Three buckets. The down payment, the closing costs, and the first year of owning the place.
Most first time buyers budget the first one carefully and get blindsided by the other two. This post puts numbers on all three, and points at where to get the figures for your own purchase.
What goes into the down payment?
Whatever your loan program asks for. Ask a lender which programs you qualify for before you settle on a percentage. The twenty percent figure everybody quotes is not a requirement on most loans.
The Illinois Housing Development Authority offers down payment help to first time buyers, and there are federal loan programs with low down payment options. A lender who works in Kane County every week will know which ones apply to you.
The size of your down payment does two jobs. It sets your monthly payment, and it decides whether you pay mortgage insurance on top.
What are closing costs, and who pays them?
Closing costs are the fees to make the sale happen. Title work, the appraisal, lender fees, recording fees, transfer stamps, and prepaid taxes and insurance to fill your escrow account.
Your lender has to hand you a Loan Estimate within three business days of your application. That document lists every fee with a dollar figure next to it, so you never have to guess. Ask for it early and read the whole thing.
In Illinois the state and county transfer stamps usually fall to the seller. Some towns add a municipal stamp of their own, and a few of those land on the buyer. Ask which side pays in the town you are buying in.
What lands on you in the first year?
Owning costs money that renting did not. A furnace dies, a sump pump quits, a tree comes down in a July storm.
A common budget is one percent of the purchase price a year for repairs and maintenance. On a $350,000 house that is $3,500 a year, and some years you spend nothing while other years you spend all of it at once.
Then there is the tax bill. Illinois bills property taxes a year behind. So the first bill with your name on it covers a period when somebody else owned the house.
The Illinois credit that works in your favor
That year behind billing puts money back in your pocket at closing. The seller owes taxes for the months they owned the house, and they hand you a credit for it on the closing statement.
On a Fox Valley purchase that credit often comes to four figures. It reduces the cash you bring on the day. Plenty of first time buyers do not find out about it until they see the paperwork.
Our post on the Illinois tax proration credit explains how the figure gets calculated.
What does the monthly payment look like?
Four parts: principal, interest, property taxes and homeowners insurance. Add mortgage insurance if your down payment is small.
Around here the tax part swings the payment more than anything else. Two houses at the same price, ten minutes apart, can differ by hundreds a month because they are in different school districts. Our post on Kane County property tax rates breaks the composite rate down by district.
Put your own figures into our mortgage calculator and add the taxes for the specific town you are looking at. A price is not a payment.
What is the 28/36 rule?
It is how a lender sizes your loan. Housing costs go to about 28 percent of your gross income, and all your debt together goes to about 36 percent.
That produces a maximum. A maximum is what you could pay if your car never needed tires and you never went out to dinner.
Work out your own number instead. Take what you pay in rent today. Add what you put away each month, subtract a cushion, and you have a budget you can live inside.
What does this cost in the Fox Valley specifically?
Entry prices are not the same across the county. The same budget reaches further in Elgin, South Elgin or the older parts of Aurora than it does in Geneva or St. Charles.
A first purchase here often means choosing between a smaller house in a town you love and a bigger one a few minutes out. There is no wrong answer, and the tax rate should be part of how you pick.
Drive both towns on a weekday evening before you decide. The commute and the noise tell you things no listing photo will.
What should you do first?
Talk to a lender before you look at a single house. You want a preapproval, and you want to see what the monthly payment looks like at the top of your range.
Then bring your own agent. The agent at an open house works for the seller. On most purchases the seller pays the buyer side, so your own representation usually costs you nothing.
Our page for a first time home buyer agent in the Fox Valley walks through the whole purchase in order. It starts at the lender call and ends the day you get keys. Or call Dale at (630) 940-7016 and ask the basic question you think is too basic to ask.
