Buying a house or a condominium is complicated. Before you invest time or money, you should understand how the process works.

The Department of Housing and Urban Development sponsors housing counseling agencies throughout the country. Housing counselors provide free or low-cost advice on the entire homebuying process. You can find a HUD-certified housing counselor online or by calling (8000 569-4287.

Know your rights

• It is illegal for someone to discriminate against you because of your race, religion, national origin, color, familial status, sex, or disability. Read HUD’s fair housing information to learn about the Fair Housing Act and your rights as a potential homeowner.
• The Equal Credit Opportunity Act makes it illegal for any lender to decide not to give you a loan because of your race, color, religion, national origin, sex, marital status, age, or because you receive public assistance.
• The Illinois Department of Human Rights has information about discrimination under the Illinois Human Rights Act.

Home loan basics

A loan to buy a home is called a mortgage. A mortgage usually has 3 parties:

• Buyer,
• Seller, and
• Lender.

The lender (a bank, mortgage company, or broker) lends money to the buyer. The buyer uses that money to pay the seller. Then the buyer pays the lender back over an agreed period of time (usually 30 years). The home is collateral for the loan. This is what is called a mortgage. The buyer promises to pay back the lender. This is what is called a promissory note. If the buyer does not do what is required in the loan agreement, the lender can file a foreclosure lawsuit in court to get its money back.

Do you need a real estate agent or a lawyer when buying a home?

You are not legally required to hire a lawyer to buy a home in Illinois, but it is recommended. Buying a home is a complicated process and a lawyer can help:

• Review your contract and negotiate on your behalf,
• Explain complicated terms and documents so you can make an informed decision,
• Perform a title search to ensure there are no liens or ongoing lawsuits related to the property,
• Help you during the closing to make sure all documents are correct and that you understand the many documents you are signing.

In addition to hiring a lawyer, you should reach out to trusted family and friends you can talk to during this process.

You may also decide to consult a real estate agent. There are many things to consider when hiring an agent:

• They provide access to the Multiple Listings Service (MLS) which may include properties that are not yet listed,
• They may have knowledge of the local real estate market and ,
• They may be skilled negotiators who can help you obtain a good deal,
• They may be a Realtor, which means they are a member of the National Association of Realtors and bound by their code of ethics,
• There may be a conflict of interest. Your agent may want a higher sale price if they are working on commission. For that reason, you might ask about paying them directly.

Make a budget for your home purchase

When planning to buy a home, you should make a budget that includes:

• How much you want to spend on a home,
• Your ideal monthly mortgage payment,
• The cost of a down payment and closing costs,
• The cost of home upkeep, homeowner’s insurance, and property taxes,
• Extra money you need set aside for initial home expenses and other costs. This may include payments to a homeowner’s or condo association.

Shop around for a mortgage loan and a home

Once you know your budget, you can get pre-approved for a mortgage loan and start looking at homes. Getting a pre-approval from a bank or mortgage lender helps you show that you can afford to purchase a home. Mortgages can differ based on several criteria, for example:

• The interest rate might be adjustable or fixed. Adjustable rates are more risky because the interest rate can go up and increase your monthly payment.
• The time to pay off the loan might be longer or shorter.
• It might be a conventional private mortgage. These mortgages are not insured or guaranteed by the federal government, and are the most common type of mortgage.
• It might be a special type of mortgage. For example, it could be a Federal Housing Administration (FHA) mortgage. FHA loans typically have lower down payments and require a lower credit score. There are also programs available through the USDA for rural areas and the VA for veterans.
• Illinois also offers its own special types of mortgages. You should also check for State programs available through the Illinois Housing Development Authority.

To shop for a mortgage, you will need to gather all of your financial information and then reach out to multiple lenders. This information usually includes:

• Your Federal and State tax returns,
• Pay stubs and W-2 forms,
• Any records of other income (such as rental income),
• Evidence of funds to make your down payment,
• Identification documents, and
• Bank statements.

Lenders include banks, mortgage companies, and brokers. When you apply for a loan, a lender will get a copy of your credit report. Your credit score can go down slightly as a result of this inquiry (less than five points). As long as you apply with multiple lenders within 45 days, any other lenders requesting your credit report should not impact your credit.

When shopping for a home, it’s helpful to have a wishlist of items you want. This HUD checklist is a good place to start. You may want to work with a HUD-certified housing counselor or a real estate agent to help you in finding the right home.

Contracts for deeds

A contract for deed is a way to buy a house without going to a traditional lender like a bank or mortgage broker. Contracts for deeds are also known as land contracts or rent-to-own agreements. These agreements are risky because they lack consumer protections that apply to normal mortgage loans. They can also have high down payments, balloon payments (a large amount due at the end of your loan), and might not take into account your ability to afford the monthly payments.

If you are thinking about buying a home with a contract for deed with a seller, make sure that the agreement has been reviewed by your housing counselor or lawyer.

Making an offer and signing a contract

When you have found a home you would like to purchase, the next step is to make an offer to the seller. If the seller responds to your offer, you can then negotiate the price and other terms and hopefully come to an agreement. Once you and the seller both sign, this means that the home is “under contract.” You will have a certain amount of time to inspect the property, finalize the approval of your loan, and shop for title insurance.

Once you are under contract, you should be ready to provide your lender or lawyer with updated and extra information. This will include:

• Financial information,
• Information about your new homeowner’s insurance and title insurance,
• Any condo or homeowner’s association bylaws and condo disclosures, and
• Any changes to your situation that might impact your ability to close on the loan.

Home inspection

A home inspection gives you a better idea of the condition of the home you are looking to buy. It can reduce your risk of purchasing a home that has problems. For example, some homes may have termites or mold that could cause structural or health problems.

It is usually the buyer’s responsibility to schedule and pay for the home inspection. It is a good idea to pay the inspector directly. That way they are working directly for you and have your interests in mind. In Illinois, home inspectors must be licensed by the State.

These organizations can help you find a home inspector:

• International Association of Certified Home Inspectors, and
• American Society of Home Inspectors

To find out if a home inspector has an active license, use the Illinois Department of Financial and Professional Regulation’s License Lookup.

HUD provides a list of 10 important questions to ask your home inspector.

Attorney review period

Under most real estate contracts, there is a set period of time for the lawyers to review the contract and negotiate terms. This is called the "attorney review period." Buying a house is likely the largest purchase of your life. You should seriously consider hiring a lawyer to review the paperwork for you. Your lawyer can also review the closing disclosure with you to explain the fees and expenses involved.

Shop around for homeowner’s insurance

If your home or belongings are damaged, homeowner’s insurance protects you. Certain types of damage are covered by insurance, and others are not. Usually covered are damage from fire, theft vandalism, and damage caused by weather like lightning, wind, or hail.

You should contact several homeowner’s insurance companies to get quotes. Make sure you know what is covered and what is not. Ask how the amount of coverage would change if you increase the premium or the deductible.

Learn more about flood insurance, which is separate from homeowner’s insurance.

Shop around for title insurance and other closing costs

When you buy a home, you receive a document called a deed. This is a document that shows that the seller transferred their legal ownership, or "title," to the home or property to you. Sometimes, problems arise with the title after the purchase, such as unpaid taxes, liens, mortgages, or restrictions on the property. Title insurance protects buyers and lenders against defects or issues with a title when there is a transfer of property ownership. Lenders typically require the buyer to purchase the lender’s policy. You can also shop around for an owner’s policy that would protect your interest in the home. You may also contact survey companies for quotes if a survey is required. Check your loan estimate to see which services you can shop for.

Title insurers are required to be licensed in Illinois. Visit the Illinois Department of Professional and Financial Regulation to check on an insurer's license.

Close the deal on your new home

The closing is the final step in the real estate buying and selling process. This is when the purchase/sale of the home is completed. Make sure you read all of the paperwork carefully and obtain a copy of all of the documents for safekeeping. Typically your monthly payments will switch to a different bank or mortgage company shortly after you close.

Further resources

You can find more information on financing and purchasing a home at the Consumer Financial Protection Bureau Website.