Over 97% of the development in the city of Chicago last year was RENTALS. Yes, that’s correct…all of those cranes, buildings, and construction we all hate to be stuck in…most of it is rental buildings. Many developers are banking on the fact that Chicago will always have a large rental market, and that’s certainly an accurate statement with our local market. Rental prices are at an all-time high, and the luxury rental market is slowly becoming saturated. It will be interesting to see what happens to those sky-high rental prices once all of the developments are complete and savvy renters will quickly realize that their money may be better off invested…
For the first time in a long time it’s actually cheaper to BUY than to RENT. In general, a good “rule of thumb” is to remember that every $100k borrrowed = approximately $500/month in a mortgage payment. So, a $1500 mortgage equates to approximately a $300k house - BUT, and a huge BUT here…that doesn’t include taxes or HOA (Homeowners Association) fees for condos.
Here are 5 questions to ask yourself if you’re considering the “Rent vs. Buy” debate for your own personal situation:
1) Are you staying put for awhile?
Our market, as noted above, will always have a need for rentals. You can buy a property in many buildings and then rent it out if your job situation/life situation takes you to another place to live. But, you need to ask yourself if you’re ready to be a landlord, or pay a property manager to manage your investment for you if you should have to rent it out. In an “average paced” market, it usually takes 3 years of living in a property you’ve purchased before you break-even on your investment. So, if you bought 3 years ago and then sold today - you would most likely not profit on your purchase. (This hasn’t been true in the last few years though, since our market has been on an upswing in values.)
2) Do you have a down payment & closing costs?
We are not mortgage experts, for starters. But, we know the basics, which are the following:
-You will need at least 5% down-payment to purchase a property here in the city (yes, some 3% down-payment programs exist, but there are income restrictions and you may or may not qualify)
-Your debt-to-income ratio needs to be below 50% on the highest possible end. If you make $2,000/month for example, and you have recurring debt obligations (student loans, credit cards, etc.) that exceed $1,000/month it will be tough to get pre-approved for a loan
-Closing costs vary depending on the building, and other scenarios a lender can advise on. But, in addition to down-payment you will need at least 1-3% of the purchase price in closing costs too.
-Remember, investments matter too - so, you can sometimes pull out of a 401k/other investments with not much penalty - but a lender will advise you on the specifics of that
3) Can you dedicate time to this?
If you’re traveling for 3 months, or not ready emotionally/mentally to purchase a home…maybe consider if this is a great time for you. When a home goes under contract, it’s not uncommon for lenders or attorneys to need very-quick turnarounds on signatures or documents needed - sometimes, less than 24 hours. It’s important to know that while we aim to keep the process smooth and guide you every step of the way, there is some action required on the buyer end to make sure the process keeps moving!
4) Is your credit score in a good place?
Please note, there ARE programs for lower-credit - sometimes, life happens and it affects credit scores. Also, we have credit experts on hand who can improve credit very, very quickly if needed and guide through that process. But, you need to know regardless that credit scores help factor your interest rate. To help you understand this, keep in mind a 1% increase in a credit rate can affect your monthly payment hundreds of dollars. So, it’s important to clean-up your credit if needed!
5) Do you have some additional savings?
We already covered down-payment, but what we mean here is better thought of like this: “You will no longer have a landlord/parents/friends/etc. to come in and save the day if something breaks or needs repairs, so do you have the money to actually take care of a home?” Just like a car, homes require maintenance. There are certainly things like Home Warranties that help (a great home warranty, for example, may cost you $500 but immediately replace items like refrigerators, washer/dryers, and more if something breaks), but making sure you can have a little extra cash on hand should something go wrong is important!