Obstacles and Solutions When Buying a Home in Chicago

There are advantages and disadvantages to buying a property, just as there are to renting one.
“Common limitations are credit scores, excessive debt, not knowing where to start, and not working with a trustworthy real estate agent,” said Dan Ortiz, a real estate agent serving the suburbs of Berwyn, Cicero, Maywood, Broadview, and the South Chicago and Garfield Ridge neighborhoods, in an interview with La Raza.

The moment when an individual or family decides to buy a home depends on a variety of factors, including income, their ability to achieve suitable credit, and other elements that vary based on the economy and the unique characteristics of each community.

To understand what it means to own a home, one must analyze the alternative. Renting an apartment means that the tenant depends on a contract—perhaps a month-to-month agreement—but they are not investing in their net worth. In other words, they sacrifice investing in their future and the future of their descendants, who could benefit from their wealth.

Renting does present certain advantages. Renters do not have to pay property taxes directly or set aside funds for property repairs, allowing for savings or other expenditures.

Anna Vázquez lives with her husband and three children in an apartment in the Brighton Park neighborhood in southwest Chicago. Her family’s decision to rent rather than buy was primarily based on their finances.
“We wanted to have enough funds available every month to adjust to any needs that might come up with our kids. If we had bought a house, we would have had to share those monthly expenses with the responsibilities of homeownership,” explained Vázquez, who pays $1,260 for a four-bedroom apartment.

Experts recommend that buyers have a certain level of financial stability before starting the process of becoming homeowners. Banks and real estate agents use a basic formula to determine whether it’s the right time for an individual to buy and if they meet income eligibility requirements. According to the FHA, mortgage payments should not exceed 29% of an individual’s gross monthly income. This guideline helps prevent future foreclosures.

Factors to Consider When Deciding to Buy a Home

“During a consultation, my client’s younger brother, who was in the room playing video games, asked me if the process was really as simple as it seemed,” shared Francisco Ríos, a real estate agent with six years of experience. 75% of his clients are Latino.

The 21-year-old spoke to a lender and discovered he qualified to buy a home but needed funds for a down payment. The client decided to sell his used car to purchase a two-unit property. His goal was to move his parents and five siblings out of the mobile home where they had lived their entire lives.
“Stories like this fill me with hope—not only because it’s about a Latino family thriving, but also because it involves young buyers investing in their future,” Ríos emphasized.

Buying a home is not an option for everyone, but it is a responsibility and a smart investment for those who decide to take that step. Today, there is accessible inventory through various online platforms. With a mobile device, one can compare mortgage offers, research the history of real estate agents, examine interest rates, and review available loans from the comfort of their home.

Before starting the home search, buyers should evaluate their credit score, current monthly expenses, and savings available for the down payment.
“Buyers should have funds available for the down payment, earnest money deposit, home inspections, appraisals, attorney fees, loan fees, title company fees, taxes, compensation for their real estate agent, and homeowners insurance,” said Monika Fogarty, a real estate agent with 16 years of experience serving southwest Chicago and the suburbs.

The Mortgage Process

After evaluating personal finances and determining if monthly income is sufficient to cover a mortgage, a buyer must identify the amount available for the down payment and closing costs. This information helps determine the type of loan they can apply for. Selecting a trusted real estate agent, hiring a real estate attorney, and engaging a home inspector are key steps in transitioning from renter to homeowner.
“A good real estate agent should know the market, be trustworthy, listen carefully to clients, provide honest advice, and have strong negotiation skills to help clients get the best deals,” explained Ortiz, who has seven years of experience, with over 40% of his clients being of Latino descent.

Current Interest Rates

Interest rates significantly impact monthly mortgage payments. The Federal Reserve sets the benchmark interest rate for lenders based on economic conditions. In 2023, for example, the real estate market experienced the highest interest rates in decades, reaching up to 7.7%, alongside a limited housing inventory. High interest rates inflated mortgage payments, prompting many potential buyers to continue renting.

Recently, to prevent an economic downturn and stimulate the housing market, the Federal Reserve announced a reduction in interest rates.
“The response to the new interest rate was immediate. More interested buyers began calling to visit homes, and homeowners who had been waiting to sell their properties felt encouraged, hoping to attract buyers quickly at their asking price,” Ortiz shared.

Down Payment

To avoid paying mortgage insurance, it is recommended to invest 20% of the total home cost as a down payment. For many, saving this amount is unrealistic, so programs exist to help buyers with their down payment. FHA loans require mortgage insurance to protect the lender and increase the applicant’s chances of qualifying for a loan they might struggle to secure with less than a 20% down payment. Mortgage insurance can be included in monthly payments or added to closing costs.
“I’ve helped people with Social Security numbers buy homes with as little as $1,000 and buyers with ITIN numbers contribute 10% of the home price for the down payment,” said Ríos.

Financial Programs

Financial support programs and counseling on the home-buying process help buyers secure the necessary financing. In addition to federal lenders, private institutions, nonprofit organizations, and banks offer various options tailored to individual needs.

In Illinois, the Illinois Housing Development Authority (IHDA) offers three programs that provide financial support to help individuals achieve homeownership by contributing to the down payment or closing costs:

1. A $6,000 forgivable loan after 10 years.

2. A $7,500 loan repayable upon the sale of the property.

3. A $10,000 loan requiring monthly payments over a 10-year period.

Applicants for these programs must meet certain requirements, including living in the home, investing $1,000 or 1% of the property price, having a credit score of 640, and completing a counseling program on the home-buying process.

IHDA, in collaboration with the Federal Home Loan Bank of Chicago, provides housing counseling approved by the U.S. Department of Housing and Urban Development (HUD) to expand access to opportunities for low-income and minority homebuyers.

In Chicago, the Down Payment Assistance Program (DPA) provides $20,000 to Chicago Housing Authority (CHA) residents and $10,000 to applicants who are not CHA participants. This program is a collaboration between CHA and the Neighborhood Housing Services of Chicago. Participants must be first-time homebuyers with no debts exceeding 45% of their income and must be U.S. citizens intending to live in Chicago.

Additionally, community organizations like Resurrection Project offer loans with affordable monthly payments and a minimum down payment of 3%.

Good Credit

A person’s credit score significantly impacts the type of loan they may qualify for. It is advisable to pay off debts before starting the mortgage process and to avoid new contracts or large purchases on credit cards during the process, as these can negatively affect the score.

“Our credit is fine, and we had money for the down payment, but the balance on our credit cards and car loans is keeping us here for now, while housing costs keep climbing,” Vázquez explained.

Individuals with a credit score of 740 or higher qualify for loans with lower interest rates. However, those with scores below 620 can still qualify for FHA loans, which are backed by the government and provide an opportunity for homeownership.

Immigration Status

When purchasing a home, individuals can consider FHA loans backed by the government or conventional loans.

However, immigrants without legal status face significant challenges when starting the home-buying process. Many financial institutions refuse to provide loans to individuals without a credit history, which is often the case for immigrants. Despite this, options exist.

Programs offer loans to populations that receive wages in cash, do not report these amounts to credit authorities, or do not use credit cards to pay their bills. However, without the ability to track or verify undocumented immigrants’ identities, financial institutions find it challenging to trust these individuals with mortgage credit.

“There is a misconception that you need a lot of cash or a Social Security number to buy a house, which is not true at all,” Ríos clarified.

To address this issue, housing loans can be obtained using an ITIN (Individual Taxpayer Identification Number) issued by the Internal Revenue Service (IRS) instead of a Social Security number. ITIN loan applicants must demonstrate employment and proof of tax payment. They must also present other documents, such as a bank history and utility bills. ITIN applicants are more vulnerable to predatory lending and should take precautions when accepting offers with high interest rates.

Additionally, in Illinois, HUD programs provide financial assistance for first-time homebuyers, veterans, active military members and their surviving spouses, Native Americans, teachers, first responders, firefighters, EMTs, and buyers interested in rural properties.

For more information about these programs and to report fraudulent lenders, visit www.hud.gov.

Type of Home

A home is not necessarily suitable for everyone. The ideal type of home depends on a buyer’s needs, including the number of bedrooms, access to funds, and available income for maintenance or additional costs.

A dream home might be an apartment, condominium, single-family house, or 2-to-4-unit property. For example, investing in a condo eliminates the need to buy a lawn mower but requires monthly payments to a homeowners association, which manages common areas and property exteriors.

“The Latino community is very complex and diverse, and the needs of each client are different. In my experience, lifestyle tends to be the most important factor. My millennial and Gen Z clients, some from Mexico City and others from Bogotá, love the fast pace of living in buildings near work and entertainment. On the other hand, many families prefer the suburbs, where they have more room to grow,” Ríos explained.

Location

For some families, the location of the property outweighs the number of bedrooms or bathrooms. Limited transportation options can be a sufficient reason to choose a home close to schools, a park, public transit, or cultural and entertainment centers.

Another consideration is the crime rate in a community, as this could affect the property’s value.

Condition of the Home

For some buyers, the most important factor is that the property is move-in ready—ideally, a new or recently remodeled home that can be furnished immediately and requires minimal repairs. However, the primary drawback is the high cost of such homes.

In Chicago, the Home Repair Program provides financial assistance for renovation projects (e.g., roof installations) to people with incomes below the official poverty threshold. Buyers can acquire properties at reasonable prices if they are willing to invest time and effort into creating their dream home.

Additionally, buyers must consider whether the number of bedrooms and bathrooms is sufficient for the number of people who will live in the home.

Changes to Real Estate Laws

In September 2024, the National Association of Realtors announced a settlement to resolve a lawsuit that changed the compensation structure for agents representing buyers.

“The new changes from the settlement require more transparency and the disassociation of paid commissions,” Fogarty explained.

Previously, in most residential sales, sellers paid their own real estate agent’s commissions and offered a commission to the buyer’s agent. Under the settlement, sellers’ agents can offer to pay the buyer’s agent’s commission during negotiations but cannot advertise this on the Multiple Listing Service (MLS), the database used by real estate agents to promote homes for sale. Buyers must sign an agreement with their agent before visiting a property. This agreement must list the compensation amount the buyer will pay their agent if the seller does not agree to cover the commission as part of the negotiation.

Contact Information

U.S. Department of Housing and Urban Development (HUD)
www.hud.gov

Illinois Housing Development Authority (IHDA)
www.ihda.org

Cook County Treasurer
www.cookcountytreasurer.com

—

The production and publication of this story by La Raza have been made possible in part thanks to a grant from The Chicago Community Trust through its Cross Community Impact / Collective Power grant program.