Buying a Home in Chicago

Buying a Home in Chicago: How to Buy and Finance a House

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers buying a home in Chicago. Chicago is one of the most beautiful cities in the nation. Downtown Chicago is hands down the most beautiful downtown in the nation, if not the world. Like many other major cities, Chicago has its share of problems, such as education, traffic, political unrest, crime, high sales and state income taxes, high property taxes, higher cost of living than the national average, and harsh long winters. Danny Vesokie, President of Diversified Affiliated Partners and a lifelong resident of Chicago, says the following about buying a home in Chicago:

The positives and benefits of city living and buying a home in Chicago outweigh the negatives. Chicago has countless business opportunities. Anyone can find a great-paying job or career opportunity in Chicago. The Windy City is home of world-renowned colleges and universities: Northwestern University, Illinois Institute of Technology, University of Illinois-Chicago, University of Chicago, and Lake Forest College.

There is no other city in the nation than Chicago, where many people from other countries migrate. The food scene in the Windy City is AMAZING. People from every country in the world have a presence in Chicago. In the following paragraphs, we will provide a step-by-step guide for buying a home in Chicago. We will frequently ask questions about buying a home in Chicago and how to get it financed.

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First Step To Buying a Home in Chicago: Get Pre-Approved

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The first step is to apply for mortgage pre-approval unless you can pay cash for your home. Unlike a pre-qualification, a pre-approval proves you can close on a home purchase if the property meets the lender’s guidelines. A preapproved offer is almost as good as a cash offer. Most sellers want you to submit a pre-approval letter or proof of funds (if paying cash) before they accept your offer. And many sellers, especially in areas where COVID is still a concern, won’t allow you to view the home without proof that you’re serious and capable of closing.

Pre-Qualification vs. Mortgage Pre-Approval 

Many consumers use the terms prequalification and preapproval interchangeably. When buying a home in Chicago, the first step is to get a solid pre-approval. They are not the same thing at all. A prequalification letter usually states that according to information provided by the buyer, this person should be able to afford a mortgage up to X amount. The statements from the borrower have not been verified, and usually, no credit reports have been pulled. Most lending and real estate professionals don’t take a prequalification letter seriously. It’s better than nothing, but not much. I strongly advise buyers to get preapproved before shopping. If you find a home you fall in love with and later discover you can’t get the loan, you will have wasted your time and be disappointed.

Related: Are You Ready for Homeownership?

What Do I Do Once I Find a House?

You’ll make an offer once you find a home you like and can afford. If you have a buyer’s agent, this person will help you. However, you’re the one who will be paying for the house, so offer what you want to pay and don’t exceed your comfort zone.  And remember that agents’ commissions are based on the property’s sales price. If you’re serious about buying, you want a strong offer. There are ways to create a strong offer that does not involve paying more than you can afford. Attach an earnest money check to your offer. Experienced property investors do this because the check proves they’re serious, suggest Ronda Butts, a dually licensed realtor and loan officer:

Don’t submit a “low-ball” offer if you want the property. Some sellers find them insulting, and they may not even counter your offer. Limit contingencies. It’s not a strong offer if your current home must sell before you can close, and it’s been on the market for a year.

You can avoid a troubling financing contingency if you are preapproved. Most sellers want a fast closing. Be flexible and offer to close on their schedule if you’re highly motivated. Don’t require too many seller concessions. n a buyer’s market, you may get them to pay your closing costs, cover a mortgage insurance policy, or throw in a home warranty or snow blower. But asking for too much can backfire in a seller’s market. Other experts recommend checking out the seller’s social media and seeing if you have anything in common and can make a connection. Sometimes, a warm letter with your offer can give you an advantage.

What Price Do I Offer?

Buying a home in Chicago can be challenging in some neighborhoods because of low inventory. The asking price is a starting point but should not entirely guide your offer. Some sellers price low, hoping to start a bidding war. Others price high, hoping for a magic idiot with a fist full of cash. Your agent should be able to prepare a comparative market analysis (CMA) of the property and nearby sales. Use this to justify any offer you make. Ensure you are comfortable with the estimated monthly mortgage payments, similar recent home sales, and the home’s suitability for your needs.

Can I Mae Two Offers at Once, Buying a House in Chicago

The short answer is no. Do not submit two simultaneous offers unless you can buy two properties. When you submit an offer, you give the seller a response deadline. You must wait to make another offer elsewhere because if this seller accepts your offer without any changes, you must complete the purchase. Julie Hayward, a top-producing real estate agent from Naperville, Illinois, advises the following:

You must buy both properties if you make two offers at once, and both are accepted without a counteroffer. If you can’t do that, one seller will probably sue you. Potentially costing you thousands of dollars in legal fees, damages, and penalties. So, choose the property you like best and that most closely fits your requirements.

If that seller doesn’t accept your offer as written, you can continue negotiating for that property or make another offer. Don’t worry about FOMO when buying a home in Chicago. If one doesn’t work out, another will always work for you. I’ve had this happen to several buyers, and the second property ultimately becomes their favorite! Sometimes life works in mysterious ways.

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Making an Offer When You Have to Sell a Home First and Buying a Home in Chicago

How the process of buying a Chicago home looks like with an leaving property sale

“Do I sell first or find a property I want to buy?” That’s a common question. My answer depends on your comfort level. Depending on the real estate purchase contract, you may have to list your home immediately once you have an offer. A five-day deadline is common. I recommend listing your current property and searching for the new property simultaneously. Ronda Butts, a dually licensed realtor and loan officer, explains on whether to sell your house first before buying or buying first and selling, or buying and selling simultaneously:

Sellers who are also buyers need to familiarize themselves with the current market. Should they find a home they like, they should put an offer on it before it goes under contract with someone else — and therefore, they should prepare to list their home on very short notice. When you buy and sell simultaneously or separately, there are different risks and stress. Sell your current home first removes the stress of trying to sell with a deadline. But then you’ll be trying to buy on a deadline.

You might not find something you like or close soon enough. And then you’ll have to move twice.  If you decide to buy first and then cannot sell a current home, you may lose your first choice and find yourself house-hunting again. Whatever you decide, take a look at the market first, gauge the supply and demand situation and make your decision. In a hot seller’s market, you may want to buy first. In a slower buyer’s market, it probably makes sense to sell first. And line up a rental just in case.

Negotiating Your Offer

When you submit an offer, the seller can do one of three things.

  • Reject your offer or ignore it, which is the same as rejecting it.
  • Accept your offer with no changes, obligating you to proceed with the purchase.
  • Counter your offer, which means you can walk away, accept the counter, or counter with your conditions.

This process can go back and forth. But if it’s a hot seller’s market, you’ll not wish to provide too many opportunities for the seller to walk away. When buying a home in Chicago,  there is usually an attorney review period after signing the contract. Five business days are typical. You, the buyer, would have five days to conduct a home inspection. After the inspection report returns, the buyer, agent, and attorney work together to arrange for repairs or credits for repairs. The contract may become null and void if the buyer and seller cannot agree.

Can I Change My Mind and Back Out of a Purchase?

Changing your mind’s not against the law, but you’ll probably have to compensate the seller. The penalties may be very steep, depending on the contract terms. If you cannot proceed because of unmet contingencies — if your mortgage approval falls through because you lose your job, for instance, or your home doesn’t sell — you can back out without penalty. That’s assuming that your earnest money deposit is refundable (it would be unless you specify that it’s not refundable, which could happen if you have to compete with other buyers). If you just back out because you changed your mind, you will almost certainly lose your earnest money and possibly incur other penalties. That will depend on your contract and how much damage you cause your seller by backing out.

The Home Appraisal

After the inspection, if you are financing, your lender will order an appraisal. Even if you’re paying cash, you should order one to protect yourself and ensure the property value matches the sales price. Once the appraiser submits the appraisal, the lender reviews it and (hopefully) approves the value. John Strange of Gustan Cho Associates explains the difference between a home inspection versus a home appraisal:

A home appraisal is mandatory and required by the lender. An appraiser will not inspect every part of the house. That is the home inspectors job. A home inspection is not mandatory by the lender but is highly recommended to get a home inspection.

If the appraisal exceeds the sales price, the lender bases your loan amount on the sales price. If the value of the appraisal comes back lower than the loan amount, the lender bases the loan amount on the lower appraised value, not the sales price. You can renegotiate the sales price based on being unable to finance the home at that value or choose to proceed with a higher down payment. That’s why you need to negotiate carefully. Without an appraisal or financing contingency, you could get stuck overpaying for a property not appraised for the sales price.

Preparing to Buy a Home: How Much Can You Afford?

Final Walk-Through 

Before closing, purchase homeowners insurance (your lender requires it), transfer utilities, forward mail, and arrange movers. You should conduct a final walkthrough with your agent before or on the day of closing. The purpose is to ensure the property is in the same condition as when you first made the offer. Here is a brief checklist of things you should look for and do:

  •  Ensure all windows and doors (including the garage) open and close.
  • Look up (ceiling) and down (flooring).
  • Look for any cracks, scratches, and other potential issues.
  • Turn on all faucets and flush toilets.
  • Turn on appliances if possible (electricity may not be turned on yet).
  • Take any measurements for refrigerator, furniture, window treatments, TV, etc.

Schedule utilities to be turned on for a day of closing or move-in.

What is the Pre-Closing Mortgage Procedure

 

Closing

Ideally, you’ll get a copy of your closing documents a few days before you can review them without pressure. Ask your mortgage lender to provide them for you. There should be no surprises when you get to the title company. Closing occurs when you sign off on a final set of documents. That normally includes a final loan application. You’ll get a package of documents transferring the property to you and the money to the seller, real estate agents,  and other third parties working on the transaction. The closing usually takes place at a title company’s office. It usually takes an hour or two. You’ll sign your documents, receive a copy of your paperwork and pay your down payment and closing costs. Then you get the keys!

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Buying a Home in Chicago: About the Author

Ronda Butts is the author of the article, Home Buying Process Chicago. Ronda is a veteran prominent Real Estate Agent in Florida, Alabama, Tennessee, and Texas. Ronda is the owner, President, CEO, and managing broker for One Solution Real Estate and one of the most knowledgeable realtors in the United States. Ronda Butts is working on her first book and multiple real estate and mortgage guides, which will be released within the next several months. Gustan Cho Associates is one of Ronda’s greatest fans, and we are lucky and blessed to have Julie Hayward as a contributing associate editor and writer.

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