Smaller Down Payments Makes Purchasing Chicago Real Estate Easier

Purchasing real estate in Chicago may be getting easier for some buyers, as many mortgage lenders are lowering the amount required upfront for a down payment.

A recent article in the Wall Street Journal reported that banks are lowering requirements to as low as 3 percent of the purchase price (and, in some cases, even less) for a down payment, compared to a more typical 20 percent. That combined with other more flexible options could take certain pressures off of homebuyers, making it easier to buy a home.

This is good news for luxury real estate in Chicago, where a standard down payment could mean tens of thousands of dollars. Jumbo loans—mortgages for more than $417,000 in Chicago—are also having the down payment bar lowered, so qualified buyers may be able to part with less cash up front if they’re obtaining a mortgage.

Lending Flexibility for Chicago Homebuyers

Lowered down payments aren’t the only enticing offer coming from lenders. Some are waiving mortgage-related fees, and others are allowing down payments to come from third parties, like family members. But while these exceptions seem to be becoming more available, they may not be advertised—so it’s worth simply asking your lender what might be considered.

Of course, the core lending requirements haven’t changed. Buyers will still need a healthy credit score, steady income and a low debt-to-income ratio. And in some low-down-payment cases, borrowers may need to show a cash reserve that would cover 12 months of mortgage payments after the home purchase.

While these new offerings may make things easier, there are still a number of things to consider if you’re looking to lower your down payment on a Chicago real estate purchase:

1. Property value. A small down payment may mean there could be a greater discrepancy between the amount owed on a mortgage and the value of a property, if home values were to decline.

2. Other costs and fees. Borrowers should do their due diligence to compare the costs of a loan, from interest rates to upfront fees and other costs. A low interest rate might be enticing up front, but if it’s coupled with higher fees, the savings may not be worth it in the end.

3. Shop around: Some lenders may make private mortgage insurance a requirement if you’re borrowing with a low down payment. But many do not. And costs can vary by lender depending on if it plans to sell or hold your loan after its funded. Shopping around will give you a good idea of all of the offers out there and help you find the right loan for your situation.

Lending Changes a Win for Luxury Buyers

The easing up on lending is due to a few things. One, mortgage originations were down significantly in 2014. The dollars funded were down a whopping 39 percent, the lowest since 1997.

There have also been efforts by the Obama administration to make home ownership more obtainable to more buyers. Fannie Mae and Freddie Mac recently amended their minimum down payment from 5 percent to 3 percent, and the Federal Housing Administration (who has offered a low-down-payment option for some time) lowered the annual mortgage insurance premium.

All in all, this is certainly good news for anyone considering a home purchase, and it makes now a great time to take action. Even luxury homebuyers with cash on hand to make a home purchase may look to a mortgage loan to take advantage of these offers and avoid spending the bulk of their savings.

If you’re considering purchasing a home in Chicago, contact me to discuss your financing options and see what might be a good first step for your home buying purchase. Contact me at (312) 498-5080 or email me at ssalnick@dreamtown.com.

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