First-Time Homebuyer Programs in Illinois

Buying a home can be unnerving for first-time homebuyers who don’t have adequate financing. Luckily, first-time homebuyer programs can help cover some of your down payment and closing costs. MoneyGeek researched several first-time homebuyer programs in Illinois to help aspiring homeowners see if they qualify.

One of the main hurdles to homeownership is financing your home’s down payment, which is a percentage of the total cost of your home paid upfront. First-time homebuyers should note that down payment amounts vary based on the mortgage amount and type. Typically, a larger down payment will reduce the cost of your monthly mortgage payments and vice versa.

The purpose of a homebuyer assistance program is to ease the financial burden of purchasing a home by covering the down payment and other costs associated with the purchase. In Illinois, borrowers may opt for federal or state-specific homebuyer programs. Each program features different requirements, with some having more strict guidelines than others.

MoneyGeek compared first-time homebuyer programs in Illinois across various categories and responded to some frequently asked questions about these programs.

First-time homeowners may qualify for a zero-down-payment loan, which requires no down payment. These include USDA or VA loans.

The U.S. Department of Agriculture Rural Development Guaranteed Housing Loan program offers USDA loans to Illinois borrowers with low- or moderate-incomes.

The loan reduces the cost of your monthly mortgage payment by an amount based on a family’s adjusted income. One primary advantage of USDA loans is that they feature lower rates than conventional loans.

There are three types of USDA loans available:

• The Section 502 Direct Loan Program provides direct loans to those that meet the low- or very-low-income criteria.
• The Section 502 Guaranteed Rural Housing Loan assists select private lenders in providing loans to low- and moderate-income aspiring homeowners.
• The Section 504 Home Repair program provides financing to homeowners for home repairs, improvements and upgrades.

You may be eligible for a USDA loan if your preferred property is classified as residential, less than or equal to 2,000 square feet and you meet the additional criteria. Applicants must also agree to occupy the home as the primary residence and demonstrate the ability to repay the loan.

VA loans provide financial assistance to first-time homeowners that are service members or veterans. These loans are available through mortgage companies, banks and other eligible private lenders.

VA loans offer several benefits to first-time home buyers in Illinois, including:

• Zero down payment
• Lower interest rates than conventional and FHA loans
• Reduced closing costs
• Waiver for private mortgage insurance

Borrowers can select from a wide array of VA loan types, including cash-out refinance loans and home purchase loans.

The VA determines eligibility for a loan based on your duration of service. Applications are submitted through private lenders after borrowers receive their Certificate of Eligibility.

Private lenders can offer VA loans with competitive terms, such as a low credit score requirement, because the VA guarantees the lender a percentage of the loan if the applicant defaults.

Aside from zero-down-payment loans, Illinois residents with low or moderate incomes may also consider loans that feature a reduced down payment. Generally, such programs require less than 20% of the mortgage amount as your first payment and include FHA and conventional loans.

Another category of first-time home buyer programs in Illinois is the Fannie and Freddie loan, or conventional loan. Residents can apply for conventional loans in the state through private lenders.

Conventional loans are very popular among first-time home buyers because they feature lower interest rates than most loans and require a modest down payment.

Conventional loans come in two types: conforming and non-conforming. Conforming conventional loans must meet Freddie Mac and Fannie Mae’s lending guidelines and policies, whereas non-conforming loans are not subject to these requirements.

The down payment amount for conforming and non-conforming conventional loans varies based on the lender. To find the best program terms, you may need to shop around and compare rates.

However, unlike VA and USDA loans, applicants are required to purchase private mortgage insurance for a conventional loan.

Federal Housing Administration (FHA) loans originate from the U.S. Department of Housing and Urban Development (HUD) and are sold through private lenders, like credit unions, mortgage companies and banks in Illinois.

Lending limits vary depending on the housing type and cost. Applicants with a lower credit score looking to make a smaller down payment may opt for an FHA loan over a conventional loan.

However, unlike zero-down-payment loans, FHA loans require mortgage insurance. After receiving the funds, applicants may choose either 15 or 30 years as the repayment period.

Specific requirements include a FICO score of at least 500, a minimum down payment of 3.5% and a maximum debt-to-income ratio of 56.9%.

FHA 203(k) is a type of FHA loan that covers the cost of both the purchase and renovation of an older home. First-time homebuyers who want to avoid taking on an additional mortgage loan to fund renovations can benefit from an FHA 203(k) loan.

Typically, the loan covers structural changes, landscaping and installation of energy conservation devices, among other costs. However, the loan does not cover luxury upgrades to a home, like recreational courts or swimming pools.

Offered by the government through private lending companies, FHA 203(K) loans are ideal for older properties with significant renovation requirements. The loan limit depends on where the applicant resides in Illinois.

Based on your need, you can apply for a standard or streamlined 203(k) loan. Standard loans fund significant home repairs and have higher maximum amounts than streamlined loans.

While federal first-time homebuyer programs may offer the best financial assistance, you may also opt for Illinois-specific loans, such as the Downpayment Plus Program and 1stHomeIllinois.

The Downpayment Plus Program from the Federal Home Loan Bank of Chicago offers up to $6,000 in grants first-time home buyers, who use the subsidy as a down payment or closing costs.

To qualify for the loan, the borrower’s total household income should be at most 80% of the average area income. Borrowers must also contribute at least $1,000 of the down payment amount and be able to meet INB’s loan underwriting requirements. For more information on INB’s requirements, you should contact the underwriter directly.

The Illinois Housing Development Authority offers financial subsidies to families across the state interested in homeownership. The program offers a maximum of $7,500 as a non-repayable loan to cover down payment and closing costs.

To qualify, borrowers must contribute at least $1,000 or 1% of the property’s purchase price and have a minimum credit score of 640.

Oak Park, a division of the West Cook County Housing Collaborative, facilitates homeownership and rental housing in select Illinois counties, including Berwyn, Forest Park, Bellwood and Maywood. Oak Park has a Multi-Family Housing Incentives Program that offers grants up to $10,000.

To ensure first-time homebuyers find the best loan for their needs, MoneyGeek provided answers to frequently asked questions about first-time homebuyer programs in Illinois.