Chicago is always one of the best places to invest. This trend remains in 2020. Chicago has a diverse economy that makes it one of the wealthiest cities in the world. It’s also the most popular tourist location in the US for both leisure visitors and business travelers. If you’re thinking of buying a home in Chicago, here are the things you should know.
Chicago Housing Market Outlook 2020
If you’re considering getting in on the Chicago housing market, whether for an investment or to purchase your forever home, you’re making an excellent choice, and the outlook appears excellent. Just a year prior, in 2019, the housing market in Chicago was fairly weak. In terms of growth, the line was flat and showed no real increase. The picture for 2020 is quite the opposite.
Chicago is now a warm market for real estate, and it doesn’t look like that will change any time soon. When it comes to supply and demand, there are more real estate buyers than there are sellers. This portends good things for all sectors of real estate, buyers, and sellers included.
When demand is higher than available supply, home prices naturally increase, which initially benefits sellers. However, in January, Zillow reported that 14.5% of Chicago’s listings had a price cut at the beginning of 2020, which could make increased pricing now more along the line of true value. These houses also have greater appreciation when purchased earlier on. After rising slightly since last year, the current trend for median days on the market has flattened out. You can expect homes placed on the Chicago market to only last for 86 days before they sell.
Chicago Housing Market Predictions for the Rest of 2020
Purchasing a home in Chicago is an excellent investment, whether you’re buying and renting out or purchasing your permanent home. Housing prices are expected to flatten out on a national level, only increasing by 0.8%. This will allow buyers the option of moving and purchasing houses that are within their affordability level. Overall, we can expect to see mid-sized markets benefitting the most from these flattened prices.
Though the 0.8% increase is expected, the last quarter saw a higher appreciation rate for Chicago to the tune of 1.29%. This bump would correlate to an annual upward adjustment forecast of 5% to 6%. So while prices nationwide might be lower, Chicago still appears to be appreciating at a faster rate, though not so fast that buyers cannot benefit.
Chicago is still a strong renter’s market and will continue to trend positive for rental properties. More than 50% of Chicago’s residents rent, making the option to purchase real estate for use as a rental property a strong move. Despite recent population loss, Chicago still ranks as the most populated city in the Midwest with three million people in Chicago proper, and another ten million in the surrounding metro area.
When considering home prices and purchase timing, forecasts are assuming a 3.2% rise by the end of the next twelve months. If you want to purchase a home, it now appears to be the best time.
What Credit Score Do You Need to Buy a Home in Chicago?
As a general rule, the higher your credit score, the better chances you have to purchase the home of your dreams. The lower your score, the harder time you’ll have to convince a home mortgage lender of your qualifications to obtain the loan. Generally, the minimum credit score you need to purchase a house is around 620. Though you can find some lenders who are willing to work with lower credit down as far as 580.
Loan Options by Credit Score for Buying a House
The options you have for obtaining a home loan depend almost solely on your credit score. Here are the typical options you can expect for varying credit score ranges.
300-499: At this score, you have few to no options for obtaining a home loan. If you can obtain a loan, the interest rate will almost certainly be prohibitively high, resulting in an interest payment totaling more than 20% of your total home cost.
500-579: Here, there are several poor credit score mortgage programs you can obtain loans through. Options are slim, however, so you won’t get your choice of interest rates or payment options.
580-619: At this point, you can take advantage of a few low down payment programs. Interest rates will still be higher than you might have a budget for, so consider the interest rate before you sign on the dotted line for your mortgage.
620-699: There are several government-backed programs, as well as some conventional options available at this score range.
700-739: This is when you can start to take advantage of good credit score mortgage programs. At this point, you’ll be able to obtain better interest rates that will benefit your budget in the long run.
740 and above: Here, you’ll have your pick of lending options and will obtain the best interest rates the industry has to offer.
Common Mortgage Types in Chicago, IL
There are several types of mortgage options to consider when purchasing a home.
Conventional Mortgage: This is a mortgage offered through a private home loan lender, or Fannie Mae or Freddie Mac
FHA Loans: This is a loan insured by the Federal Housing Administration. These loans allow down payments of only 3.5% for credit scores beginning at 580. Borrowers likely will be required to pay mortgage insurance to protect the lender against default.
VA Loans: Available to veterans, these loans offer no down payments and are federally guaranteed.
USDA Loans: These loans require no down payment and are available for low to moderate-income homebuyers. With a USDA loan, you can finance 100% of your home’s purchase price.
Illinois Housing Development Authority: If you already reside in Illinois, the IHDA loan program will help assist with up to 4% of your home’s purchase price, up to $6,000, and a 30-year fixed-rate mortgage with reasonable interest.
Chicago: A Great Place to Invest
Stated by a credit repair specialist in Chicago, if you are interested in buying a home in Chicago, start by preparing your credit score. Shoot for a score as high as possible, then determine which options you have when applying for your mortgage. With its diverse economy and affordable homes, Chicago is an excellent place to live and invest.