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Are you a renter in Chicago, dreaming of becoming a homeowner? You're not alone! The Windy City is a fantastic city to put down roots, and there's no better time than now to make the leap from renting to owning. But one of the most intimidating aspects of making the jump from renting to owning is applying for and obtaining a mortgage. To help ease your concerns and put you on the path to a successful home purchase, here's a list of vital questions you should ask before applying for a mortgage in Chicago.
"How much can I afford?"
Before applying for a mortgage, it's essential to determine how much you can comfortably afford. A good starting point is to determine your debt-to-income (DTI) ratio, which compares your monthly debts to your pre-tax income. Most mortgage lenders allow a maximum DTI of 43%. To calculate your DTI, add up your monthly debts (rent, student loans, credit card payments, etc.), and then divide that sum by your monthly income before taxes. This percentage helps lenders determine your ability to manage monthly mortgage payments.
"What is the minimum down payment required?"
Down payments are often a significant hurdle for first-time homebuyers. It's essential to ask your mortgage lender what the minimum down payment is for the specific loan program you're applying for. While the standard down payment is 20% of the purchase price, many loan programs (such as FHA, VA, or USDA loans) require far less or even no down payment. But be sure to consider the pros and cons of a smaller down payment, such as potentially higher monthly payments or the need for private mortgage insurance (PMI).
"What are the closing costs?"
In addition to the down payment, you'll need to budget for closing costs, which include expenses such as title insurance, appraisal fees, and loan origination fees. These costs typically range from 2-5% of the purchase price. Some lenders offer the option to roll closing costs into your mortgage, alleviating the immediate financial burden but increasing the overall loan amount. Make sure you ask your lender for a detailed breakdown of closing costs so you can plan accordingly.
"Do I qualify for any financial assistance programs?"
As a first-time homebuyer in Chicago, you may be eligible for financial assistance programs that can help alleviate the upfront expenses associated with purchasing a home. The Illinois Housing Development Authority offers various programs, such as the 1stHomeIllinois and the Access Mortgage programs, that provide down payment assistance, lower interest rates, or tax credits. Again, your lender should be able to provide you with more detailed information about available programs and their eligibility requirements.