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Finding a home

Homebuyer starts her path to building wealth with a 15th-floor Chicago condo

By Julie Tramonte

April 2024

This is a story of how a smart and well-informed first-time homebuyer did everything right – except for one little slip-up that could have jeopardized the closing of her mortgage loan. 

Rachel, 31, is a financially wise, new homeowner who fully understands how homeownership correlates to creating wealth. She is also a college graduate and works as a marketing manager at a well-known financial services company headquartered in Chicago, IL.

4 years ago, as part of her “journey towards building wealth,” Rachel started researching real estate investments and learned about “house hacking.” House hacking involves buying a multi-unit property and living in one of the units while renting out the other(s) to offset mortgage costs. Interested in creating cash flow through homeownership, Rachel began looking for a duplex or triplex to buy in downtown Chicago in February 2023. 

Problem was, there weren’t many duplexes downtown; they were further out in the city. Rachel worked downtown and didn’t have a car. Plus, the idea of having to do yardwork and home maintenance as a single person was a bit daunting. Her real estate agent suggested she buy a 2-bedroom condominium in the city and rent out the second bedroom. In November, Rachel changed the focus of her search to downtown condos. 

A stroke of luck

In late December 2023, while Rachel and her real estate agent were touring 2 condos in a building, they came across a third unit in the same building. It was a private listing that wasn’t on the market yet because the owner, a real estate investor himself, was literally in the middle of updating the condo. He agreed to let them in to tour it. 

The 2-bed, 2-bath condo featured a similar floor plan as the other 2 units, but it was on a higher floor and had more upgrades and the option of a parking spot (for an additional cost). Rachel fell in love with it. 

The asking price was more than the other 2 units. But given the better view, parking spot option, fresh wall paint and new carpet, she felt the price was warranted. After negotiating back and forth, she and the owner agreed to the final price of $400,000. 

“I love the location – it’s in the highly desirable residential area of River North yet still close to everything in the general downtown area. It has great natural light and a balcony, as well as in-unit laundry and central air,” explains Rachel. “I was willing to pay more because this is going to be my primary home for at least a couple of years and then, eventually, I intend on turning it into a real estate investment property.”

Things were going great, right? Not quite. Let’s rewind 8 months, back to April 2023. 

A mistake caused her credit score to drop 90 points

Like many knowledgeable first-time homebuyers, Rachel got preapproved by a lender when she initially got serious about house hunting. With a credit score in the high 780s, she was preapproved without a hitch. “I’ve always had a great credit score, always pay my bills on time and never had any issues,” Rachel proudly confides. 

When she applied for her preapproval, her lender had told her not to make any big purchases or open new lines of credit because that could jeopardize or delay a mortgage loan closing. (For other things to avoid, see 9 pitfalls that can trip up your loan closing.)

Soon after, Rachel received a misleading offer from her credit card company, encouraging her to “upgrade” her existing credit card. She accepted the offer. “The way they worded it made it sound like it wasn’t a new card, just an upgrade to my current card, so I thought it’d be okay,” explains Rachel.

Keeping in mind what she had been told about not making big purchases, she only put a few small-dollar purchases on her card. She thought she had paid off the entire amount right away, but months later – in the middle of her homebuying journey – she found out there was still a balance. 

“I got a letter from them in August telling me that I hadn’t paid my credit card for months,” says Rachel. “My credit score took a nosedive at the worst time possible – just as I was trying to purchase a home!” 

As Rachel explains, she hadn’t received any mail from the credit card company until she got that letter. Apparently, they had been sending her other letters that she never received. She immediately called her credit card company; they said there was nothing they could do because they had attempted to contact her. She also called 2 credit reporting companies, but they couldn’t help her either.

“I freaked out,” shares Rachel. “It was very frustrating! I wish I had never opened that ‘upgraded’ card.”

Thankfully, Rachel’s loan officer was able to help recover some of her credit score. He instructed Rachel to immediately pay off the balance and have her credit card company send a letter acknowledging that it was paid off. Doing this raised her score by approximately 40 points – enough to get her score back in the 700 range.

Back to the good part of the story – Rachel buys her condo

After the seller accepted Rachel’s final offer of $400,000, it was time to officially apply for the mortgage loan. A 20% down payment on the purchase price would have been $80,000. Rachel had nowhere near that much money for a down payment. Instead, she opted for a conventional loan with a 6.75% interest rate and the use of private mortgage insurance (PMI) that allowed her to put down only 5%, or $20,000. Her loan officer also helped to find her a $7,500 non-forgivable down payment assistance grant that won’t have to be paid back if she keeps ownership of her property for at least 10 years. 

Other than the credit score glitch, everything went smoothly and Rachel is well on her way to building wealth. Next step: finding a renter to share the cost of her $3,539 monthly mortgage payment, which includes principal, interest, taxes, PMI and homeowners association fees. But don’t worry, she joined a real estate networking group last year that will serve as a great resource for that!

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Julie

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Julie Tramonte is a writer who joined MGIC in 2018. Prior to flying the coop, she wrote for a mattress company, a manufacturer and advertising agencies. She’s obsessed with reading, traveling, tennis and rearranging furniture. Mother of 2 beautiful, adult daughters. Empty nester who recently downsized. Her guilty pleasures are doughnuts and the Kardashians (don’t tell anyone).
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