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

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.

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.

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.

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:

• Conventional home loans: 5.6–7.0%
• VA loans: 5.8–5.8%
• USDA loans: 1–3.3% (depending on your criteria)
• FHA loans: 5.4–5.6%

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.

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.

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.

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.

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.

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.

• IHDA Mortgage: The Illinois Housing Development Authority assists those who need a mortgage loan or repair grant. The program offers different levels of assistance based on the borrower's needs and eligibility.
• USDA Single Family Housing Program: The U.S. Department of Agriculture offers loans to low- to very-low-income groups in Illinois.
• Illinois Department of Commerce and Economic Opportunity: The department offers housing support such as rental assistance and accessibility assistance for persons with disabilities.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.