Secrets to Successfully Buying a Home in Chicago
If you are preparing to move to Chicago, you'll be happy to find that there are plenty of opportunities in this real estate market. However, in order to snatch the best deal possible, you will probably need to do some legwork. A licensed Chicago real estate agent is going to be the most helpful source of information when trying to figure out the most cost-effective way to make a home purchase in this area, but you can get started here by reading about some of your options.
Whether you are looking for a luxury penthouse in a high-rise building or a more affordable starter home in the suburbs, the greater Chicago area offers a wide selection of real estate to choose from. What's more, you will find that there's more than one way to finance your home purchase. Some options are more affordable than others (e.g. FHA loans, VA loans, etc.), so even home buyers with credit scores that are less than perfect are able to buy real estate in Chicago.
For Chicago home buyers who are looking into different ways to finance their home purchase, a rent-to-own agreement might be worth considering - especially if you need more time to pay for the down payment or are unsure of whether or not you will be able to stay in the Chicago area permanently. Although rent-to-own agreements may not necessarily be the cheaper option, these types of arrangements allow Chicago home buyers (who are unable to afford the down payment on the spot) to rent the home instead with the option to buy it in the future.
Renting-to-Own in Chicago
In a rent-to-own agreement, the renter/buyer and landlord/seller will agree on a future date when the sale will happen, and a sale price for the home. During the rental period, the renter/buyer pays an above-average rent, and the surplus will be held in an escrow account to be paid toward the down payment at the time of purchase. In addition, the renter/buyer will likely be asked place some money down as an "option fee" when signing the rental agreement.
Here is how rent to own agreements would work, practically speaking. (note: these arrangements vary depending on how the contract is negotiated)
If a seller has a home that's worth $300,000 and finds someone who is interested in buying a home in Chicago, but the buyer is lacking the $60,000 (i.e. 20% of the home price that is required for the down payment), then the seller can offer the home buyer the option to enter into a rent-to-own agreement. Say that the typical rent for a house of this price is $2,000 in the Chicago area, then the seller/landlord may ask the buyer/renter to pay $2,500 for rent. The additional $500 would go into an escrow account until it comes time to purchase the home. Also, before signing the rental agreement, the buyer/renter could be asked to place $15,000 into the escrow account as the "option fee." In three years (or the predetermined date that is stated in the contract), the buyer/renter would have $33,000 to use as part of their down payment.
How This Helps when Buying a Home in Chicago
If you are entering the ranks of Chicago home buyers, you may find that poor credit makes it difficult to get a loan in the current Chicago real estate and lending market. If your credit is suffering, a rent-to-own agreement gives you some time to improve it before purchasing the home.
Also, Chicago's neighborhoods all have their own feel and culture. If you don't know the city well, you may need some time to determine if your neighborhood of choice is a good fit for your family. Rent-to-own gives you the chance to take the home and neighborhood for a "test drive" before committing to the purchase.
Finally, Chicago has some of the highest home values in the entire state. As a result, you will need a substantial down payment to get a loan. Rent-to-own gives you the option to save for that down payment while still enjoying living in your home.
Benefits of Rent-to-Own Agreements for Home Sellers
Chicago home buyers are not the only ones who benefit from the rent-to-own structure. If a seller has a property that cannot be sold because of current real estate trends, yet the seller needs to move, a rent-to-own agreement will get someone in that home to help with the mortgage payments, even while the current owner moves on. Eventually, the owner should be able to sell the property to people who are already vested in it, making the home sale process much simpler.
Rent-to-own is a winning solution for those selling and buying a home in Chicago. If you are ready to make a home purchase, but need a little help with your down payment or credit score, consider looking for homes available as rent-to-own properties.
FHA Loans as a More Affordable Alternative
Another way in which you can lower the cost of buying a Chicago home would be to apply for a FHA insured loan. FHA loans are mortgages that have been insured by the Federal Housing Administration (FHA). Because these mortgages are backed by the government, the lender is more comfortable with the idea of lower interest rates, smaller down payments, and less-than-perfect credit scores. FHA loans are well recognized as the easiest type of mortgage to qualify for. What's more, FHA loans typically require a 3.5% minimum down-payment as opposed to the 20% down payment that is generally required for traditional home loans.
As you can see, where there is a will, there is a way. Good luck and happy home shopping!