For over a decade, our team has been walking the streets of Chicago, helping people make their real estate dreams come true. Along the way, we’ve seen it all: the wins, the challenges, and sometimes the costly mistakes that buyers can make.
That’s why we’re sharing the top 5 money mistakes we’ve seen firsthand, so you can avoid them and have a smooth home-buying journey.
By the way, we’re the Ben Lalez Team, one of Chicago’s leading real estate teams. Whether you’re buying your first property or upgrading to your forever home, we’re here to guide you with insights, stories, and expertise that come from living and breathing Chicago real estate every single day.
Mistake #1 – Underestimating Property Taxes in Chicago
Property taxes are one of the financial hurdles that catch many buyers off guard. Chicago’s property taxes are significantly higher than the national average, so this can come as a shock to people who are new to the city.
Remember that Chicago’s property tax rate can vary depending on the neighborhood, school district, and even the specific block. For example, a $400,000 home in Lincoln Park may be subject to $8,000 in property taxes, while a similar home in Hyde Park might be on the hook for $10,000.
While we’re all primed to focus on the monthly mortgage payment amount, you can’t forget to check how much your property taxes will be.
And this mistake doesn’t affect only first-time homebuyers. Even experienced homeowners relocating from other cities may overlook Chicago’s unique tax structure, which includes assessments every three years. That means your initial estimate might increase sooner than expected. We wrote about how to calculate Chicago property taxes in a previous article, and it’s worth checking out.
* What You Can Do *
1. Research Local Tax Rates
The Cook County website can give you an estimate for property taxes in a specific area. To get accurate numbers, you can enter the property address or the PIN.
2. Request Tax Records
If you see a listing you like, ask for a copy of the current tax records from the seller.
3. Don’t Forget The Reassessments
Chicago’s properties are reassessed every three years, and this means your taxes can increase.
Mistake #2 – Overlooking HOA Fees & Assessments
In Chicago, condos and townhouses are popular with buyers. If you’re buying one of these properties, then you’ll absolutely need to understand the financial impact of HOA fees and special assessments.
HOA fees can cost as little as $100 per month to well over $1,000 per month, depending on the building’s location and amenities. Since they are paid monthly with your mortgage payment, they are a significant cost that you need to budget for.
Sometimes, a special assessment is levied and passed onto all unit owners if a building requires unexpected major repairs and there isn’t enough money in the reserve fund. Depending on the repairs required, this can be very expensive.
For example, buying a condo in the South Loop with a $300 monthly HOA fee might seem manageable until you’re hit with a $10,000 special assessment for lobby renovations.
* What You Can Do *
1. Review HOA Documents
You’ll have an opportunity to review all HOA financial statements, condo rules and by-laws, meeting minutes, and the reserve fund balance during the diligence period. If you spot a low reserve fund, that is a red flag that a special assessment could potentially arise.
2. Understand What HOA Fees Cover
HOA fees cover different things depending on the building and the amenities. Ask the HOA what the monthly fees cover. Are utilities covered? What about parking?
3. Budget For Special Assessments
If you’re buying in an older building or place with lots of shared amenities, it’s more likely that ongoing repairs will be required. If the reserve fund is low, you may want to start setting aside savings to cover a potential special assessment.
Mistake #3 – Focusing On Price And Not Value
It’s easy to fall into the trap of focusing only on finding the lowest price rather than considering the long-term value of your investment in a potential property. We know that staying within your budget is essential, but ignoring key factors like location, amenities, and resale potential can lead to regret and even higher costs over time.
Buying a property with a low purchase price may seem like a steal, but it might come with some trade-offs. For example, if it’s in a less desirable neighborhood, it might be more difficult to sell when it comes time for you to move.
For buyers who are fixated only on price, they may overlook other important features like access to good schools, proximity to transit, or the quality of the construction materials. These things not only improve quality of life, but they also directly impact the value of the home.
* What You Can Do *
1. Think About Long-Term Resale Value
Before you buy, check out neighborhood trends and upcoming developments. Properties near public transit or in up-trending neighborhoods tend to retain or increase in value.
2. Consider Your Daily Lifestyle
Give some thought to what your day-to-day is going to be like. A potential property could be higher in price, but your commute time will be significantly shorter. Are there nearby amenities like supermarkets or a gym that will save you time and effort?
3. Work With An Experienced Agent *ahem*
A knowledgeable real estate agent (or team) who knows the city can help you look beyond the price tag to understand a property’s true value, including the potential for future appreciation.
Mistake #4 – Skipping A Home Inspection To Save Money
In competitive markets or when you have a tight budget, some buyers are tempted to skip the home inspection to make their offers more appealing or to save money. In some cases, when specific properties see multiple bids, it’s a strategy to sweeten an offer. But it’s important to know that passing on a home inspection could lead to unforeseen expenses down the road.
A home inspection is your only chance to uncover potential problems with a property that may be invisible to you when you’re viewing it. Skipping the home inspection is like buying a car without popping the hood open – it might look shiny on the surface, but there could be some hidden issues underneath.
Many homes in Chicago are old, and that makes home inspections even more important. From vintage condos to century-old homes, many properties could have issues with plumbing, foundation cracks, or outdated electrical systems. Some properties are very unique and it takes an experienced home inspector to know where to look for potential problems.
* What You Can Do *
1. Include An Inspection Contingency When Possible
Even in a competitive market, always try to include an inspection clause in the offer to give you the flexibility to walk away or renegotiate if major issues are identified. Submitting a winning offer requires a delicate balance, so always consult your agent.
2. Hire A Qualified Home Inspector
Don’t just ask your uncle or neighbor to take a look-see around the home. Choose a licensed inspector with experience in specific types of Chicago properties. They’ll know what to look for in the city’s older properties, from outdated building materials to potential water damage and the building code.
3. Negotiate Repairs Or Credits
If the home inspection report reveals any significant deficiencies, use it as leverage to negotiate repairs or request a credit from the seller to cover the cost of fixing the issues.
Mistake #5 – Improperly Calculating Closing Costs
Depending on your circumstances, we generally advise buyers to set aside 3% – 5% of the purchase price for closing costs. This means if you’re buying a home for $400,000, you’ll want to budget up to $20,000 for closing costs. Any unused funds can go towards post-closing expenses, like moving or furnishing your new home.
These costs include everything from attorney fees, title insurance, transfer tax, and more. For example, Chicago’s city transfer tax is $3.75 per $500 of the purchase price, in addition to the $1.50 per $500 state and county taxes.
Also, if you’re buying an older Chicago home, it may require extra due diligence such as extended title searches or special inspections which can further increase your costs.
* What You Can Do *
1. Get An Estimate From Your Lender Early
Ask your lender for a detailed breakdown of expected closing costs in your loan estimate. This will help you get a better sense of the total amount required on closing day.
2. Understand Transfer Taxes
Chicago’s transfer taxes can be confusing, so work with your agent or your attorney to calculate your exact tax liability so it’s not a surprise.
3. Attorney Fees, Title Insurance, & Prepaid Expenses
Hiring a real estate lawyer can cost anywhere between $500 – $1,500. That doesn’t include title insurance. Your closing costs will also include prepaid property taxes, homeowner’s insurance, and mortgage interest for the first few months. You’ll want to budget for all of this.
That’s it! If you can avoid these 5 common mistakes, you’ll save a ton of hassle and stress on closing day.
This doesn’t mean that there aren’t other issues you may need to tackle. Buying a Chicago home can sometimes be a complex financial journey. The key to making it work is understanding your costs, asking the right questions, and having experienced pros on your side.
We’ve done this a thousand times, literally. Before you make your next move, give us a shout and we’ll set you up with personalized advice and support every step of the way.
