Home-Buying Tips and Benefits
Benefits of Investing in Real Estate in Chicago
Homes typically appreciate around 5 percent per year, depending on the neighborhood, region, building or the current market in general. While 5 perfect doesn’t seem like a huge return, a closer look shows that buying a home is a worthy investment:
For easy numbers, let’s say you bought a $200,000 home in Chicago. Let’s assume you put 20 percent down—so $40,000—and obtained a mortgage to cover the rest. If the home appreciates at a rate of 5 percent each year, its value at the end of the first year would be $10,000 higher. So you’ve now earned $10,000 on an investment of $40,000 (your down payment). That’s a return of a whopping 25 percent.
Of course, that doesn’t take into account the mortgage payments you’ve made, any property taxes or other costs. But, since the interest on your mortgage and property taxes is tax deductible, the government is essentially subsidizing your home purchase.
That means your rate of return is higher than almost any other investment you can make.
Income Tax Savings
Another benefit to buying your own home is savings on income taxes. Because of these deductions, the government essentially is subsidizing your home purchase, and all of the taxes you pay on your home in a given year can be deduced from your gross income, thus reducing your taxable income.
Stable Housing Costs
If you’re renting a Chicago condo or home, you can probably expect the rent to increase every year. But a fixed-rate mortgage loan promises the same monthly payment for 30 years. And an adjustable-rate mortgage offers a payment within a certain range for the entire life of the mortgage.
When you consider how much rent may cost in 10, 15 or even 30 years from now, buying a home certainly seems like the wiser choice.
The beauty of buying a home is that a house is an automatic savings account, allowing you to build up savings in two ways. One is, each month a portion of your payment goes toward the principal. It’s not much in the early years of the loan, but it does accelerate over time.
The second is the appreciation of the home. Ideally your home will appreciate from year to year, but even if a few years of depreciation, history has shown that owning a home is one of the very best financial investments.
Freedom & Individualism
Renting a home means you are probably limited on what you can do to improve your space. It also doesn’t make sense to spend thousands of dollars upgrading a home you don’t own. But buying your own home allows you the freedom to make changes, updates and improvements as you wish, creating an environment you’re proud to call home.
Many buyers these days are looking to amp up their square footage. Thankfully, luxury real estate in Chicago offers a number of options ranging from condo units to single-family homes that offer the same amount of space as a home you’d find in the suburbs. Many even offer outdoor space, plus your own laundry, storage, and bigger rooms
Cost of Buying a Chicago Home
When you purchase a Chicago home, you may be responsible for the following costs:
Miscellaneous costs and fees:
Attorney’s Fees: $400 – $1000
Property Inspection: $250 – $400
Lead Paint Inspection: $200 – $350 (Optional)
City of Chicago Transfer Tax (Stamps): $7.50 per $1000 of Purchase price
Homeowners Insurance: Varies
Settlement or Escrow Closing Fee (Paid to title company to handle closing) :
$175 up to $100,000, plus $.50 for every Additional $1,000
Loan Application (& Appraisal): $250 – $400
Closing Points or Loan Origination Fee: $0-3% of loan (Optional)
Private Mortgage Insurance (PMI): Required if loan is less than 80% of purchase price (discuss with lender)
Underwriting Fee: $250 – $500
Document Preparation or Recording Fee: $100 – $150
Flood Certification Fee: $20 – $40
Lenders Title Insurance Policy: $150 – $400
Tax Service Fee (if taxes held in escrow): $50 – $100
Reserve Fund for Tax Escrow: 27 months prepaid estate taxes (may be received as credit from from seller)
Prepaid Interest (Interest on loan from closing date to end of month)
5 Things to Avoid Before Buying a Chicago Home
Don’t move money around. When a lender reviews your mortgage application, one thing they want to see is the source of the funds for your down payment and closing costs. You’ll likely be asked to provide statements for the last 2-3 months for any of your liquid assets like checking and savings accounts, money market funds, certificates of deposit, stock statements, mutual funds and even your company 401k and retirement accounts.
The person who approves your loan—known as a mortgage underwriter—will want to see a paper trail of your withdrawals and deposits. If you’ve moved a lot of money around, that can mean a tedious process of digging up checks, receipts and other documents. Even if you are consolidating your funds to make things “easier,” that could make it more difficult for the lender to review your documentation. So until you speak with a loan officer, leave your money right where it is.
Don’t change your self-employment. If you are self-employed, lenders want to see two years of self-employment income when approving a loan. If you’re looking to change your business from a sole proprietorship to a partnership or corporation, delay that until your home purchase is complete.
Don’t make major purchases. Whether it’s a car, furniture, appliances, jewelry, vacations, weddings or anything else that would create a debt of any kind—wait until your home purchase is complete to avoid altering your credit status or debt quality.
Don’t change jobs. There’s a caveat here. If you are a salaried or hourly employee and will be earning the same or more income, changing jobs shouldn’t cause any problems. But if you work on a commission, receive large bonuses, or work part-time, changing jobs could signal an uncertainty in future income and jeopardize your loan application.
Want to learn more about investing in Chicago real estate? For more information or to see properties in person, contact me at (312) 498-5080 or email me at email@example.com.