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The Buying Process
Buying a home or investment property can be a very involved process. Staying organized and following these six steps will help make this process more straightforward and enjoyable.
-Step 1: Getting Started
-Step 2: Property Search
-Step 3: Making Offers
-Step 4: Counter-Offers & Acceptance
-Step 5: Closing
-Step 6: Post-Closing
Step 1: Getting Started
A) Choosing your agent
Choosing your agent is one of the most important steps. You should always look for someone who is honest, loyal and prides them self on open communication to ensure that you are well informed and prepared during this big decision process. Before you get started, make sure that you feel comfortable with your agent and that he or she is knowledgeable in the neighborhoods you are interested in searching for properties.
B) Financial Items
Using an online mortgage calculator to obtain a sense of your financial situation when buying a home is an important place to start. This will help you to understand how much you can afford on a monthly basis. Keep in mind that there are many other costs associated with buying a home that you should work into your budget such as decorating and moving expenses. Industry experts typically suggest that your housing expenses should not exceed 25-30% of your gross monthly income, but there are numerous factors that can affect this estimate such as credit score, outstanding debt and your overall risk assessment. A lender will be able to give you more specific information about your financial situation as you move into the pre-approval process.
C) Pre-Approval
In our current market, getting pre-approval not only lets you know exactly what you can afford but also shows a seller that you are a serious buyer that is prepared. The pre-approval process is relatively straightforward and can even be done online. Your agent has many contacts in the lending industry and can refer you to a mortgage banker or broker. You can also call your local bank to speak with a loan officer. Once you have obtained pre-approval and know your limits for securing a loan, as long as you stay below that level you should make it to the closing table with few inconveniences.
D) Wish list
Now that you have determined what you can afford on a monthly basis, you can begin to talk about what your ideal home or property would include. Be prepared to put together a list of what your ideal home must have and features that you consider a plus. If you're not building a home from the ground up, you may need to be realistic about compromising on certain items in the interest of making a sound investment. Make sure to take into account not only your current lifestyle and financial situation but also any changes in lifestyle you might see in your near future. Below are a few of the key items for you to consider. A more comprehensive review will be done with John's team when you are ready to get started.
- Location: Location is usually a buyer's main priority. Chicago has many great areas, each with different things to offer. Picking a neighborhood that suits your lifestyle is very important. Do you want to be close to transportation, restaurants and bars and/or good schools? If you're not familiar with the different neighborhoods of Chicago, your agent will be able to help you learn more. A great way to get a feel for a neighborhood is to stop at some of the local stores/coffee shops. Be sure to get out of the car and walk the streets of potential areas you are considering as it can seem much different than when you are focusing on driving. It is also important to see the neighborhood at different times of day to see if there is a drastic change in the environment as the sun goes down. Certain neighborhoods in Chicago are known for their nightlife. However, others may seem quite busy during the day with boutiques and shoppers lining the street, but after the stores close the neighborhood becomes much quieter.
- Type of Home: There are many different property types (e.g., single family homes, condos, lofts, etc.) available in the Chicagoland area. For a complete list of property types please refer to Home Ownership & Property Types. It is important to prioritize your preferences in property type so that your agent can refine your search parameters, getting you the best list of properties to view.
- Features: Is a doorman a must? Do you want a relatively new home with little rehab required? Is a garage parking space important to you? These are just a few of the questions you should ask yourself about the features and amenities that you want in your home. Certain small features can be added to a home if you don't mind construction but the core structure and layout typically can’t be modified. Think about whether you are interested in finding a certain floor plan or whether specific features will sway your buying decision. When buying it's always important to keep your lifestyle and resale value on your mind - do the features I'm looking for appeal to most people or am I potentially going to have to make costly changes in order to sell this property in the future? John's team can sit down with you to review a list of amenities and features so that you can better refine your search.
Step 2: Property Search
Once you have your agent and your pre-approval letter, you are now ready to begin the property search. The Internet is often the best place to start, and the MLS will give you full access and total control over your property search. You can easily tailor your search, manage multiple searches at once, compare and evaluate properties, and receive e-mails updating you on newly available properties that meet your requirements.
A) Listings
Using your wish list, you and your agent will start reviewing the listings that best match your criteria. Make sure you not only focus on the price and attributes, but you also look at property taxes, monthly assessment fees, market time, etc.
B) Showings
Your agent will schedule and go with you to the showings. When looking at the properties, make sure you think about how the home and its features match your needs and wants (e.g., number of bathrooms and bedrooms, floor plan, storage space, appliances, etc.). You also should determine if the balcony, basement, or garage is included in the square footage and which features are standard and upgrades in new construction. According to the U.S. Department of Housing and Urban Development the average buyer will view 15 homes before buying one, but this process varies greatly. Some find their dream property right away, while others need to see many more before comfortably making such a big decision.
C) Open Houses
Open houses are designated times on the weekend that make viewing properties more convenient for clients. They typically run from either 11:00 a.m. to 1:00 p.m. or 1:00 p.m. to 3:00 p.m. At times your agent will be able to accompany you to these open houses; however, if you attend on your own, make sure to note important things you'd like to discuss with your agent or if there are specific things you'd like your agent to follow up on.
D) Comparison
Honestly discuss your thoughts about each property you visit with your agent. Based on your feedback, your agent can better understand your evolving wish list and adapt future property searches to reflect your current expectations. After viewing just a few listings and gathering your feedback, your agent will become much more efficient at narrowing down your property search. When you have found one or two properties that you are seriously considering and would like to put in an offer, your agent will gather recent comparable transaction data to help you determine an appropriate offer.
Step 3: Making Offers
After you find the particular property that you want to buy, it is now time to write a contract and make an offer. With approximately 9.8 million people in the Chicagoland area, oftentimes you aren't the only one to find a specific property appealing, and it's therefore in your best interest to make an offer in a timely manner. While you want to act quickly, you should talk to your agent about the best negotiation tactics, price and other terms you'd like included in the contract. Your agent will get the process started by beginning to draw up the contract. There are many terms that can be added to a contract, including the more common provisions listed below:
Price:
The actual price will be determined by the Fair Market Value of the property, but your agent will be able to negotiate the best deal possible for you based on similar sales in the area and the market conditions.
Mortgage Contingency:
A mortgage contingency clause is a provision in the contract that states that if the buyer can't secure financing (get a mortgage) within a certain period of time then the contract is void. It is in the buyer's best interest to clearly state the terms of the mortgage they must secure in the contract (e.g., X% financing on a 30-year loan at an interest rate of no more than X%). This contingency may make the seller concerned about the uncertainty of the deal closing. There is not a standard mortgage contingency clause, and therefore the details/terms are sometimes negotiated between the buyer and seller.
Home Sale Contingency:
This states that the buyer has to sell their existing home within a certain number of days or else increase the earnest money to stay in the contract. These contingencies are more common in a buyer's market. This contingency typically includes a first right of refusal clause in which case the seller retains the right to continue marketing the property. If the seller receives another offer, the buyer would either remove the contingency (making your agreement no longer contingent on the sale of your existing home) or the seller can accept the other offer. There are many alternatives to structuring this in the contract, and this provision can be discussed in more detail with your agent.
Home Inspection Contingency:
This contingency states that the buyer has the right to hire a licensed home inspector to conduct a complete inspection of the home prior to closing. Home inspections are important for both new and older homes to protect the buyers against problems they wouldn't have noticed during their walk-throughs. If the buyer issues a request for repairs after the inspection, the seller is entitled to a copy of the home inspection. The buyer should not give the seller a list of every small repair needed on the property but instead should request those that are serious or represent safety hazards. The buyer is required to pay the home inspector, not the seller.
Attorney Review:
This is usually a one week period during which time the buyer's attorney reviews the language of the contract and suggests changes that need to be made. The buyer's attorney reviews the contract with the seller's attorney, discussing any points that need to be modified or added based on agreements made during the negotiation process. Retaining an attorney that is familiar with real estate transactions is highly recommended so that the attorney can review the terms of the lease, explain any specific terms to the buyer and look for issues or obligations that the buyer was not aware of in the contract. Your agent can be helpful during this time but is not a licensed attorney and therefore does not provide legal advice. Upon completing the attorney review, both parties either accept the contract and move forward with the purchase or decline the contract in which case the contract is void.
Earnest Money:
Earnest money is the deposit the buyer gives to the seller. When first submitting a contract, you do so with an initial amount showing that it is a serious offer. When the contract is accepted and attorney review is finished, there will be an incremental increase in the value of the earnest money. It is typically held in an escrow account on the listing broker’s side and is applied to the down payment or closing costs. The earnest money is returned to the buyer if the purchase doesn't go through because of one of the contingencies.
Closing Date:
This is the most important part of the contract because it states the date you become the owner of the property. Typically it is by this date that the seller must move out and you can move in. If you are able to be flexible about the closing date, it can often make you more appealing than other potential buyers, and it can sometimes help during negotiations.
Step 4: Counter-Offers & Acceptance
Because negotiations are often needed to reach an agreement between the buyer and seller, your real estate agent will play an important role. The agent will use his understanding and knowledge of the market to advise you and clearly communicate and advocate for you during the bargaining process. It is easy to get caught up in the excitement and emotion of this process, and therefore it is very important to remember the maximum price you are willing to pay and can afford. These negotiations can often be stressful, but the right agent will help prepare you and walk you through the entire process, so you are confident and ultimately achieve the best possible deal. Upon acceptance of your offer, your agent will deposit your initial earnest check, begin to schedule inspectors, coordinate with the attorneys and work on wrapping up the final details.
Step 5: Closing
John's team will work very closely with all parties involved in the transaction to make sure that there aren't mishaps or unforeseen mistakes which could delay your purchase or closing. Your final walk through will typically be setup within 48 hours of your closing event. A few days prior to the closing you will be contacted and told how much you owe to complete your purchase. You must bring the balance owed to the closing with a certified check, which guarantees that the money is paid to the lender. Bring your checkbook for any remaining fees or closing costs. Your attorney will walk you through all the legal documents and show you which documents require your signature. After all the documents have been signed and the balance of your down payment and closing costs paid, you will be handed the keys to your new home or investment property.
Step 6: Post Closing
With your solid investment into your new home, it is important that you continue to build up your savings and pay down your mortgage. Take some time to settle into your home, figure out what you would like to purchase and set a reasonable budget to follow. There's no need to rush out and fully furnish your entire home immediately; however, it is important to keep up with regular maintenance and care of your home. You should schedule yearly check-ups on appliances as needed and look into making your home more efficient - it can save up to 30% of your energy costs during the winter months.
Be sure to discuss with your mortgage banker/broker the benefits of making 13 payments a year and the resulting effect on the term of your mortgage. Refinancing is another topic that your lender can discuss with you as interest rates fluctuate. For additional information please refer to our mortgage section.
