Buying your first home can be exciting, scary, fun, or even a nightmare.
But you’re paying for housing one way or another. So if you’ve done the math, and it makes more financial sense for you to stop paying rent and start building equity in real estate, then let Matt Shrake help you through buying that first piece of the American dream.
Rent vs Own
Not surprisingly, the first step in buying your first home is making sure that you want to. Take the time to check to make sure that buying is better for you than renting. It isn’t for everyone. Some people have fabulous investment strategies that make more sense to stick with while continuing to rent. But the reality is most people will make a huge step forward in personal wealth by buying real estate. Making the switch from giving your housing money to a landlord and instead giving it to yourself is, for most people, the moment their net worth will begin to really improve.
Education
Still, even if you’ve made the decision to take the plunge into owning your little piece of this earth, it’s important to take time to get educated about all the steps in the home buying process – from beginning to end. Without this step, many people are not prepared for the surprises that lie ahead. Of course, when you work with an agent like Matt Shrake, you’ve got someone on your side who not only knows the market like none other in Chicago, but has the experience of helping countless people buy their first home. And Matt continues to find that helping people buy their first home is among the most rewarding experiences of being a real estate agent. Truly, there’s nothing like closing and handing the keys over to someone who is moving into their first home.
So with that in mind, here are some important areas Matt wants you to know about the road ahead:
1) Financial Calculations
Take stock of your income, expenses, savings, and debts. Connect with Matt’s trusted mortgage referral to calculate your debt-to-income ratio, which determines how much you can comfortably afford to spend on a mortgage each month. Check to see that you have a solid credit score, or start working to improve it. Your credit score is the gateway to securing a mortgage loan. Lenders use it to assess your creditworthiness and determine the interest rate you qualify for. Request a free credit report and review it carefully for any errors or discrepancies. Pay down outstanding debts, make timely bill payments, and avoid opening new lines of credit in the months leading up to your home purchase to improve your score.
2) Down Payment
While the traditional 20% down payment is ideal for initially avoiding private mortgage insurance (PMI), there are loan programs available that require less upfront cash. Most first-time homebuyers can put down as little as 3 percent of the purchase price. This will increase your monthly payment and the amount of interest you’ll pay, as well as an additional monthly fee for PMI, but you will be able to knock out some of these initial fees as your equity in the property increases or if you refinance your loan. And there are also down payment assistance programs available to help first-time homebuyers in Chicago. These programs offer grants, loans, or tax credits to qualified individuals, making homeownership more accessible for those with limited funds. However, most of these types of programs have an income cap. Matt can walk you through your options to come up with the best plan.
3) Closing Costs
Closing costs can include other items, but they typically include: lender fees, title insurance, attorney fees, escrow fees, property taxes, and insurance. They average around 2.1 percent of the sale price.
4) Pre-Approval
Before you start looking at homes, you’ll want to get pre-approved with a mortgage lender. I’m sure you’ve heard this before. And you may have even thought: Do I really need to do this first? Yes, you really do.
In fact, if an agent is willing to go out looking for a home with a first-time home buyer before they’re pre-approved, it’s likely that agent is inexperienced and could be problematic down the line when the deal gets into the more critical parts of negotiation, inspection, and closing. Desperate agents will often work with anyone just to win clients. But marching headlong into viewing homes without nailing down that pre-approval can present all kinds of obstacles, everything from getting into to see some properties, looking at the wrong properties, not being able to submit an offer when the perfect place is available, which then leads to resentment as the search continues. With so many potential problems – and in a market with such little inventory – it’s vitally important that first-time homebuyers nail down a pre-approval before looking for a home. And any agent that doesn’t insist on this is probably not an agent you want to work with as a first-timer.
This process involves submitting financial documentation to a lender, who will assess your income, assets, and credit history to determine how much they're willing to lend you. A pre-approval letter not only strengthens your offer when you find your dream home but also gives you a clear understanding of your budget and purchasing power.
5) Budget
Now that you’ve got the financial questions answered, you have to establish your budget. But just having the range you can afford, isn’t enough. You’ll need to really go deep on what you want in a home in Step 7, and you’ll want to really see some different options in Step 8 and 9 so that you fully understand what you get at the upper and lower ranges of your budget.
6) Home Criteria
This is why one of the most critical steps in the process is deciding – before you look in earnest – about what you want in your home and what you need. You can start looking around online for what you need, or look at a few places to get a feel for things, but breaking down your home criteria into wants and needs with a good agent like Matt really helps you make decisions about where, what, and how much you can buy.
7) Neighborhood Choice
You may know the specific neighborhood you want to live in. Or your budget and criteria may narrow your choices. But if you’re open on location, you might want to get Matt’s take on where you can or cannot find the home you want at the price you can afford. And as one of Chicago’s top agents, Matt may even know of some neighborhoods, areas, or home style choices you may not have considered.
8) Exploratory Shopping
A good real estate agent will want you to start looking at property before you’re ready to make an offer. While it might seem nice to find and buy one of the first homes you see, it’s not usually good for anyone… and it’s really not good for a first-time home buyer. In a place like Chicago, with low inventory, buyers need to look at enough homes to really understand the different market forces and their costs from neighborhood to neighborhood.
9) Making An Offer
This is where dreams clash with reality. Even though you do find a home that meets enough of your criteria in a neighborhood of choice, and you are prepared to make a respectable offer, that still doesn’t mean you’ll get it. These days, many desirable properties get multiple offers. And this is where partnering with an experienced real estate agent is key. A good agent like Matt Shrake will have a read for what it takes to get offers accepted these days, may have a few tricks up his sleeve, and may just know the agent across the table well enough to really make a difference. Plan for this step to take anywhere from a few days to 2 weeks, depending on a number of factors. Remember, negotiation is an art, not a sprint. Take your time to ensure the terms suit your needs.
10) Real Estate Attorney
In Illinois, unlike some states, your purchase contract is not required to be reviewed by a real estate attorney. However, it is so common to use the many good reasonably-priced attorneys that most buyers and sellers think it is mandatory. Matt thinks using an attorney for your closing is just as essential as working with an experienced agent like Matt Shrake. If you’re going to use an attorney, you will need to include a review clause in the offer. Matt can help you do this when you write your offer.
11) Contract, Escrow and the Deal Process
Once the seller accepts your offer, your deposit and the contract documents will be given to an escrow officer, usually the listing brokerage and the seller attorney’s title company of choice. They will handle all the official documents and disburse all funds. They are a neutral party designed to ensure that no step forward is taken in the deal, without both parties first agreeing. It ensures a smooth deal process that is fair to all.
12) Paperwork
Buying a home will require you to sign so much paperwork, you may hardly believe it. Form after form. Disclosure after disclosure. It will add up. If you are going to want to read everything over before you sign it, you owe it yourself to get a list of all of the documents and learn a little bit about them and their purpose, and Matt feels that your investment in a real estate attorney who is familiar with these documents is money very well-spent.
13) Title Insurance
Simply, title insurance is a policy protecting you from financial loss due to problems in the property's title, such as liens, encumbrances, or ownership disputes. In a city as bustling and dynamic as Chicago, where property histories can be complex, title insurance offers invaluable peace of mind. Your title company will search that property history to make sure it’s clear and able to be sold, and your real estate attorney will review the details of potential encumbrances or clouds on the title with you at the closing table.
14) Inspections
The home inspection may go smoothly, or it may lead to additional inspections, and additional repairs. And those repairs could sometimes lead to renegotiation of the terms of the deal. Or in some cases things found in the inspection can even kill or deal. So be aware that this potential exists. But also, don’t be too alarmed by minor deferred maintenance and repairs. Owning a home means owning something that constantly needs maintenance and repair. So unknown or unforeseen issues frequently arise. The key is being prepared and managing it within the expectations of both seller and buyer. This is another area where your agent and his or her experience really can pay dividends. They will know what’s typical and what’s not, and what’s fair and what’s not. You’ll want to listen, and then decide for yourself what you feel is a fair way to resolve issues that arise.
15) Appraisal
Your lender will typically select the appraiser, who will examine the property, compare it to other similar sales nearby, and assign a value to the property. The value will need to hit the number you need to get the amount of loan you want. However, in a dynamic market like Chicago, where neighborhoods are changing and property values improving, an appraisal that doesn’t come in is not the end of the deal. There are a number of options after that point to keep the deal alive, including: challenging the appraisal, getting a different appraisal, including more cash in the deal, or discussing getting a price concession from the seller, and more. A good agent and lender team will be able to help you deal with it should it arise, which is rare.
16) Final Walk-Through
Sometimes, the final walk-through, which usually happens on the way to closing, is little more than a mere formality. Other times, however, it’s critically important, especially when there have been issues that arose in inspection and/or repairs. Regardless, you’ll want to have a checklist as you go through the property and take photos of any issues. Otherwise, if there are no issues, start imagining where you’re going to put the furniture.
17) Closing
Your attorney will schedule the closing date with the seller attorney, and prior to the date you’ll receive some preliminary documents. Then, at the closing, you'll sign a large stack of documents, including the mortgage note, deed of trust or mortgage, and various disclosures and affidavits. Your real estate attorney will guide you through each document and ensure that all necessary signatures are obtained and answer any questions you may have.
Once all documents have been signed, funds will be disbursed to the appropriate parties. This includes paying off any existing mortgages or liens on the property, distributing funds to the seller, and covering closing costs and prepaid expenses.
After closing, the deed and other legal documents will be recorded with the county clerk's office to officially transfer ownership of the property from the seller to the buyer.
And your agent will give you the keys to your first home.
