FIRST TIME HOME BUYERS GUIDE

Everything you need to know to make that big purchase a little bit easier

From Start to Finish: The First Time Home Buyers Guide

Being a first-time home buyer can feel like an extremely daunting task, believe me, I get it.  I’ve been there, many, many, MANY times.  Not only when I purchased my first home but when I had my first client, who was in fact themselves, first-time home buyers. DAUNTING!  

You’re anxious, you don’t know what you don’t know.  And the internet, your friends, parents, and your neighbor all seem to know exactly what to do.   But there is one simple problem with their advice, they’re not in your shoes.  

So here’s some good news I have for you… whether it’s your first time or your 101st time, the process of buying a home goes in a certain order.  There are steps that must be taken to get to the finish line.  And even better news, these steps are here for your protection.  

Now, I can honestly and 110% guarantee that no deal I have done has ever the same.  Which makes the steps that much more important when buying a home in Chicago. Realtors are governed by the National Association of Realtors (NAR).  Here in Chicago, there is an even more centralized Chicago Association of Realtors (CAR) that has prepared your Realtor to help lead you down the right path; regardless of what obstacles you may face.  So basically in terms of “what to do next,” that is already taken care of.

Feeling less anxious? Good, now let’s get to these steps.  If you want the quick walkthrough of what they are I’ll tell you: Determine the kind of home that fits your needs, secure financing, find the property, make an offer, have a home inspection, get a good attorney who focuses on real estate (they write up all that important paperwork that you sign), and prepares for the closing.  

Determine what kind of home fits your needs:

This is the fun part, what kind of home do you want to live in?!  There are many different styles of homes out there.  In Chicago, we have Condos located in high rises and mid-rises, Multi-family homes, 2-4 story residences that we like to call “walk-ups” or “brownstone” properties, Co-ops (co-operative), Townhomes, Duplex-ups, Duplex-downs, Lofts, and of course a Single Family Home to name a few.  Honestly, I’ve seen versions of all of these that I could spend the rest of my life in, but that's where part of the fun of your home search is, which one is right for you?

Another factor you need to consider is what type of neighborhood do you want to live in?  Chicago Real Estate is fun because every neighborhood in Chicago is different in its own way.  You can ask anyone who lives in Chicago what their favorite neighborhood is and they’ll not only tell you which one, but they’ll rattle off why it’s their favorite.  It’s one of the big reasons we love our city so much.  

You can determine the neighborhood and location of where you want to live based on things like: where is the closest Walgreens or CVS, how close am I my favorite pizza spot, restaurant, bar, or gym.  Is it close to a Jewel Osco or Mariano’s grocery store?  The list can go on and on based on your own personal needs.  This to me is always one of the biggest factors because there’s no point in looking for a house in Streeterville if all your time is spent in the West Loop.  The commute alone would be a nightmare.  Going a little deeper into figuring this out will also determine the type of home you should be looking for.  Like we said, each neighborhood is different, and so are the types of homes located in it.

The other very important key factor to note and doesn’t need a lot of explanation, you should think about what your life is like now and what it will be like in the next couple of years.  Do you need office space, do you need an “on-site” gym, when you think about the home you’re in now think, is it big enough and if so, is it just you living there or is your significant other (SO) going to be the other signature on the deed?  This one is crucial, whats going on in your life and how does that relate to the place you plan to live?

A great way to tour all these different types of homes and get a feel for which is most comfortable to you is to attend open houses, but first…

Get quotes from multiple lenders:

This is arguably one of the most important steps because basically, this step tells you how much house you can afford.  I can’t help but stress this enough, this will save you so much anxious energy and time.  

I repeatedly get asked “how much do you think I can afford?  The mortgage calculator says… and honestly, I have never once been able to answer that question.  Why, because I’m a Realtor, not a Lender.  This part tends to make people a little nervous.  You have to open up to someone about your expenses and credit and that makes you uncomfortable.

The good news, Lenders are in the business of making this process quick and painless.  And if it’s not, then you can move on to the Lender that you feel is best for you.

So what should you be prepared for?  Roughly 15-30 min of your time, a quick phone call, and a discussion about your finances.  I’ve referred people to lenders and then received a phone call back in 20 minutes saying something to the effect of “well that was easy” followed by subtle laughter of relief.  When it's all said and done, the bandaid has been ripped off and now you can look for a home knowing how much home you can afford.

Now pro tip here, and I really do mean pro tip:  This is business folks so shop Lenders for the best rate.  I have a handful of lenders that I refer clients to, and you know what I tell all my clients (along with the lenders themselves)?  That you (the client) are shopping for the best rate.  “This is business folks,” and it’s a business that can save you, or cost you a LOT of money during the lifetime of your loan.  

Attend open houses & set up tours with your Realtor 

Now that your money situation is in order, it’s time to get a feel for things.  The lingo, the comfort of walking into someone else’s home and seeing if the space will work for you and your furniture, getting used to being asked “so why are you moving” and “what are you looking for in a home” are commonly asked.  Just get out there and get comfortable.  The difference between your first set of showings compared to your second is like night and day.

It’s ok to not know exactly what you want before even stepping foot into your first tour.  What do you want?!  “A brand new kitchen and bath, hardwood floors, washer and dryer in unit, a balcony for your grill with a view of the city, and huge windows for the dog to sit and stare at people.”  

Then you get out there and realize hardwood is great, that’s just a given.  But not in the bedrooms?  Your SO points out that this is Chicago and the winters are cold here.  You don’t want to wake up and pull down the cozy warm covers to get your nice warm feet out from the most comfortable part of the bed, STRAIGHT ONTO THE ICE COLD FLOORS FIRST THING IN THE MORNING!  Why didn’t your SO say that before?  

It’s because they had no clue either.  Then you went out, you toured some homes, went to a couple of open houses, realized a few things about your partner and yourself, and now you know that it’s just not about the hardwood floors for just YOUR feet anymore, especially not on those cold Chicago mornings.

Which brings us to…

Find the Realtor for you:

There are many ways to do this, talk to friends and family who may have worked with someone that they can’t speak highly enough about, reach out on one of your favorite internet search engines until you get a Realtor you like, you’ve seen some open house signs, or maybe its a Realtor you follow on Instagram. Whichever way you see fit, go with it.

Always keep in mind when you are interviewing Realtors you should go with the person you trust the most.  The one that you know is in it for you.  I’ve seen a lot of really good Realtors out there, ones that will answer texts and take calls at 8 or 9 at night, guide their clients through the process smoothly to help them make the most informed decisions, refer but not pressure you towards lenders, attorneys, and home inspectors that you feel can best make your first time home buying process easier than you knew it could be.  

And then there are the other ones, which we won’t get into.  Just know that if your Realtor isn’t one of the good ones doing good things for you and doing it in your best interest, then you need to move on to the next. 

Make an offer on the home you’ve been dreaming of:

This is where it gets crazy and where you lean on said Realtor to guide you, at least at first.  I say at first because I’ve realized that once you start negotiating and a first-time home buyer starts looking at the money and the commas and 0’s being discussed, it doesn’t take long for them to get involved in a big way.  The initial offer is an interesting one, it sets the tone for what is about to happen.  There are many aspects that go into this, when I first started selling homes I asked my boss “so…how do I know how much to suggest for a starting offer?”  I learned quickly that this question is not as easy as one size fits all kind of answer.  Why?  Because you have to weigh out things like how long has the home been on the market, what condition is the home in, what are the comps in the area like, have they lowered the price previously, how much did they buy this home for, and when?

This brings me to, know what the place is worth to you.  It really is that simple.  This is one thing my clients and I talk through early on.  They’ll ask what I think it’ll go for, so I tell them flat out, and then I ask what is it worth to them?  Usually, those numbers aren’t far off, but it sets the tone for your first offer. 

Your first offer can be: 

• an aggressive offer

• an attractive offer and be stingy with your negotiations

• an aggressive offer with a high Earnest Money to show your level of seriousness is high

• “an offer they can’t refuse”

• and on and on…

These are just a few options off the top of my head.  

But back to what the home is worth (to you) when you’re mid negotiation and you realize you’re $10,000 over what you had said, then that’s a good point to stop and say to yourself “is this home really worth that much to me?”  

Let’s say you get to that point, and you decide it’s not worth the extra $10,000 and you just got caught up in the heat of the moment.  Then that’s fine, this is Chicago and there is a lot of homes out there.  I mean A LOT!  You and the seller just don’t agree on the price, unfortunately, and sometimes you have to be ready to walk away from that.  This helps make a very simple point I like to make to first-time home buyers…

Keep emotions out of it:

Things move quickly and this is serious, you’re buying a home, land, and in a way a small gym located in your building and any other building amenities.  It’s easy to get caught up in the excitement but never get over-emotional.

Sometimes people’s pride steps in here. They get offended by a low counteroffer, it feels like you’re fighting with the seller, or simply you just don’t want to pay that much.  Here’s how it goes, they want to sell a house, you want to buy their house for the right price.  You work hard and negotiate with the help and experience of your Realtor to get the best price possible.  There’s a lot of scenarios that can go on during the negotiating and this is where having a good Realtor to lean on is crucial.  Having someone with experience in this field means you don’t have to panic about making the right decision because you have someone who is used to this kind of thing to consult with and together you work out the best course of action.  

Before you buy it, “it’s just business”.  After you buy it, well then it’s your happy home that you’ll be relieved that you didn’t get over emotional and kept a calm demeanor.  

Congratulations you came to an agreement!

Now you have to do a few things and this is where it feels like things are getting face-paced.  

1. You have to pay your first Earnest Money payment.  Earnest money is the “money of good faith” that we were talking about earlier.  Usually, this needs to be delivered within 2 business days.  This is money that shows that you as the Buyer are serious about purchasing this home.

2. You have a home inspection, and usually, this needs to be done within 5 business days after the signed agreement.  The home inspection is a crucial part of the process of buying a home.  Even if you are a meticulous person and you’ve scanned over the ENTIRE home and see that this place is absolutely perfect and there is not a thing out of order, still have the home inspected by a trained professional.  A home inspection can help provide peace of mind along with any questions you may need to be answered.  More importantly, they may be able to answer the questions you don’t even know you have yet.  

3. Get your Attorney involved.  Yes, you will need a real estate attorney to help with your Chicago Real Estate purchase.  In some states, the Realtor will write up the contract, but in Chicago, attorneys handle this.  They do the things that you want an attorney doing: the legal paperwork, deeds, transfer of title, searching to see if there are any liens on the property, discussion of escrow accounts, board hours, and HOA bylaws.  The list can be endless.  

An attorney and their team are there to provide the best legal advice to protect you from any issues you would have no clue existed along with any underlying problems that were discovered during your home inspection, which brings us to…

It’s time to negotiate again (??)

Yes, negotiating the first time around is not the end of the back and forth with the seller.  As discussed, you never know what issues could come up during a home inspection, there could be a leak under the sink that is causing rust on the pipes, the water heater could be making an odd “tinging” noise that you never noticed before, maybe there is no drain pan under the washer/dryer (I swear 99 out of 100 homes I’ve been in do not have a drain pan under the washer/dryer), or maybe even worse, there’s mold!  

Well, you can’t just take a house with mold in it which is where the second round of negotiations starts.  This is handled by the team you’ve created with your Attorney, Realtor, and yourself.  Maybe you don’t care about that drain pan for the washer/dryer after all or the fact that the outlet isn’t a GFCI outlet because you’re going to remodel the kitchen anyway.  

Nonetheless, this is the time to handle this stuff and clear up any points of concern.  If there is something you feel needs to be fixed, repaired, or serviced then now is the time to air it out.

This is what attorney review is, taking care of all the little things that came up after you put in your offer.  It can be tedious, but it is important.  Now, it’s finally time to…

Prepare for closing:

After all the negotiations and back and forth over who’s going to pay for the stinking light bulbs to be replaced it's time to get ready for closing. 

1. It’s time to pay your second Earnest Money.  YES, A SECOND EARNEST MONEY!  Why are you doing this, it’s that darn money of good faith again.  Now is a nice time to remind you that all of these Earnest Money payments go to the down payment of the home, it’s not extra money in addition to your down payment and mortgage.  Think of it like paying your down payment ahead of schedule.  So, good job!  Look at you being proactive and responsible.   

2. Have an appraisal done.  This one doesn’t require too much of you, but in most cases, it must be done.  The reason for the appraisal is for the lender to determine if the amount of the loan they are giving is at least what the value of the home is worth.  As long as that matches up and you’re not paying more for the home than you should be, you will pass the appraisal. 

3. Hurry up and wait!  That’s right, you’ve done your part and you’ve gotten through all of this, and you can now sit back and relax a little.  During this process, your attorney will make sure all that paperwork is in order like doing a title search to make sure no one else can claim the property, etc, any repairs discussed during attorney review will be resolved and fixed, and the lender will get your loan ready which brings us to a very helpful tip:

Don’t make any big purchases before closing! 

The reason being now is when your credit needs to be at its best and nothing should change.  Let's say you buy something big, like that car you’ve been eyeing up for months.  Now let's think about what happens when you buy this new car right before you buy a home.  

This new car is a $30,000 car.  By purchasing it you have now have changed your debt to income ratio.  I won’t go too deep into this now so let’s just keep it simple.  You now have more debt ($30,000 more), which means less net effective income($30,000 less income), which means the Lender now sees your situation as you being less financially secure.  Unfortunately, it’s things like this that can hurt your credit that a lot of people are unaware of.  

It happens all the time, less money in your pocket makes the bank more skeptical.  And what does the bank do when they are skeptical?  They raise your interest rate, which will in turn raise your payments, and that means they will have you paying more for your home than you should have.  Get it, NO BIG PURCHASES PRIOR TO CLOSING!  After closing, go crazy if you can afford it.

Closing day:

This is a good day, the most exciting and the most nervous day of them all.  I’ll break it down for you like I do for every first-time home buyer I’ve worked with:  You’re going to show up at the Title Company, some people like to dress up, some even where their best suits.  Others have shown up in jeans and their favorite T-shirt.  Honestly, I love it!  Once you’re there you are taken to a conference room, an office, or some room with chairs, a table, and of course…blue pens.  Why blue pens?  Because the buyer always signs in blue (fun fact).  

You’ll likely be in there with your team so don’t worry, you’re not alone.  Your Realtor, Attorney, and possibly the Lender will be in the office with you.  A lot of times the seller’s agent will show up as well.  Why are they there?  To give you the keys to your brand new house of course!  At this point, get ready to start signing your name with that blue pen.  Your attorney will go over all the finalized paperwork that will cover where all of your closing costs will go, the fees that everyone involved in the process are credited, and any other specifics.  This can also be the time to adjust any last-minute changes that need to be made.  Closing day is like your last “double-check” before you sign so don’t be alarmed if your Attorney may make a couple of last-minute changes.

Along with the home, closings come closing costs.  Your lender will give a more detailed breakdown of your closings costs, but homebuyers can anticipate paying between 2 to 5 percent of their home purchase price in closing costs.  So for example, if your home costs $200,000 you could pay between $4,000 and $10,000 in closing costs.  This list is inclusive of fees you may see, but it’s likely that your loan will not include all of the fees:

These closings costs look like a lot when you look at the list, but don’t worry this isn’t something that you’ll be hit with at the tail end.  You’ll get a full description of all of these fees when discussing your home loan with your Lender in the beginning.  So when it comes to closing day, as long as you picked the right team, you will be there with people who are working to make everything come out as flawless as possible for you.  

So what’s next?

You move in!  You’ve done it, you’ve made it through the long and sometimes tedious process of buying your first home in Chicago.  Congratulations!  Now you get to make any changes that you have spent the last month fantasizing about.  Changing the color of the cabinets, finally getting rid of that bright green accent wall in the dining room, and just getting the windows cleaned to let the sunlight in.  

Personally and professionally a suggestion I would make other than “make it your own” is to save a little as time goes on.  "Why am I saving money if I just bought this house?”  Because eventually you might want to change the backsplash in the kitchen, or you’ll grow tired of the cherry oak hardwood floors and want to sand and stain it to more of a natural color to “open up the room.” 

Whatever it ends up being, it will be something new for your home that you get to enjoy and grow into.  A lot of times I hear home sellers say things like, “we were going to do such and such but decided not to, the next person can do that if they want” and I always think what a bummer, you could have enjoyed the fresh new upgrades by just painting your kitchen cabinets and putting in the soft close hinges yourself and enjoyed it for a year or two before you sell the place.

Speaking of the future and keeping our home modern, this could profit you more money when you go to sell.  It's like a double whammy, have a “new look” in your old place while raising the resale value of your home at the same time.  But what do I know, I just sell houses for a living…

The home buyer checklist: From the day you see the house to the day you get the keys