taxes. According to its revenue website, the bill is based on two factors: equalized assessed value (EAV) of your property and the amount of money your local taxing districts need to operate during the coming year. Cook county assigns assessment levels based on different types of property, with reportedly 10% of market value for residential homes and 25% for commercial property.
More information can be found on the state’s Taxpayer Answer Center.
Down payment Assistance
There are many options available for homebuyers looking for help with down payments. Some potential options are:
—La Raza’s editorial coverage is possible in part thanks to a grant from the Chicago Community Trust.