With Chicago rents continuing to rise, more renters are wondering whether it is time to stop renewing leases and start building equity.
Buying is not automatically the right move for everyone, but before committing to another year of rent, it is worth understanding what that same monthly budget could look like as a homeowner.
Start With Your Current Monthly Rent
The first step is to look beyond the advertised price of a home and focus on the estimated monthly ownership cost.
For example, someone paying $2,500 per month in rent is already spending $30,000 each year on housing. At $3,000 per month, that annual cost rises to $36,000.
While rent provides a place to live, it does not create ownership in the property. A portion of each mortgage payment, on the other hand, may go toward reducing the loan balance and building equity over time.
That does not mean a $2,500 rent payment directly equals a $2,500 mortgage payment. Buyers must also account for property taxes, homeowners insurance, condo assessments and other ownership expenses.
What Determines Your Monthly Condo Payment?
The purchase price is only one part of the calculation. The estimated monthly cost of owning a Chicago condo may include:
Principal and interest
Property taxes
Homeowners insurance
Monthly condo assessments
Mortgage insurance, when applicable
Parking costs
Utilities not included in the assessment
Two similarly priced condos can have very different monthly costs depending on their property taxes and association fees.
A $400,000 condo with a lower monthly assessment may cost less each month than a $375,000 condo in a full-amenity building with higher assessments. This is why buyers should compare the complete monthly expense, not simply the list price.
Condo Assessments Are Not Always a Negative
Chicago buyers often see a higher monthly assessment and immediately assume it is a bad deal, but that is not always the case.
Assessments may cover services and expenses you are already paying for separately as a renter, including heat, water, maintenance, door staff, a fitness center, a pool or other amenities.
The better question is not simply, “Is the assessment high?” It is, “What am I receiving for that payment, and does it fit my lifestyle?” Every individual has different needs regarding amenities. If you know that you will never use a pool and gym, you may want to look for a building that has fewer amenities and lower monthly HOA fees.
A well-managed building with healthy reserves may be a much better choice than one with unusually low assessments and major repairs ahead.
Do Not Forget the Upfront Costs
Monthly affordability is important, but buyers also need to prepare for the initial costs of purchasing.
Those expenses may include a down payment, inspection, appraisal, attorney fees, lender fees, closing costs and moving expenses. If moving into a condo building, they may have their own fees as well.
You do not always need a 20% down payment. There are loan programs with lower down-payment options, and speaking with a trusted lender early is one of the easiest ways to understand what may be realistic.
When Buying May Make Sense
Buying may be worth exploring when you plan to stay in Chicago for several years, have stable income and savings, and are tired of repeated rent increases. It is also important to start building equity and making your money work for you rather than helping to pay off your landlord’s property.
It may also appeal to renters who want more control over their space and a greater sense of stability.
Renting can still be the better choice when flexibility is the priority, a move may be coming soon or the upfront costs would stretch your budget too far. However, keep in mind that when you rent, you are stuck in a lease and can pay large penalties to break the lease, or you may have to pay the full lease off if you need to move. If you own, you have much greater control of where you live and when it is time to sell.
Before You Renew Your Lease
Before signing another lease, take a moment to compare what your current rent could potentially buy.
A personalized rent-versus-buy review can show how different purchase prices, down payments, taxes and condo assessments affect your estimated monthly payment. Call one or two experienced lenders to run the numbers on rent vs. own.
You may decide that renting still makes the most sense. Or you may discover that owning a Chicago home is more attainable than you expected.
Thinking about making the move from renting to owning? Let’s look at the numbers and see what is possible.
