Financing a New Home in Chicago

By: Dave Badge

Chicago is the largest city in the state of Illinois and also the third most populated city in the United States of America, with almost 3 million people. Chicago is located along the southwestern shore of Lake Michigan and when combined with its suburbs and the nine surrounding counties in Illinois, the metropolitan area known as Chicagoland encompasses a population of 9.4 million. Nowadays Chicago is known as a major transportation, business, and architectural center of the US and it is the economic, business, financial and cultural capital of the Midwest. The Chicago area is moderately expensive; the home price median here is nearer the national median than homes in spots such as New York City. Buyers can probably spend about three times their incomes, depending on the part of the area where they're house-hunting.

Chicago's suburban real estate market is as vibrant as the city itself. The suburbs have developed both commercial as well as residential real estate at a tremendous pace. A large number of properties are always available for purchase in Chicago's suburban areas such as Lake County, Kane and DeKalb counties and DuPage and Will counties. There are real estate firms that specialize in one of the suburbs, while others deal with all of them. When financing a new home in Chicago, have in mind that the real estate prices are high. Northern suburbs are considered "elite".

There are many ways to finance a new home in Chicago. It all depends on your credit history, the price of the property and your income. The next paragraphs give brief explanations on some of the methods for financing a new home in the city of Chicago.

The first thing to understand is the difference between a variable, or adjustable interest rate mortgage and a fixed rate mortgage. With a fixed rate mortgage, the monthly payments remain the same over the period of the loan. The adjustable rate mortgage has a lower introductory interest rate, but it may vary over the duration of your loan. So depending on the interest rates, whether they are lowered or raised each month, your monthly mortgage payments will also change accordingly.

When financing your new Chicago home through a loan, no matter if it is adjustable or fixed rate, you have to consider the length of the loan, in terms of how long you finance your home. The most common terms are 15, 25, 30, 40 and now even 50 year mortgages in some areas. Of course, the longer the period the more you will pay in interest over the duration of the loan.

With a FHA home loan you can purchase a single family home, condo, house, or apartment in one of the neighborhoods in Chicago. This FHA home loan is mostly used by first time home buyers because it allows the purchase of a home with a lower down payment, in some cases as low as 3%. This form of new home financing requires you to have a good credit history and enough income to cover the loan and your other financial obligations.

The Chicago City Mortgage program offers qualified first-time homebuyers 30-year, fixed-interest mortgages at competitive interest rates and a gift of 4 percent of the mortgage amount to cover down payment and closing costs.

One of the most important things to do when searching for a way to finance the purchase of a new home is to do the math and find out how much money you can spend on it each month. The rule is that all of your housing costs each month, including house note, property taxes and insurance cannot exceed 29% of your gross monthly income. In addition to that, your housing costs plus your other monthly long-term debt should not exceed 41% of your gross monthly income. Furthermore, you must get a copy of your credit report and check your credit score. Having a bad credit score, or one lower than 580, means that you will have problems with obtaining the loan in the first place, not to mention that you will be forced into paying higher interest rates.

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