First-time homebuyers in Illinois can apply for down payment assistance and loan programs provided by the state's housing development authority. Illinois offers first-time buyers substantial help with their down payments, and it sometimes extends these programs to repeat buyers as well.
As part of this article, we'll go over some of the state homebuyer assistance programs and explain how you might be eligible for them. To get the full benefits of some programs, you may have to reside in the home for a certain period. IHDA offers a wide variety of valid programs in virtually every county in Illinois.
Homebuyers of all backgrounds can apply for FHA loans, which the Federal Housing Administration backs. In contrast to conventional mortgages that require a 20% down payment, an FHA loan requires only 3.5% down at closing, provided you have good credit and strong borrowing history.
Your FICO® credit score must be at least 580 to receive maximum benefits. With a lower credit score, you'll be required to pay a down payment of closer to 10%, which is still half of what's normally required. Although FHA loans require a credit score, they are among the easiest federal loan programs to qualify for. Mortgage insurance is always required with FHA loans, which cannot be canceled.
Pros
- Down payment is low
- Flexible credit requirements
Cons
- Applicants with a low credit score will need a larger down payment
Eligibility
- A down payment of at least 5% of the property's value
- A minimum credit score of 500 (10% down payment required for those with credit scores on the low end)
Those who don't have a great credit history or adequate funds for a down payment would benefit from this program.
Veterans Affairs (VA) Loans
Third-party lenders provide VA loans, but Veterans Affairs insure VA loans themselves. Military families often face difficulties accessing mortgage loans, a common financial problem. However, they do not need to pay a down payment or receive private mortgage insurance (PMI).
The credit score you need to qualify is 620, and you will have to pay a VA funding fee. They can range between 1.25% and 2.4% of your home's value, depending on if you have made a down payment. You can meet the service requirement can be met in the following ways:
- You served in the Guard or Reserves for six years
- During peacetime, you served 181 days as an active duty service member
- As a wartime soldier, you were on active duty for 90 days consecutively
- A member of your family was killed in the line of active duty
VA loans usually do not come with other costs except for the funding fee. Additionally, closing costs tend to be lower than those associated with conventional and other mortgages. These initial savings can give you a greater financial cushion and allow you to save more money.
Pros
- Your home's value is covered up to 100%
- Closing costs are low
- Private mortgage insurance is not required
Cons
- Protracted application process
- VA funds must be paid
Eligibility
- You must be a member of the military or a beneficiary, spouse, or relative of a member of the military
- A credit score of at least 620 is required
Veterans with limited savings or low income are the best candidates for this program.
United States Department of Agriculture (USDA) Loans
USDA home loans, also known as Section 502 Single Family Guaranteed Loan Program, encourage rural and suburban homeownership by offering mortgages with no down payment to low-income borrowers. Loan processing is quicker for borrowers with a credit score of 640 or higher, regardless of their nontraditional credit data, like rent or utility payments. You can get one of these mortgages only in certain areas, but you don't have to be a farmer or rancher to get one.
USDA loans don't require a down payment if your credit score is decent. The down payment, maybe around 10% of your credit score, falls slightly below the FICO® scale. However, this is still much lower than the usual 20% down payment.
However, keep in mind one important requirement. The household income of a person applying for a USDA loan must fall within 115% of the median income for the area where they wish to live. A family with two incomes looking to buy their first home might find this a dealbreaker.
Pros
- No down payment needed
- Minimum credit requirements
Cons
- An area with a low population density must be considered
- Income limits are set for the area
Eligibility
- In most cases, household income must be higher than 115% of the median income of the area
- The property is located in an eligible area
Rural or suburban buyers with low- to mid-incomes will benefit most from this program.
Good Neighbor Next Door Program
One of the most interesting federal mortgage programs is the Good Neighbor Next Door Program. Though technically not a loan, a new home purchase is 50% cheaper for emergency personnel, teachers, and government employees. Mortgages are available from conventional lenders, VA lenders, and FHA lenders for buying a home. Paying cash is also an option.
It's not easy to save half on your home's value without certain conditions. In addition, the home must be in an area designated by the Department of Housing and Urban Development (HUD) as a "Revitalization Area." For three years, the home must be the primary residence. As long as you meet these requirements, you can sell the house after three years and keep any profit from the sale.
Pros
- New homebuyers get a 50% discount
- After three years, you can sell the house and retain the equity
Cons
- Available only in select locations
- After purchasing the home, you must live there for at least three years
Eligibility
- Police officers, firefighters, emergency medical technicians, and teachers from pre-K to 12th-grade are eligible
This program would be most beneficial for local public servants who do not have much saved for a down payment.
Fannie Mae/Freddie Mac
The federal government created Fannie Mae and Freddie Mac, which offer first-time homebuyer programs. They're indeed two separate entities, yet they both provide the same benefits for those buying their first home.
Anyone with a FICO® credit score of at least 620 and an income at or near the median in the United States can benefit from Fannie Mae's HomeReady® loan. One of the best things is that only 3% of your home's value is required as a down payment. You will need private mortgage insurance when you purchase your home. However, once you've accrued 20% equity in your new home, you can cancel your mortgage.
If you don't want to put money down that way, you can get a Home Possible® mortgage with Freddie Mac with just a 3% down payment. Home Possible® loans come with fixed rates ranging from 15 to 30 years and adjustable rates 5/5, 5/1, 7/1, and 10/1. There is also private mortgage insurance you can cancel. In addition, your credit history will not be a factor in qualifying.
Pros
- Requires low down payments
- Credit requirements are very low
- You can choose from several loan types
Cons
- High rates of interest are possible
Eligibility
- In some cases, there may be no income requirement
Anyone who wants a low down payment benefit but isn't eligible for other federal programs can take advantage of this program.
The IHDA supports homeownership by offering mortgage loans, grant assistance for repairs, foreclosure prevention services, and supporting multifamily rental housing and community development. Illinois residents can take advantage of the following home-buying programs.
IHDAccess Forgivable
Despite its uninspiring name, the program tells you everything you need to know. Down payment assistance of up to $6,000 is available for down payments up to 4% of home purchase prices. Cash assistance is forgiven monthly over ten years without payment. Along with conventional loans, government-backed mortgages, such as VA, FHA, and USDA, are included.
One of the biggest benefits of Access Forgivable is in its title. There is a 4% down payment assistance and $6,000 closing cost assistance, which can be forgiven if you cannot pay it back within ten years. There is also a fixed mortgage interest rate. Once you apply, you'll determine how much the loan will cost in full.
In addition to meeting income requirements and purchasing price limitations, you will need to complete a series of homeownership classes. If you qualify, it is well worth the time and effort. You could buy a new home for almost nothing with a $1,000 down payment or 1% of the house's cost.
Pros
- The down payment requirement is very low
- Assistance with down payment and closing costs up to $6,000
- Competitive interest rates
Cons
- There are strict income and price limits for households
Eligibility
- A credit score of 640 or higher is required
- Homeownership counseling is required
Low-income individuals who need assistance with downpayment and closing costs for buying a home can benefit from this program.
IHDAccess Deferred
Access Deferred offers Illinois homeowners a safe, 30-year fixed-rate mortgage that never changes in the same vein as Access Forgivable. A 1% down payment is also required so that you can secure your first home with as little as $1,000.
The program also assists with the home's down payment and closing costs of up to $7,500. Access Deferred's payment assistance program is unique since it's interest-free. Moreover, you don't have to repay it until you have refinanced your home, sold it, or paid it off fully.
Pros
- The down payment requirement is very low
- Deferred loan up to $7,500 for down payment and closing cost assistance
- Competitive interest rates
Cons
- Purchase price and household income restrictions
Eligibility
- A minimum credit score of 640
- Homeownership counseling is required
This program is best suited for individuals with low to moderate incomes who need help with the upfront costs of a home purchase.
IHDAccess Repayable
A down payment or closing cost assistance of 10% of the purchase price is available for up to $10,000. You pay back this loan over ten years, which is also interest-free.
The Access Repayable scheme works in much the same way as the Access Forgiven and Access Deferred schemes. Borrowers benefit from a fixed-rate loan with a competitive interest rate and can contribute as little as $1,000, or about one percent of the home's purchase price, out of pocket.
Access Repayable, however, provides loans for low- and middle-income consumers who cannot afford standard down payments. The program provides down payment assistance of up to $10,000 for home purchases. The best part is that the down payment loans are interest-free. This IHD program requires repayment over ten years, unlike the others.
Pros
- Down payment requirements are very low
- A down payment and closing cost assistance loan up to $10,000 with no interest
- Competitive interest rates
Cons
- Strict household income and purchase price limits
Eligibility
- At least 640 credit score
- Homeownership counseling is required
Those who don't have enough savings to make a down payment on a home should consider this program.
Native American Direct Loan (NADL)
ADLs can assist Native American veterans and their spouses when purchasing a home. This VA-backed mortgage has no down payment requirement, and the interest rate is pre-determined. The rate currently stands at 4.5%, although it is subject to change based on market conditions and the Prime Rate.
In the same way as traditional VA loans, NADLs do not require private mortgage insurance or high credit scores. The closing costs of NADLs are also significantly lower than those of traditional loans.
Pros
- The requirement for credit is low
- Upfront Payment is not required
- There is no requirement for private mortgage insurance
- Closing costs are low
Cons
- Eligibility requirements are strict
Eligibility
- The home must be situated on allotted lands, the land of Native Americans, Pacific Island territories, or federally recognized trust lands
Native Americans with no down payment savings will benefit most from this program.
1stHomeIllinois
1stHomeIllinois can be paired with FHA, VA, USDA, or conventional loans for 30-year fixed rates. The grant also assists with down payments and closing costs up to $7,500. Don't see yourself repaying the loan? The grant will be forgiven as long as you live in the house for at least five years.
It is important to note that 1stHomeIllinois only accepts homes purchased in Boone, Cook, DeKalb, Fulton, Kane, Marion, McHenry, St. Clair, Will, or Winnebago counties in Illinois. This program should make the counties in these areas look much more attractive even if you were not planning on moving there.
Pros
- Down payment requirements are very low
- Assistance with closing costs and down payment of up to $7,500
- Competitive interest rates
Cons
- The purchase price and household income limits are strict
- Newly constructed homes are not eligible
Eligibility
- 640 or higher credit score
- Homeownership counseling is required
Individuals with mid-to-low incomes who live in Boone, Cook, DeKalb, Fulton, Kane, Marion, McHenry, St. Clair, Will, or Winnebago counties are most likely to qualify for this program.
Bottom Line
First-time homebuyers in Illinois have various options to qualify for a first-time homebuyer loan. It's important to weigh all of your options before determining whether you qualify for assistance and the amount you can qualify for. It is still possible to qualify for down payment assistance as part of a traditional home loan to make your loan more affordable or reduce the need for PMI.
Are you interested in learning more about different grants and programs that can help you with your living situation? Check out the rest of Gov Relations’ blog section today!
