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Figure out your finances
Get preapproved for a mortgage
Look for a house
Make an offer
How to save on homeowners insurance
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Whether you crave the exciting job opportunities of Chicago or the charming spaciousness of a Midwest small town, buying a home in Illinois could be a great option for you.
If you’re in the market for a new home in The Prairie State, you’re likely to have lots of questions. For first-time home buyers, the process can be intimidating—not to mention the added uncertainty of not knowing the real estate market in a different state.
Car insurance expert and broker app Jerry is here to answer all your questions about house shopping in Illinois. Read on to explore the important steps you should take while house hunting and review some essential knowledge for Illinois homeowners.
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Figure out your finances
Wherever you’re buying your home, it is essential to have a clear understanding of your financial situation.
Don’t even think about setting a budget or putting in an offer before understanding your credit score, debt-to-income (DTI) ratio, and assessing all of the fees associated with buying a house.
Before calling your favorite realtor, you’ll want to calculate exactly what home prices you can afford in Illinois. Feel free to consult with a financial advisor or whip out your calculator and bank statements to do the math yourself.
Check your credit score
Step one should always be to run a credit check. After all, your credit score is the most important number to consider when house shopping in Illinois.
There are many free online resources for determining your credit score, such as Experian. In order to secure a conventional mortgage in Illinois, you’ll need a credit score of 620 or higher.
If your credit score is lower than 620, you’ll want to start building it up right away. After checking for any errors in your credit report, work to improve your score by consolidating debt, ensuring you always pay your bills on time, and avoiding overspending with credit cards or taking out additional loans.
Calculate your debt-to-income (DTI) ratio
In addition to evaluating your credit, you’ll want to figure out your debt-to-income ratio, or DTI. To calculate your DTI, identify any debt you have, which may include current rent or mortgages, car loans, credit card debt, student loan debt, and alimony or child support.
Add up all your monthly debt payments and divide the sum by your pre-tax monthly income. In general, you’ll want your monthly DTI to be below 36%, even after including your future mortgage payment.
Determine your down payment
How much you can afford to pay in a down payment is a major determinant of what kind of house you can afford. Conventional mortgages will typically require a down payment of at least 20% of the total purchase price.
However, alternative home loans may allow you some flexibility. An FHA loan is a mortgage insured by the Federal Housing Administration, specifically for low- and moderate-income or first-time homebuyers. Down payments on FHA loans can be as low as 3.5% if your credit score is 580 or higher.
Similarly, the Veterans Administration (VA) offers home loans to service members, veterans, and eligible surviving spouses. Those who qualify for VA loans may be able to avoid down payments altogether and qualify for low interest rates and discounted closing costs.
Illinois homebuyers may also be eligible for certain grants to supplement their down payments. The 1st Home Illinois program offers shoppers in certain counties up to $7,500 towards their down payment.
Prepare for closing costs and other fees
Closing costs are another important aspect to consider when evaluating the overall price of moving. These fees will cover the cost of home appraisal, credit reports, home inspections, the mortgage origination fee, earnest money, mortgage insurance, property taxes, and homeowners insurance.
Homebuyers can typically expect to spend about 2-5% of their home’s total purchase price in closing costs on moving day. According to a 2021 report by ClosingCorp, the average Illinois home costs $208,429, with closing costs averaging $1,955.
The state of Illinois also has the second-highest property tax rates in the nation, averaging above 2% statewide. Depending on your county, you can expect to pay over $7,000 annually in property taxes on a $250,000 home.
Fortunately, Illinois has an abundance of affordable towns and cities to choose from, so homebuyers can consciously keep costs low while still enjoying a variety of options.
Key Takeaway Check the property tax rate in the county where you’re hoping to buy a house before you begin, as Illinois property taxes can be high.
Look for homeowners insurance
The cost of homeowners insurance will affect your closing costs, but it’s also an important expense to think about in the long-term. US citizens pay an average of $1,387 per year (or $115 per month) to insure their homes.
While Illinois does not require homeowners insurance, your mortgage lender likely will. While insurance may seem like an unnecessarily high cost, it will protect your finances in the event of a catastrophe and is well worth the purchase.
Be sure to get great coverage at the lowest rate possible by using the broker app Jerry. Just complete a quick 45-second sign-up, and Jerry will compare policies and provide you with the very best options.
Key Takeaway Before buying a home in Illinois, carefully evaluate your finances and consider all of the fees involved with closing costs, a mortgage, and insurance.
Get preapproved for a mortgage
Once you’ve examined your finances and estimated a budget, the next step is to get preapproved for a mortgage. In today’s real estate market, many sellers won’t even offer you a tour without a preapproval letter from a lender.
To get preapproved, you’ll need to apply for a mortgage with a lender. With your application, they’ll ask you to provide:
- Your social security number
- Your banking information
- Your employment history
- Information about your assets and debts
Though this information request sounds a bit invasive and time-consuming, banks typically make the preapproval process quick and easy, so don’t start until you’re serious about buying a home!
Once you submit your application, your lender will verify your DIT and perform a hard credit check. This sort of credit check can harm your score, so be sure not to seek preapproval until you’re certain that you’re financially ready.
How to pick the right mortgage in Illinois
Two factors should be your primary concern when picking a mortgage: the mortgage term and interest rate.
The “term” refers to how long you’ll have to pay off your mortgage. The two most common mortgage terms are 30 years and 15 years. A longer mortgage term will equate to lower monthly payments; however, you’ll pay a higher interest rate.
Shorter terms will make your interest rate as low as 2.5% or lower, but you’ll have to pay a higher price per month in order to pay off your debt so quickly. Different lenders will offer varying rates and options, so be sure to shop around before making a final decision.
Look for a house
Once you’ve developed a clear understanding of your financial picture, then applied and qualified for a mortgage, it’s finally time to hunt for your new home!
Pick your city or neighborhood
Neighborhoods in Illinois range from upscale and expensive to affordable and quaint. When shopping around, you’ll want to consider the cost of living, culture, career opportunities, climate, and more.
If you’re already planning on moving to a particular city or town, exploring the area’s neighborhoods is a great next step. While conducting your research, think about your lifestyle and what’s most important to you.
If you have children, you’ll likely want a neighborhood with great schools and low crime rates. If you’re young and social, you may want easy access to bars and nightlife.
Don’t forget to consider the other costs that aren’t directly related to your home. If you purchase an apartment in the heart of downtown Chicago, you may rely entirely on public transportation. However, if you opt for a suburb like Highland Park, you may have to consider the costs of owning a vehicle, like parking, maintenance, and car insurance.
Buyer’s market vs. seller’s market
Being privy to the current real estate market can help you shop smart. Current market conditions are usually identified as a buyer’s market or a seller’s market.
- In a buyer’s market, there are more houses available than shoppers, so it can be easier to negotiate a lower price.
- A seller’s market means that there are more prospective buyers than homes on the market, so you’ll likely be bidding against others when making an offer on a home.
Want to know what type of market you’re in? Check recent home sales in a given area, and compare the asking price to the final price. If houses are typically selling for much more than the original asking price, you’re likely in a seller’s market.
Another good indicator is how long a house spends on the market. In a buyer’s market, homes may take weeks or months to sell. In a seller’s market, they often go much quicker.
As of the end of 2021, Illinois was a statewide seller’s market. Don’t let this discourage you, though! If you find a home you like, act fast and put in an offer right away.
Note that when you start looking can greatly affect your options. For example, Illinois winters typically see the fewest homes on the market, while the numbers of homes being sold skyrocket in spring and summer.
Find a real estate agent
Illinois doesn’t require homebuyers to utilize a real estate agent, but they can be extremely helpful in navigating the daunting process.
Real estate agents, or realtors, will assist you every step of the way—from searching out neighborhoods to communicating with sellers and filling out the final paperwork.
If you’ve never worked with an agent before, it can be hard to know who to hire. Look for agents with extensive experience in the community where you want to live and prompt communication. Don’t work with someone who brings you more stress by not returning your calls!
Make an offer
Once you’ve found your dream home, it’s time to make an offer! Your real estate agent will help you fill out all of the paperwork and determine a strategic offer based on the current real estate market.
If your finances are in check, you should be ready to make all of the necessary payments once your offer is accepted!
How to save on homeowners insurance
Before you start picking out paint swatches for your brand-new home, you’ll want to shop for homeowners insurance. While it’s not the most exciting part of the homebuying process, it’s an essential step in protecting your new property.
Fortunately, picking a policy is quick and easy when you’ve got Jerry on your side. Jerry can compare rates in as little as 45 seconds and help you bundle your home and auto policies for savings on both.
“Jerry was wonderful! I used it for my auto and renters policies. I trusted it so much that I signed up my homeowners insurance under Jerry as well. All of the agents are amazingly nice and knowledgeable.” —Mary Y.
Thousands of customers saved on average $887/year on their car insurance with Jerry
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How much money do I need to buy a house in Illinois?
Depending on where you live, what your home is like, and how big of a down payment you can make, the exact amount of money you’ll need will vary. The average Illinois home costs $217,672.
Remember that conventional loans will require you to offer a 20% down payment at the time you take out the mortgage.
What credit score is needed to buy a house in Illinois?
For a conventional loan, you’ll most likely need a credit score of at least 620. Alternative loan options, such as an FHA or VA loan, can help individuals with lower scores buy a home.
What is the best place to buy a house in Illinois?
What you consider the “best” will depend entirely on what you’re looking for! Some of the most expensive cities in Illinois include Lincolnshire, Highwood, and Chicago. On the other hand, cities like Litchfield, Clinton, and Pana are incredibly affordable, but likely lacking in other areas.