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Illinois First-Time Home Buyer Programs

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SmartAsset: Illinois First-Time Home Buyer Programs in 2023

Median home prices in Illinois are nearly 40% lower than the national average, which makes homeownership a great option, especially outside of the Chicago area. First-time homeowners may also get a hand from the federal and Illinois state governments, which have created mortgage programs to make it more affordable. No matter your financial situation, these programs are worth exploring. If you need guidance on buying your home then you may want to talk to a financial advisor, who can help analyze your personal financial situation and answer your questions.

Illinois First-Time Homebuyer Programs

There are two types of first-time homebuyer programs — ones that are funded by the state of Illinois and ones that are funded by the federal government. We’ll first analyze all of the programs that are specific to Illinois and then jump into the details of the programs that can be accessed across the country.

The first program is from the Illinois Housing Development Authority (IHDA) which created the Access Mortgage program to help state residents realize their dreams of homeownership. It offers 30-year fixed-rate loans, as well as downpayment and closing cost assistance up to $10,000. Home Access is available in every Illinois county through a network of trusted partners.

To qualify, the property must be your primary residence and you can’t have owned a residential property in the last three years. Most programs also require a FICO® credit score of at least 640 and completion of a homeownership course, in addition to certain household income and purchase price limits. For some loans, borrowers only need to contribute $1,000 or 1% of the home’s price upfront.

IHDAccess Forgivable

Pros– Very low downpayment requirements
– Forgivable loan up to $6,000 for downpayment and closing cost assistance
– Competitive interest rates
Cons– Strict household income and purchase price limits
Eligibility– Credit score of at least 640
– Must complete homeownership counseling
Best For– Low-income individuals who need help with the upfront costs of a home purchase

With Access Forgivable, the biggest benefit is in the title. Borrowers receive downpayment and closing cost assistance of 4% of the home’s purchase price up to $6,000, which is forgiven if you can’t pay it back in 10 years. Plus, the mortgage interest rate is fixed. You’ll know the full cost of the loan as soon as you sign up.

As with all IHD programs, you’ll have to meet income and purchase price limits and complete some homeownership education. If you qualify, it’s more than worth it. With a minimum contribution of $1,000 or 1% of the home’s price, you could buy a new home for next to nothing.

IHDAccess Deferred

Pros– Very low downpayment requirements
– Deferred loan up to $10,000 for downpayment and closing cost assistance
– Competitive interest rates
Cons– Strict household income and purchase price limits
Eligibility– Credit score of at least 640
– Must complete homeownership counseling
Best For– Mid- to low-income individuals who need help with the upfront costs of a home purchase

Much like Access Forgivable, Access Deferred offers Illinois homeowners in every county a safe, 30-year fixed-rate mortgage. It also offers the same deal where you only need to provide as little as $1,000 or 1% of the purchase price to secure your first home.

To help with the upfront costs of homeownership, it also provides 5% of the home’s purchase price (up to $10,000) in downpayment and closing cost assistance. What separates the payment assistance with Access Deferred from other IHD programs is that the loan is interest-free. What’s even better: you don’t have to pay it back until you’ve refinanced your home, sell it or pay it off fully.

IHDAccess Repayable

Pros– Very low downpayment requirements
– Interest-free loan up to $10,000 for downpayment and closing cost assistance
– Competitive interest rates
Cons– Strict household income and purchase price limits
Eligibility– Credit score of at least 640
– Must complete homeownership counseling
Best For– Anyone that doesn’t have enough savings for a typical downpayment

Access Repayable works much in the same way that Access Forgivable and Access Deferred do. It provides a fixed-rate loan with a competitive interest rate and borrowers only have to contribute as little as $1,000 or 1% of the home’s purchase price out-of-pocket.

Access Repayable, though, focuses on helping low- and mid-income individuals who can’t afford standard down payments. The program provides 10% of the home’s purchase price, up to $10,000, in downpayment assistance. Best of all, the downpayment loan is interest-free. Unlike with the other IHD programs, you will have to pay this one back over 10 years.

1stHomeIllinois

Pros– Very low downpayment requirements
– Up to $10,000 for downpayment and closing cost assistance
– Competitive interest rates
Cons– Strict household income and purchase price limits
– Cannot be used for newly constructed homes
Eligibility– Credit score of at least 640
– Must complete homeownership counseling
Best For– Mid- to low-income individuals looking to live in Boone, Cook, DeKalb, Fulton, Kane, Marion, McHenry, St. Clair, Will or Winnebago counties

You can combine 1stHomeIllinois with a 30-year fixed-rate FHA, VA, USDA or conventional mortgage. It also provides a grant of up to $10,000 to help with your downpayment and closing costs. Can’t afford to pay it back? So long as you live in the home for at least five years, the grant is forgiven.

The only catch for 1stHomeIllinois is that you must be buying a home in Boone, Cook, DeKalb, Fulton, Kane, Marion, McHenry, St. Clair, Will or Winnebago counties. Even if you weren’t expecting to move to one of these counties, this program should make them look much more attractive.

Federal First-Time Homebuyer Programs

SmartAsset: Illinois First-Time Home Buyer Programs in 2023

Now let’s break down a handful of national homebuyer programs accessible to anyone, in the event you can’t find what you’re looking for with the Illinois programs, or you need additional assistance. It might be a good idea to consider both federal and state options when conducting your mortgage search to maximize your potential assistance and increase your chances of affording the home you want.

FHA Loans

Pros– Low downpayment
– Flexible credit requirements
Cons– Larger downpayment needed for those with a low credit score
Eligibility– Larger downpayment is needed for those with a low credit score
Best For– Those who don’t have a great credit history or sufficient funds for a downpayment

The U.S. Federal Housing Administration backs FHA loans, which are a great option for homebuyers of any background. While conventional loans require a 20% downpayment, you’ll only need to put 3.5% of your new home’s value down at the time of purchase with an FHA loan, provided you have a strong credit score and borrowing history.

To receive maximum benefits, you’ll need a FICO® credit score of at least 580. If your score is lower, you’ll be required to make a down payment closer to 10%, which is still half of a typical downpayment. Even with the credit score requirement, an FHA loan is one of the easiest federal programs to qualify for.

VA Loans

Pros– Up to 100% coverage for your home’s value
– Low closing costs
– No private mortgage insurance requirement
Cons– Long application process
– Requires VA fund payment
Eligibility– Must be a current or former military member, spouse or another beneficiary
– Credit score of at least 620
Best For– Veterans with low income or limited savings

The Department of Veterans Affairs insures VA loans, but third-party mortgage lenders provide them. They address a common financial problem among military families of getting access to mortgage loans. They do not require any downpayment or private mortgage insurance (PMI).

To qualify, you will need a FICO® credit score of at least 620 and you’ll need to pay a VA funding fee. These can range anywhere from 1.25% to 3.3% of your home’s value, depending on whether or not you make a downpayment. You also will need to meet the service requirement in one of these ways:

  • You served 6 years in the National Guard or Reserves
  • You served 181 days of active service during peacetime
  • You served 90 consecutive days of active duty during wartime
  • You are the spouse of a service member who has died in the line of duty

Aside from the funding fee, there are almost no other extraneous costs attached to a VA loan. Plus, closing costs tend to be cheaper than those of conventional and other mortgages. These initial savings can help you shore up your finances and save more for the future.

USDA Loans

Pros– No downpayment requirement
– Low credit requirements
Cons– Home must be in a lower-population area
– Income limits are restricted to the area
Eligibility– Adjusted household income must be within 115% of the area median income in most cases
– Home is in an eligible area
Best For– Low- to mid-income Americans looking to buy in a rural or suburban area

Loans from the United States Department of Agriculture, which are legally known as the “Section 502 Single Family Housing Guaranteed Loan Program,” aim to attract homebuyers to rural, or semi-rural, places throughout the U.S.

So long as your credit score is decent, you don’t need to pay any downpayment on a USDA loan. If your credit score falls a bit lower on the FICO® scale, you may have to pay a downpayment of around 10%. That’s still significantly lower than the typical 20%.

There’s one important requirement to keep in mind, though. To qualify for a common USDA loan through the guaranteed loan program, your household income must lie within 115% of the median income for the area you want to live in. This might be a dealbreaker for a double-income family looking to buy a home for the first time.

Good Neighbor Next Door Program

Pros– Flat 50% discount on your new home
– Can sell the home after three years and keep the equity
Cons– Only available in select areas
– Must live in the home for at least three years after purchase
Eligibility– Must be a police officer, firefighter, emergency medical technician or a pre-K to 12th grade teacher
Best For– Local public servants with little savings set aside for a downpayment

The Good Neighbor Next Door Program is one of the most unique federal mortgage offerings. Although technically not a loan, it provides emergency personnel and teachers with a 50% discount on the purchase price of a new home. To pay for the home, you could get a conventional, VA or FHA mortgage. Or you could simply pay cash.

Saving half on your home’s value doesn’t come without preconditions, of course. First, your home must be within what the Department of Housing and Urban Development (HUD) determines is a “Revitalization Area.” Furthermore, you must agree to make the home your primary residence for at least three years. The good news is that if you meet these terms, you can sell the home after three years pass and retain any equity and profit.

Fannie Mae/Freddie Mac

Pros– Low downpayment requirements
– Very low credit requirements
– Several loan styles are available
Cons– Can carry high-interest rates
Eligibility– In some cases, no income requirements
Best For– Anyone looking for a low downpayment benefit that doesn’t qualify for other federal programs

Freddie Mac and Fannie Mae are mortgage lenders that the federal government created, and each has a number of first-time homebuyer options. While they’re technically two different entities, they offer similar benefits geared to anyone buying a first home.

The HomeReady® loan from Fannie Mae is a great choice for anyone who’s strapped for cash, has a FICO® credit score of at least 620 and makes an income at or near the U.S. median. The biggest benefit is that it only requires 3% of your home’s value as a downpayment. You must have private mortgage insurance at the time of your purchase. But you can cancel it once you’ve accrued 20% equity in your new home.

If that doesn’t work for you, check out Home Possible® mortgages from Freddie Mac, with a downpayment of just 3%. Home Possible® loans come in 15- to 30-year fixed-rate and 5/5, 5/1, 7/1 and 10/1 adjustable-rate terms. It also has that cancelable private mortgage insurance. Perhaps best of all, you won’t need a strong credit history to qualify.

NADL

Pros– Low credit requirements
– No downpayment requirement
– No private mortgage insurance requirement
– Low closing costs
Cons– Strict eligibility rules
Eligibility– Home must be located on allotted lands, Alaska Native corporations, Pacific Island territories or federally-recognized trusts
Best For– Native Americans that lack savings for a typical downpayment

A Native American Direct Loan (NADL) can help Native American veterans and their spouses buy a new home. This VA-backed mortgage comes with impressive perks, like a 0% downpayment and a pre-specified interest rate. This rate currently sits at 6%, though that is subject to change based on market and Prime Rate fluctuations.

Just like normal VA loans, NADLs don’t require high credit score minimums or private mortgage insurance. Furthermore, NADLs also have significantly lower closing costs than a standard home loan.

Bottom Line

As you can see, there are a lot of available options for Illinois residents to qualify for a first-time home buyer loan. It’s important to weigh all of your options before determining whether you can get assistance, and how much you might be able to qualify for. Even if you receive a traditional home loan you still might qualify for some down payment assistance to help make your loan more affordable or to help negate any potential PMI requirement.

Tips to Buy a Home

SmartAsset: Illinois First-Time Home Buyer Programs in 2023
  • No matter where you buy a home, the purchase will impact your entire financial picture. It might be a good idea to work with a financial advisor as you prepare to buy your first home. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Determine how much house you can afford before you begin shopping for homes. This way, your mind and wallet will be in sync and you’ll be prepared as you’re shopping for homes.
  • Just because you qualify for a mortgage, doesn’t mean it’s right for you. Investigate the lenders, interest rates and down payment requirements of each choice. Buying a home is so much more than forking over a down payment — it’s a long-term financial decision.

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