How to Buy a House in Illinois: A Homebuyer’s Guide

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Edited byMorgan Hull
Edited byMorgan Hull

Updated: May 21, 2023

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The current average home value in Illinois is around $267K. Compared to the national average home value of $357K, an Illinois home is about 34% cheaper.

Home values increased by over 10% in Illinois from the previous year, while the national average home value increased by approximately 14% during the same period.

Because homebuying entails several different steps, it can feel overwhelming at times. MoneyGeek’s guide helps make the homebuying process easier by taking you through the entire process. We offered advice on how to choose the best location, explained the differences between different types of mortgages and highlighted the importance of home inspections.

Key Takeaways

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The average cost of an Illinois home is $267K, which is over a 10% increase from the previous year.

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To take out a mortgage, borrowers usually need to present their credit score, proof of income and employment and debt-to-income ratio.

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Before you apply for a mortgage, it’s best to shortlist preferred locations, weigh different mortgage types and compile the necessary documents to speed up the process.

Choose an Ideal Location

Where you live can greatly influence the cost of your home and mortgage in Illinois. It’s also important to evaluate your priorities. There may be certain habits or lifestyle choices that are non-negotiable. Your ZIP code determines what kind of amenities are available, the cost of living, recreational activities and neighborhood culture.

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WORK WITH A REAL ESTATE AGENT

A real estate agent can provide valuable insider knowledge on the local market and help guide you through the homebuying process. Because of their expertise, hiring a real estate agent will usually simplify the process and help you find the best place to buy a house in Illinois.

When comparing real estate agents, we recommend noting the following tips:

  • Review recent client references
  • Ensure your agent is licensed
  • Ask for referrals from trusted friends and family
  • Choose an agent that’s highly knowledge about the local housing market
  • Compare an agent’s rate against its competitors

The best agent for you will prioritize your needs, budget and homeownership goals.

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CALCULATE THE COST OF LIVING

In general, the cost of living in Illinois is less expensive than the majority of states; Illinois was ranked as the 16th most expensive among other states in terms of the cost of living. However, because the cost of living varies by city in Illinois, where your house is located will significantly impact your overall expenses.

To calculate your cost of living, you’ll want to assess the following living expenses that a typical family might need:

  • Utilities (electricity, water)
  • Food
  • Auto and medical insurance rates
  • Healthcare
  • Income, real estate and property taxes
  • Education

MoneyGeek suggests using our cost of living calculator to compare the cost of living in different cities that you might be interested in.

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CONSIDER AFFORDABLE NEIGHBORHOODS

While Illinois is a fairly affordable state to live in the U.S., it can be expensive for some. Homebuyers who are set on purchasing a home in this state can consider less expensive cities or counties.

There are tradeoffs to purchasing less expensive housing in more suburban areas, like Rantoul, as opposed to a large city like Chicago. Non-metropolitan areas present cheaper options but are limited in access to social amenities like schools, malls and hospitals. Meanwhile, cities are more expensive but provide greater access to transportation and similar infrastructure.

Calculate Mortgage Rates

When purchasing a home in Illinois, review the available mortgage types. Different kinds of home loans have different kinds of rates, so you need to pick the best one for your unique situation. Consider factors such as your income, credit history and debt-to-income ratio which can all influence your eligibility and mortgage terms.

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SEE YOUR MORTGAGE OPTIONS

There are many kinds of mortgage types available to Illinois homebuyers. Each loan program has its own rates, requirements, terms and limits.

One way to create a lender shortlist is to check your credit score, employment history, debt-to-income ratio, monthly income and finance-related factors. This will help you pick a suitable lender.

Below are the average going rates in Illinois for the following loans:

Different loan types have different requirements, so it’s important to check if you qualify. VA loans, for example, are only available to select military members and veterans.

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USE A MORTGAGE CALCULATOR

Before you buy a home in Illinois, ensure that you can afford the monthly mortgage payments and the down payment. MoneyGeek’s mortgage calculator accounts for the principal, property taxes, interest and other related costs.

If you’re deciding between a conventional loan or an FHA loan, you can review MoneyGeek’s in-depth guide and use our calculators to approximate your average mortgage payment. This will help you compare mortgage types to find the best deal for you.

Choosing the best place to buy a home in Illinois is a huge commitment. Therefore, it’s good practice to compare lenders for their APR, repayment terms, customer service, limits, fees and similar costs.

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KNOW YOUR QUALIFICATIONS

It’s worth understanding your financial profile since mortgage lenders typically look at your credit score, debt-to-income limit and more when assessing your capacity to repay a loan. The following factors carry the most significant weight:

  • Credit score: Lenders prefer those who have a fair credit standing (or higher). Your credit score will also impact the loan amount and interest rate offered to you.
  • Debt-to-income (DTI) ratio: This ratio reflects how much of your income goes to paying your existing debt. It’s a good indicator to lenders if you can afford to take on more debt.
  • Down payment: This is the partial and upfront amount homebuyers must pay.
  • Gross income: Because how much you earn is usually a reflection of how much you can pay, it’s a requirement for some lenders.

If there’s a specific factor, like a credit score, that doesn’t meet your lender’s criteria, you can always improve it before you apply.

Prepare Down Payment Requirements

Depending on which mortgage type you choose, the amount you’ll be required to make as a down payment will vary. For instance, conventional loans require a 20% down payment, while other loans, like VA loans, feature no downpayment for those that qualify. Because of this, it’s important to review the eligibility requirements for each loan type to see if you’re eligible for any savings.

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DETERMINE DOWN PAYMENT REQUIREMENTS

One of the most expensive costs during the homebuying process is your home’s down payment. Typically, conventional loans require a minimum down payment of 20% of the loan amount.

If this is beyond your current budget, there are zero-down-payment and low-down-payment options, but these are only available to those that meet certain requirements. Those that don’t qualify for these types of loans may still be able to save through down payment assistance programs.

Once you know the loan type that you qualify for, you can start calculating your down payment. It’s important to have an idea of how much you’ll be able to make as a down payment because it impacts the cost of your monthly payment. Making a higher down payment can lower the cost of your monthly payment and reduce the amount you’ll pay in interest.

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CALCULATE MORTGAGE INSURANCE

Mortgage insurance protects lenders in the event a borrower defaults on monthly payments. Most conventional loans, where the homebuyer makes a down payment of 20% or less, require buyers to purchase private mortgage insurance (PMI).

FHA and USDA loans do not require buyers to purchase mortgage insurance, but you may be asked to pay a mortgage insurance premium (MIP) or guarantee fee instead. VA loans do not require PMI.

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DOWN PAYMENT ASSISTANCE PROGRAMS

If a 20% down payment is beyond your budget, there are down payment assistance programs in Illinois that can help shoulder some of the cost.

Whether you’re a first-time homebuyer or a seasoned home shopper, you could stand to save through one of Illinois’ down payment assistance programs.

Get Pre-Approved for a Mortgage

Getting a pre-approval letter for your mortgage is an important step. Sellers often require this before you can view their property.

A pre-approval letter contains how much your lender is willing to loan you. Pre-approval is different from prequalification. Whereas pre-approval is an actual commitment, prequalification only shows that you qualify for the loan.

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GATHER NECESSARY DOCUMENTS

You usually need to submit the following documents when you’re buying a home in Illinois:

  • W-2 forms
  • Tax returns
  • Investment and debt statements
  • Bank account statements
  • Pay stubs
  • Other mortgage statements
  • Social Security number
  • Photo ID

Depending on your financial profile, your lender may require additional documents. If a certain document doesn’t apply to your situation, be sure to double-check if your lender requires a substitute document.

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TIME YOUR PRE-APPROVAL

During the pre-approval step, timing is everything. You’ll want to organize your documents ahead of time to ensure you maximize this period. While the time frame varies per lender, pre-approval letters are usually only valid for 30 to 60 days.

Within this time, ask yourself if there are any factors that could negatively affect your mortgage application. If you find there are factors that need improving, you have 30 to 60 days to fix them. After this timeframe, your letter will expire and you will need to request a new one.

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RECEIVE PRE-APPROVAL LETTER

When you’re ready to apply for a loan, you submit your application to the mortgage lender. Borrowers request a pre-approval letter to signify that they are serious about homebuying.

After they review it and perform a hard credit inquiry, you will be issued a pre-approval letter if you qualify. A pre-approval letter contains how much the lender is willing to loan you.

It’s possible to request letters from different lenders. This gives you the opportunity to compare terms and rates. However, when you request a pre-approval letter, lenders perform hard credit checks that negatively impact your credit score. Again, pre-approval letters are typically only valid for 30 to 60 days.

Conduct a Home Inspection

A home inspection is another important aspect of the homebuying process. Conducting a home inspection can reveal possible issues or areas of concern. In the long run, it’s much more costly to ignore these since certain problems can cause long-term damage to your potential home. In some cases, lenders will not finance your mortgage if the property doesn’t undergo a third-party inspection.

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CONTACT A LICENSED INSPECTOR

Working with a licensed home inspector will ensure that the report about your potential property is accurate and thorough. If you need assistance in picking a professional, you can turn to your trusted friends and family or your real estate agent.

Standard home inspections usually include an assessment of the following, based on the International Association of Certified Home Inspectors:

  • Roof
  • Exterior
  • Electrical
  • Fireplace
  • Attic, insulation and ventilation
  • Doors, windows and interiors
  • Basement, foundation and crawlspace
  • Heating
  • Plumbing
  • Cooling

Expect a written report once at the end of the home inspection process. You can also ask for a special home inspection to examine a property’s mold or sewage system.

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FOLLOW ILLINOIS-SPECIFIC INSPECTIONS

Illinois doesn’t require homebuyers to get a home inspection before purchasing one. In some cases, a specific city or county may require a home inspection. Although a standard home inspection is rigorous, it’s wise to anticipate the cost of additional home inspection.

Once you meet with your desired home inspector, ask if they’re licensed to conduct other types of inspections and what their rate is. MoneyGeek’s analysis found that special home inspections can cost between $100 and $700.

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GO THROUGH APPRAISAL

One of the final steps of the homebuying process is to perform a home appraisal. You can hire an expert to give an in-depth analysis and report of the value of the home based on the current market and similar houses. A home appraiser usually examines a property’s perimeter, interior and exterior. Before you hire an appraiser, you may want to compare rates with other experts.

Essentially, an appraiser will verify the value of a home to help the borrower avoid taking out too much money. It also protects the lender in case the borrower defaults on payments.

Close Your Mortgage Loan

You can proceed to the closing process after the home inspection and appraisal. Ensure that you’ve thoroughly reviewed and are comfortable with the terms of your loan agreement. Closing costs are costs paid to third parties and often include fees for legal work, appraisal and home inspection, document preparation and more.

It’s possible to ask your lender for an estimate of the closing costs so you know what to expect, but typically costs range between 2% and 5% of the total purchase price.

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SIGN ALL DOCUMENTS

After you’ve reviewed the terms of your loan, you will be asked to sign the following documents. To be fully prepared for your loan, you should review all documents carefully before signing them.

  • Final loan application: You’ll need to sign your original loan application to verify that all the information is accurate and applicable. If any information has changed, like your income, you should notify the lender.
  • Mortgage note: This document outlines the mortgage amount, interest, payment dates and terms. It also legally binds you to your mortgage.
  • Homeowners insurance policy: Most, if not all, states require homeowners insurance. This offers financial protection against damages to your home’s physical structure and your personal belongings.
  • Property deed: This provides a laundry list of the property and its features. The property deed also transfers ownership to the buyer.
  • Closing disclosure: This includes the terms of your loan. By law, lenders are required to provide the closing disclosure at least three business days before you close on the mortgage.

Take the time to carefully read each document and consult an expert if you have any questions. It’s crucial that homebuyers understand the agreement they’re entering into to avoid any complications in the future.

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PAY CLOSING COSTS

Closing costs typically account for 2% to 5% of the total purchase price. These include fees such as:

  • Credit report: A credit reporting agency compiles a borrower’s documents in order to provide a glimpse into their financial background and risk level.
  • Escrow: This is the account a lender makes for a borrower to conduct home-related transactions, such as paying property taxes.
  • Appraisal fee: This is the amount you pay an appraiser to assign a dollar value to a home.
  • Title insurance premium: This coverage protects the lender in case there is a legal defect with the title.
  • Home and pest inspection charges: How much you pay an expert to thoroughly examine a home and its current condition.

It’s important to note that this list provides some of the general applications of the closing fee. Because it isn’t comprehensive, your closing costs may account for additional expenses.

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COMPLETE YOUR HOME PURCHASE

Though the homebuying process can feel overwhelming, taking the recommended steps provided in MoneyGeek’s guide can make it as stress-free as possible.

Once you’ve found the home of your dreams and completed all these steps, it’s time to enjoy your new home. Your next goal as a new homeowner is to responsibly manage your funds and complete regular maintenance.

To ensure you can do this, MoneyGeek recommends setting aside an emergency fund. Account for cleaning and repair costs in case your appliances, heating and cooling systems, or home security tools break down.

Illinois Homebuying Details

Be mindful of any state-specific homebuying requirements that only apply in Illinois. You might want to ask your real estate agent or lender if there are any additional steps that you need to follow in order to complete the homebuying process.

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Seller's disclosure

Illinois law, specifically the Residential Real Property Disclosure Act, mandates all sellers provide a property disclosure form to inform buyers of any possible defects or issues with the home that can affect its value or safety. This only includes areas of concern that the property owner is aware of.

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Real estate tax

This is an additional cost on top of your mortgage. It will vary based on the county you live in.

Frequently Asked Questions About Buying a Home in Illinois

Homebuying can be a challenging and exciting process. If you have additional questions about the homebuying process in Illinois, you can review MoneyGeek’s answers to some of the most frequently asked questions below.

What are the most important questions to ask when buying a house in Illinois?
Is buying a house in Illinois a good idea?
Is it wise to buy a house in Illinois in 2023?
How much income do I need to buy a house in Illinois?
How much is property tax in Illinois?
Which Illinois city is the cheapest to buy a home?
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