What to Expect When You're Transitioning from Renting to Owning

What to Expect When You're Transitioning from Renting to Owning (Source: pixabay.com - used as royalty free image)

Maybe you’re tired of the three-story walkup or smelling your neighbors’ cooking. Maybe you want to finally be in control of painting your own walls. Maybe you’re ready to make a long-term investment in your future, or you’ve heard that renting in Chicago is actually less affordable than buying.

Whatever your reasons for wanting to jump from renting to ownership, we know that it can be a huge transition. How do you know when you’re ready to take the first step? What are all the new factors you’ll need to take into account?

Take a breath and get ready to move on up. Here are the five keys to successfully upgrading from renting to ownership:

1.) Know Your Credit Score

Credit can be a huge factor for renters trying to secure a great apartment, but it’s even more important for buyers. Remember that banks are taking a risk when they loan you money in the form of a mortgage; fewer institutions or lenders will take that risk for a buyer with poor (or no) credit. And if the lender does give you the mortgage, it could lead to significantly higher interest rates, and a higher monthly payment.

Before you get too starry-eyed about homeownership, get real about your credit score. To secure an ideal (read: low) interest rate, you won’t just need a reliable credit history, but credit depth. To really understand your credit score, talk with a financial advisor about your credit accounts; improving and building your credit score as a renter could make all the difference as you build a budget for your future home purchase.

2.) Get a Handle on All of the Costs of Homeownership

You may hear all sorts of surprising stats about homeownership and renting. In many cases – particularly here in Chicago – homebuying is, indeed, a more cost-effective option, once factors like tax breaks and down payments are factored in. But before you dive into our listings, it’s hugely important to build a financial checklist and consider the real costs of buying a home. Knowing your full costs can help you determine just how much house you can afford – or whether you’re ready to make the leap into ownership in the first place.

This blog post over at Zillow does a great job of itemizing the real costs of homeownership, as compared to renting. Among the “full” costs to keep in mind:

Principal and Interest

Together, principal and interest make up your mortgage payment, “with the principal paying down your loan balance each month, and the interest paying your fee for borrowing the money,” as Zillow aptly puts it.

Taxes

While homeowners do get all sorts of tax benefits and incentives, they are also responsible for paying local property taxes. Condo owners will also likely be on the hook for HOA dues, which go toward maintenance and upkeep for your building's facilities. 

Insurance

Once you have a mortgage loan, you’ll need to have it insured by the company of your choice. Insurance can be expensive, and based around a number of factors, including the location, age, make of your home. Bear in mind that the policy’s coverage must be able to meet “replacement costs,” or roughly what it would take to rebuild the home following a major disaster.

3.) Understand Mortgages and Interest Rates

As you may have determined by now, having a mortgage is vital to homeownership in Illinois, unless you happen to have hundreds and hundreds of thousands of dollars on hand (in which case, why are you still renting?!). But while we throw around the term, you’d be surprised how many first-time buyers really don’t have a grasp on what a mortgage is and how one operates.

Before you start the buying process, do your research. Understand the various kinds of mortgages, like the differences between 30-year-fixed and adjustable rate mortgages. Research mortgage rules and regulations, shop around with different lenders, take the time to understand rates, and use a mortgage calculator to get a rough grasp on what your projected payments may be.

Above all, remember that a lot of factors – including your down payment, your credit, and current mortgage rates – will come together to affect your monthly payments as a homeowner. It’s important that you understand all of these factors before you make that life-changing commitment.

4.) Prepare for More Responsibilities

And speaking of “life-changing,” remember that making the shift from renting to owning will naturally bring plenty of lifestyle changes, for better and worse. Homeowners, for instance, report higher rates of satisfaction and civic engagement. On the other hand, you better brush up on your DIY skills, or get a handyman on speed dial. Remember that as an owner, you will be responsible for maintenance and repairs – and all of the unexpected costs that come with them.

5.) Build Your Real Estate Team

Feel ready to take the next steps? We’ve got one last, vital piece of advice: don’t go it alone! There are all sorts of unexpected twists and turns on the way to ownership, and you’ll feel much more comfortable – and be more successful – with a team to help you navigate them all.

Looking for a reference for your lending, insurance, or construction needs? We’ve got them! And if you’re ready for guidance as you make the exhilarating, world-changing first step, we’re here for that, too. Drop our team a line with any questions or concerns today!

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