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What You Should Know Before Buying A Condo

If you’re interested in buying a condo, here are some helpful terms and things to consider. 

No matter what, future condo homeowners should ask a few important questions when considering a unit: 

  • Who runs the condo association?
  • What are the rules and restrictions for living in the building?
  • How much are the monthly fees and what do they cover?

Condominiums, aka condos, are a common building type in major urban areas, and Chicago is no exception. Living in a condo might not be for everyone, but they’re often an excellent choice for first-time homebuyers or for those who wish to live in a more urban setting! 

condos in Chicago on a street

KNOW WHAT MAKES A CONDO A CONDO 

A condominium is an individually owned unit in a complex or building of units. You own the space inside your individual unit and share an ownership interest in the common property. This can be as extensive as roads and courtyards and as confined as a shared stairwell and roof. 

What’s the difference between a condo and an apartment? The former is owned while the latter is rented. What about a condo versus a co-op? In a co-op, you buy shares in a corporation that owns the entire building and get a stake-hold to a specific unit. 

MEET YOUR CONDO ASSOCIATION 

Maintaining and managing the common areas of the condominium are run by an entity called a Condo Association. The whole condominium is governed by a set of rules called Covenants, Conditions, & Restrictions (CC&R’s), which operate much like bylaws. 

A board runs the condo association and has the power to regulate and monetarily penalize owners for violations as decreed in the CC&R’s. Who sits on the board? Depends on the condo building. Some associations hire a third-party management company, which typically increases the cost of living in the building, and some are managed directly by the owners. Usually, buildings with fewer units are self-managed while large buildings with more units are managed by a company. 

condos in Chicago downtown

REVIEW YOUR CONDO DOCUMENTS 

The Illinois Condominium Property Act requires the condo’s seller to provide a number of important documents to the prospective buyer prior to close. These include the declarations, the CC&R’s, the financials and more. 

When you’re buying a condo, review these before making a final decision on your purchase! What should you look for in these documents? Here are a few questions to get started: 

  • What are the rules about pets, remodeling projects, leasing units and use of common amenities? 
  • Are there reserves, and if so, how much is in the reserves? 
  • What were the most recent major purchases or renovations? Are there any upcoming special assessments to cover these maintenance projects? 
  • What are the individual owners responsible for versus the condominium association as a whole? 

Don’t hesitate to go over these documents with your REALTOR® and your attorney. They can supply additional expertise and advice! 

UNDERSTAND THE HOMEOWNER’S ASSOCIATION FEES 

Most people who know about condos know about HOA fees. As intimidating as they may seem, they serve a very specific purpose! 

Homeowners Association fees, sometimes called monthly assessments or nicknamed “HOA fees,” are an additional cost beyond your mortgage or escrow payments that go directly to the condo association. They include several maintenance costs like water, trash, landscaping and beyond. 

Why are some HOA fees so much more than others? Here’s an overview of HOA fees. In the end, you should ask about the included services in your monthly HOA fees and the portion that is sent to reserves. 

If you’re buying a condo with many shared amenities like pools, gyms, rooftops, elevators, and movie theaters, anticipate higher monthly fees to maintain these features. 

KEY TERMS TO HELP YOUR SEARCH 

As you move forward with looking for your future condo, keep these key term definitions in mind. You’ll hear them a lot during the transaction! 

  • CC&R’s: stands for Covenants, Conditions, & Restrictions which regulate living in the condo association. 
  • Condo Association Board: the governing body which makes executive decisions about shared amenity renovations and repairs, monitors the reserves and determine if special assessments are required, and enforce the CC&R’s. They meet monthly. 
  • HOA Fees: the monthly assessments or costs for living in the association. 
  • Amenities: the shared features available to all association owners and residents. 
  • Special Assessments: additional fees billed to the condo owners outside of the monthly HOA fees. They’re typically passed if a large repair is needed for a shared amenity that cannot be covered by the reserves. 
  • Reserves: the condo association’s savings! These cover emergency repairs or regular maintenance costs for the shared amenities. 
  • Property Insurance: this is the association’s insurance for the shared amenities and common spaces, but it does not insure each individual unit or their contents. 
model home on table surrounded by files

Transfer Taxes: What You Need to Know

If you’re thinking about buying or selling your home, make sure you know about transfer taxes. These taxes are part of your cost when your home is sold and the title goes from one individual (you, the seller) to another individual (the new homebuyer).

The state or city charges transfer taxes to complete a sale and title transfer. Your property’s assessed value and classification determine the total cost of your these taxes.

Chicago follows the Real Property Transfer Tax law. This law states that the transfer tax costs $5.25 per $500 of the transfer price. Three dollars and 50 cents of the $5.25 goes to the city, while the other $1.50 provides financial assistance to the Chicago Transit Authority (CTA). In Chicago, the buyer is responsible for paying $3.75 and the seller is responsible for $1.50.

Certain circumstances may lead to exemptions or credits on transfer taxes. Check out the city’s website to see if you fall into one of these categories.

You will pay these taxes during the closing of the property’s sale, so make sure to figure in the price when buying or selling a home! Make sure to talk to your REALTOR® if you have any questions or concerns about your transfer taxes.

three people looking at documents

What to Expect During A Closing: Buyers

A closing is when you, the buyer, sign the final ownership paperwork and officially, legally become the owner of your home! You will leave your closing with the home’s keys.

Your closing date will likely be listed on the purchase and sale agreement you will sign after your offer is accepted. On average, closings are scheduled within a month or two of signing this document.

LEADING UP TO THE CLOSING

As the buyer, the days leading up to the closing will include reviewing lots and lots of paperwork. Try not to stress! Your REALTOR®, your lender and your attorney are there to assist you.

One of these documents is the Closing Disclosure (also called the CD) which lays out your final loan terms and closing costs. You will get your CD from your lender at least three days before closing for you to review.

The CD will ensure there are no surprise costs for you at the closing table. Compare this with your initial Loan Estimate when you applied for the loan, and if you see significant discrepancies, contact your lender at once.

What is the difference between closing costs and your down payment? While your down payment goes towards your home loan, closing costs are typically one-time fees that go towards all the other services that take place during the transaction such as:

  • Loan application fees
  • Appraisal fees
  • Title search fees
  • Your attorney’s fees
  • Recording fees
  • Lender costs such as underwriting, credit report and origination fees
  • Commission for both the buyer’s and the seller’s agent
  • Property taxes

If you’re nervous about how to accurately anticipate the closing costs, consult your loan estimate. It includes estimates for each of these line items. Also, Nerdwallet has a free, online calculator.

couple signing documents

WHAT TO EXPECT DAY-OF

You will attend the final walkthrough of your home within 24 hours or the day-of your closing. Typically, you, your REALTOR® and the seller’s agent will attend as you make sure any and all request repair work was completed.

What are you looking for? You’re ensuring everything is functioning properly and that nothing has broken or been damaged since the inspection. Ask your REALTOR® for a list of what to look for during the final walkthrough. If everything is as it should be, you’re ready to close! If you see anything amiss, you and your REALTOR® will contact your attorney and the seller’s agent to negotiate potential compensation for the problems at the closing table.

What should you bring to the closing table? A pen, a government-issued photo ID and a cashier’s check or proof of wire transfer to cover the closing costs and any remainders of the down payment. Ask your attorney how much you should pad for potential closing costs increases such as prepaid interest.

Note: bringing “cash to close” does not mean you should bring cash!

Depending on your state or personal circumstances, ask your attorney if you need to bring any other documentation such as proof of homeowner’s insurance.

AT THE CLOSING TABLE

Prepare yourself to sign a large stack of paperwork! Your attorney will go through each one of these documents, although you will also receive them the night before to review them in greater detail.

Depending on a number of factors, closings can last between an hour to several. You as the buyer can help prevent unnecessary delays by avoiding changes to your financial situation such as large purchases on your credit card, applying for credit or changing employers.

Who is there? At minimum, you can expect it to be you, your attorney and the lender. Depending on the circumstance, the seller may attend if they haven’t already signed their necessary documents. No matter what, you are not alone. Your attorney and your REALTOR® are available to answer questions or address concerns.

sunrise chicago

WHAT’S NEXT?

You have your keys! You have officially purchased your home! Here are a few best practices to kick off your first hours/days as a homeowner on a strong note:

  • Take your copies of the closing documents you signed and save them in a secure place.
  • If you negotiated a same-day move with the seller, keep track of each key! Confirm you’re receiving one for any and all doors, mailboxes or entries.
  • Prepare a list of authorities or organizations (like the U.S. Postal Service) you need to notify of your change of address, as it applies.

With constant communication and intentional preparation, your closing can feel like an exciting culmination of all your hard work, research and exploration. Utilize the team of professionals at your back so you can save on stress and celebrate this exciting milestone.

Every Buyer’s Go-To Open House Checklist

couple doing research on laptop

4 Ways to Improve Your Credit Score

Credit scores are a vital part of getting approved for a loan to buy a home. Although you can get a mortgage with a lower credit score, the better your credit score, the better your loan terms will be. If you’re looking for ways to improve your credit score, look no further. Here are our top tips to improving your score for a better mortgage. 

1. Make Payments on Time 

Your payment history is one of the biggest impacts on your credit score. The more frequently you pay your bills by the payment deadline, the better your score will be. If you’re behind on your payments, the first step is to get up to date on them.  

Then, make sure to continue paying your bills on time and in full, if you can. Either get notifications for when your bills are due or set up automatic payments, so you don’t miss a due date. 

2. Pay Off Debt and Keep Low Balances on Credit Cards 

Another large determining factor of your credit score is credit utilization, or how much you owe on a credit card compared to your credit limit. Lenders typically look for a ratio of 30% or less. You can positively impact your credit utilization by keeping your credit card balances down or paying off any debt you have on your cards. Calculate your credit utilization here.

3. Only Keep As Many Credit Accounts As Needed, But Don’t Close an Unused Account! 

Having a mixture of credit doesn’t necessarily lead to a better credit score. Unnecessary credit can even harm your score by creating inquiries on your account and possibly leading to overspending. 

However, if you have an unused account, don’t close it! If the account doesn’t charge you annual fees, closing it could lead to a higher credit utilization ratio. 

4. Keep An Eye On Your Credit Report 

Make sure to check on your credit reports every so often. If you notice inaccuracies, such as late payments or incorrect amounts owed, these are all factors that can drag down your score. If you notice an inaccuracy, make sure to dispute it right away! Click here for more information on receiving a free credit report.

5 Financial Questions To Ask Yourself Before Buying A Home in Chicago

Finances are typically the most intimidating part of the homebuying process. So, here are five financial questions to ask yourself so you feel as empowered as possible.

#1: How Are Your 4 C’s?

Let’s look at loan eligibility or “buying power.” Most lenders evaluate a person’s buying power based on four elements called “the four C’s.” They are capacity, capital, collateral and credit.

Before you buy a home, make sure you are well-versed on the status of or know where and how to check on these.

  • Capacity: This is your ability to take on a mortgage or pay back a loan. Income, savings and monthly debt payments are some of the factors that affect capacity.
  • Capital: This is the amount of money or savings you have readily available. Think of it as your personal reserves that are not tied to income. Closings cost funds and your down payment funds are types of capital!
  • Collateral: When you take out a loan, this is the monetary value of the property you’re securing against it.
  • Credit: This is based on your credit score and history. A lender wants to know if you have a history of paying other debts on time and in full.

#2: Who’s On Your Team?

When you’re ready to buy a home or begin planning for a purchase in the future, assemble a team of professionals who will have your back and provide expert counsel. They include:

  • A Lender
  • A Real Estate Attorney
  • An Inspector
  • A REALTOR®

#3: What’s Important To You In Your Home and Neighborhood?

Begin creating a list of home and neighborhood features you consider non-negotiables.

For your neighborhood, rank access to public transportation, parking, green space, retail and restaurant density and proximity to schools or hospitals. Depending on what you prefer, this will narrow down building types located in neighborhoods that include your must-haves.

For example, several neighborhoods in Chicago are known for specific architectural eras. Bungalows, two-flats, greystones and courtyard buildings all require different financial considerations when it comes to maintenance.

For your property, consider cost-associated expenses like central AC, laundry, elevators, private outdoor space like porches or backyards and parking garages. It’s easy to just think of the desired number of bedrooms or bathrooms, but these aren’t the only features that will influence the cost of the properties that will fit your needs!

Once you have your ideal neighborhood and home in mind, you can begin to get an idea of home prices in those areas.

#4: What if…?

Look at your financial ability to handle emergencies, life changes and other “what if” situations. Build an untouchable emergency fund with at least three to six months of monthly expenses shored up.

Not only will this give you a peace of mind when you buy your home, it will also boost your capital and likely positively influence your buying power.

Don’t wait to ask yourself what if! Take charge of your finances with these hypotheticals.

#5: Where Do You See Yourself Five Years From Now?

Take a zoomed out look at your professional and personal goals, then apply your housing needs to these milestones. Do you see career changes or promotions in the future?

It may be to your benefit to consider a property with more space than you presently need, because you anticipate having children or getting married. Does the neighborhood you like now sound like it will still be enjoyable to live in or fit your lifestyle growth?

It may also be to your financial benefit to wait at least five years for your home value to increase or for you to build equity or ROI on your investment. When in doubt, ask your REALTOR® what kinds of life milestones in their experience influence home purchase decisions.

smoke detector

16 Helpful Inspection Report Questions For Buyers

Congratulations, your offer has been accepted! You now have entered the attorney review period. Typically, a home inspection is scheduled within five days of the accepted offer. An inspection report is an inspector’s documented recommendations and observations of the property’s potential need for repairs. Remember, your inspector’s job is to find any reasonably discoverable issues in your home.

While inspections are not mandatory, we highly recommend utilizing this affordable resource so you can continue through the buying process as informed as possible. The inspection report can be intimidating! We put together prompts to help you feel empowered to ask everyone on your “team” actionable questions.

Questions you should ask your REALTOR®:

  1. Do you have any reputable inspectors you would recommend?
  2. What are three things you advise I look out for in particular?
  3. Will you be able to attend the inspection with me?
  4. What are common issues or challenges to see in this property type?
  5. In your opinion, what are the most important repairs I should focus on or prioritize?
  6. [in the case of a short-sale] When should we schedule the appraisal?

Questions you should ask your inspector:

  1. What do you check and what don’t you check?
  2. How soon after the inspection will I receive the inspection report?
  3. Are you available for follow-up calls if I have questions about the report?
  4. Are there any issues of note on the seller’s property disclosure statement?

Questions you should ask your attorney:

  1. From the seller’s perspective, what requests are they likely to push back on and what are they likely to consider?
  2. How many requests is too many?
  3. Should I ask for a credit or should I ask for a warranty?

Questions you should ask yourself:

  1. How much repair am I comfortable taking on myself?
  2. What are my priorities?
  3. What items am I willing to give up on during the negotiation?

In the end, the inspection report is another tool in your homebuying toolbelt. If you’re feeling anxious, your REALTOR® is always available to provide perspective and experience.