Mar 23, 2024 - Real Estate

How to brace your budget for Chicago's real estate market

Illustration of a welcome mat that is a one-hundred dollar bill.

Illustration: Maura Losch/Axios

As mortgage rates soften, Chicago home buyers should be prepared for hotter competition, broker associate Melissa Stanley says.

Why it matters: While you can't control housing inventory and prices, you can strengthen your finances to strike when the time is right.

What they're saying: "It may take a little longer, and you might have to make multiple offers before you buy," Stanley tells Axios.

State of play: Wannabe buyers fall into two camps, according to Katy Song, chief financial planner of Domain Money. There are people who are over-prepared, and people who think they can afford more than they realistically can, Song tells Axios.

Here are her tactical tips for first-time home buyers to prepare wisely for taking the plunge.

💳 Look at your credit. If you don't have credit or it's not in good shape, it's not time to buy, she says. Your credit score determines how willing lenders are to give you money.

  • If you're starting from scratch, Song recommends getting a secured credit card. To start building your score, put a recurring payment like Netflix on the card, and automatically pay it off every month.
  • If you have credit card debt, devise an aggressive plan to pay it off.
  • You don't need to pay off your student loan debt or even car loans before applying for a mortgage.

💸 Calculate your maximum monthly payment. Generally, 28% to 32% of your net monthly cash flow is a safe bet.

  • Reality check: Your lender will likely approve you for a higher mortgage than what would be realistically comfortable, Song says. They're not factoring in recurring expenses like therapy, gym memberships or that oh-so-necessary pet subscription box.

💪 Build your savings and downpayment. Put away at least three months of expenses for emergency savings.

  • For a downpayment, Song recommends at least 10-20% to keep your monthly payment comfortable, and start building equity as quickly as possible.
  • Plus, more money down could get you that extra bedroom, for instance, even if it means having to save for longer.
Data: Redfin; Chart: Axios Visuals
Data: Redfin; Chart: Axios Visuals

The big picture: Inventory remains tight for Chicagoans home shopping this spring.

  • America's housing shortage and high mortgage rates are a big focus of President Biden's as he makes his pitch for a second term, Axios' Emily Peck reports.

Go deeper: Inside Biden's plan to unlock the housing market's golden handcuffs


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