Illinois First Time Home Buyer – 2020 Loan Programs
Are you a first time home buyer looking to purchase a home in Illinois? On this page you can learn about the different types of mortgage programs that are available to first time home buyers. You may also view the different down payment assistance programs that are currently being offered in Illinois.
Illinois First Time Home Buyer Loans
Below are some mortgage programs that are available to first time home buyers.
Types of Mortgages:
- Conventional Loans – Conventional loans offer the best loan terms to borrowers with good or excellent credit, as well as those who can afford to place a larger down payment. If you are able to put 20% or more down, you will be able to avoid paying private mortgage insurance (PMI). However, conventional loans also offer low down payment options, such as programs that only require 3% down.
- FHA Loans – FHA loans are a good option for borrowers who may not be able to qualify for a conventional loan. The qualification requirements for FHA loans are much more lenient than conventional loans. This includes options for home buyers with credit scores as low as 500 (in order to qualify for a 3.5% down payment, you must have a credit score of at least 580).
- USDA Loans – USDA loans provide home buyers the opportunity to purchase a rural home without any down payment. These loans are intended for borrowers with low-to-moderate income. In addition to not requiring any money down, you can also finance the closing costs into the loan. This means you can essentially buy a home with no money out of pocket!
- VA Loans – Active duty military members and veterans can apply for a VA loan which allows you to buy your first home without any down payment. These loans are not available to the general public, but exclusively to military/veterans.
- Jumbo Loans – Any mortgage that does not meet the conforming loan limits is a jumbo loan. You can lookup the 2020 conforming loan limits for your county using this conforming loan limit lookup tool. If you want to buy a more expensive home, and have the income to qualify, jumbo lenders offer loan amounts up to $5,000,000.
- Non-Prime Loans – If you do not qualify for any of the above types of loans, you may consider a non-prime or non-qm loan. These programs are especially helpful to self-employed borrowers, and people with a variety of credit issues (such as low credit scores or a recent bankruptcy). Regardless of your situation, you should consider learning more about non-prime loans if you do not qualify for any of the other types of mortgages featured above.
These are some of the mortgage options that are available to first time home buyers.
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Illinois Down Payment Assistance Programs
Illinois homebuyers have access to some of the very best down payment assistance programs available in the entire nation. This includes statewide, and locally offered programs. The most popular down payment assistance (DPA) programs are featured below.
Illinois Statewide Programs:
- IHDA – Illinois First Home
- IHDA – Smart Move Program
- Welcome Home Illinois
- Illinois Mortgage Revenue Bond
- Illinois Mortgage Credit Certificate (MCC)
IHDA Illinois 1st Home
The Illinois Housing Development Authority (IHDA) offers a special down payment assistance program, which includes up to $7,500 in down payment assistance money. It is only available to first time home buyers in the following counties: Cook, Marion, St. Clair, and Winnebago. In order to qualify, the following requirements must be met:
- To be considered a first time home buyer you either have to be buying a home for the very first time, or not owned real estate in 3 years or more.
- You must occupy the home that you intend to purchase through this program. You may not purchase an investment property or buy for someone else.
- Contribute at least $1,000 towards your down payment or closing costs.
- Attend a homebuyer counseling course either in person or online.
- Must purchase an existing property. It is not available for new construction.
- You must have a credit score of 640 or higher to be eligible. We have other programs permitting lower credit scores, but the IHDA will only approve of applicants with a 640 mid score or higher.
- The maximum purchase price is limited to $336,706 for 1 unit, and $431,033 for 2 units.
- This program is intended for low and moderate income families, and therefore has strict income limits in place. A household can make no more than $101,520 (regardless of how many people live in the home).
You can also view the purchase limits and income limits here.
Illinois Smart Move
Offered only through the Illinois Housing Development Authority (IHDA), the SmartMove Mortgage products bring down payment assistance and low interest rates to Illinois residents that only bring in low- to medium-income, allowing first-time buyers to realize their dreams of finally owning a home.
In a nutshell, the SmartMove program is a 30-year, fixed rate mortgage that comes with built-in closing cost assistance and affordable interest. This loan can be either conventional, USDA, FHA or VA insured, however the type of mortgage awarded is what determines the loan-to-value ratio (LTV), the ratio of the cost of the loan compared to the cost of the property. For the conventional, it is 97. For the USDA and VA, the LTV is 100. The lowest is the FHA with 96.5. Borrowers are required to be first-time homebuyers, unless they are exempt under special circumstances, with a credit score of 620 or higher. The debt ratio can be no more than 45% and all borrowers are expect to pay 1% ($1,000) of their own funds, whichever is the greater number. Finally, a homeownership counseling session is required to promote responsibility.
The above is in regards to just the SmartMove mortgage by itself. Opt in for down payment assistance and a few more things are added on to the contract. The biggest addition is that the mortgage now comes with a down payment assistance loan. This covers up to 3% of the purchase price with a maximum value of $6,000. It is recorded as a second mortgage, comes with no extra interest and is entirely forgiven after a period of 10 years. This, of course, only happens if the house is not sold or refinanced within said time period. If one of these two things occur, the loan is due in full immediately. If combined with the SmartMove mortgage, the first mortgage’s interest rate will be slightly higher.
How to Qualify for Illinois Smart Move
There are three major rules that determine the applicants that can qualify for the assistance.
The first is that the buyer has to either be a first-time homebuyer or exempt from this rule. To count as a first-time buyer, the person must not have had any ownership interest for a primary residence in three years prior to the creation of the mortgage. That being said, all veterans are opted out of this requirement as well as those purchasing homes within a target area.
These target areas in Illinois are those places where 70% or more of the families have an income totaling 80% or less of the US Department of Housing and Urban Development’s determined median income for that area. This translates to benefits such as higher purchase prices and income, good selling points and the loss of the regulation that a buyer has to be a first-time homebuyer.
The second qualification revolves around the total household income. This includes both the borrower and all other legal adults over the age of 18 that will be inhabiting the home. It also covers spouses that choose to waive their homestead rights. So long as this number does not exceed the local income limits as determined by HUD, the applicant qualifies for SmartMove.
A quick way to determine total household income is to determine everyone’s individual gross incomes and add them together. For one person’s paycheck, take what they earn in one month and multiply that by 12. Any overtime should also be added in. Other things that are considered a part of the gross monthly income are:
- Child Support
- Investment Income
- Social Security
Finally, the property the assistance will be for has to count as a qualified dwelling with an acquisition price that falls within a certain limit. This is to prevent the buying of extremely expensive homes well beyond the means of low- to median-income families. Currently, a qualified home is one where the borrower obtains a simple interest fee in its real estate. Within 60 days of closing the loan, it has to become the borrower’s primary residence. The home must also be located within Illinois and be allocated for residential purposes. This means that units can be detached homes, condos, townhomes or two-unit homes. Co-op apartments do not count.
Federal Recapture Tax
The way the IHDA can provide down payment assistance to first-time buyers is through what is known as a federal recapture tax. By accessing tax-exempt bond proceeds, the SmartMove program is able to offer financial assistance for its eligible applicants. Should the home be sold or refinanced within nine years, the amount offered for down payment assistance will be recaptured.
However, the recapture can only happen if three conditions all apply.
- Within nine years of the home being purchased, it is sold.
- The sold home turns a profit.
- The income in the household the year the home was sold exceeds the federally dictated recapture tax limits.
Beyond this, the IHDA will reimburse households for the recapture tax so long as proper documentation is provided to prove that the tax was paid. This will be found in IRS tax transcripts. Reimbursement does not apply for those with a Mortgage Credit Certificate.
The Process of Illinois Smart Move
To begin the application process for the SmartMove program, applicants must make a reservation with the IHDA through their website. A manual will be provided and a user ID and password must be created. The login is obtained by contacting a system administrator. Your administrator will belong to the place where you attained your mortgage. Following the successful creation of a reservation, the mortgage must close within 60 days. If this does not happen, there will be fines that are subject to change without notice.
Next, your mortgage lender will send the IHDA a file of compliance documents to state that you are eligible for down payment assistance. To make this easier, the IHDA has created mandatory checklists that must be turned in with every file used for compliance. This can be uploaded through Mitas. The first review will take 48-72 hours and a decision is sent out through email.
The documents that make up a complete compliance file include:
- SmartMove Buyer and Seller Affidavits
- SmartMove Certificate of Income
- Recapture Notice
- Tax returns of the past three years
Each of these documents are found at the IHDA website and come with instructions for completion.
Next, credit underwriting happens based on the loan you have, be it FHA, USDA, VA or conventional. This is when the lender assesses your credit to determine the overall risk that you could default on the property. Beyond the underwriting rules established by your mortgage, IHDA has two other rules. These are that the borrower has a FICO score of at least 620 and that the backend ratio can be no higher than 45%. This ratio shows how much of the monthly income pays off debts.
Loaning and Closing
After achieving IHDA approval and credit approval, the home purchase can be closed. Should it be necessary, the IHDA does offer a pre-closing review available within 24 hours of closing.
All SmartMove loans are sold to US Bank. US Bank then becomes the financial entity that you pay your monthly mortgage to. Purchase files are sent to both the IHDA and US Bank. These purchase files, though similar to both entities, are slightly different for the IHDA. These forms include:
- SmartMove Buyer and Seller Affidavits
- IHDA Mortgage Rider
- IHDA Second Note and welcome letter
- IHDA Second Mortgage
The forms are mandatory and must be submitted.
The lender of the mortgage then has 10 days to send the IHDA all post-closing documents from the closing date of the loan. Finally, the loan has to have approval from both the IHDA and US Bank before it can be purchased.
Closing a down payment assistance loan comes with some differentiation. Instead of falling to the US Bank, it closes under “Illinois Housing Development Authority”. There is also no Truth in Lending required. This statement is often used to provide you with information about the costs of your credit, however, it does not apply with the down payment assistance offered through the IHDA. Finally, this second mortgage can either be listed as subordinate financing on the HUD-1 paperwork or have its own HUD-1.
The Fees of Illinois Smart Move
Like all loans, there are fees that apply to cover various costs associated with successfully creating a mortgage. The origination fee is the fee charged by the lender for loan processing. In this case, it can be 0.5% of the mortgage. For any miscellaneous fees, the lender can charge up to $1,200 so long as those charges are legally fair and reasonable. Finally, the service release fee covers costs to release certain aspects of the loan. Currently, for all loan types, this amount is 2.25% of the first mortgage’s amount.
Welcome Home Illinois
This state initiative is a special DPA program offered exclusively to residents (or soon to be residents) of Illinois. You may be able to qualify for up to $7,500 in assistance that can be used for any costs associated with your loan, including down payments and closing costs. A wonderful feature of this program is that it can be used with almost any type of loan, including conventional, FHA, USDA, and VA loans. The requirements are you must be a first time home buyer, have a 640 credit score, and $1,000 must be contributed towards loan costs (or 1% of the purchase price, whichever is greater). If you have owned a home before, you may qualify for $5,000 in assistance.
Some Advantages of Welcome Home Illinois:
- Funds can be used for closing costs, in addition to the down payment.
- It can be used with a FHA, VA, USDA, or conventional loan. This includes all types of loans, with the only exception being jumbo mortgages.
- The program includes a 30 year fixed rate mortgage. This means your mortgage payment stays the same and does not fluctuate.
To learn more about the IHDA program, you can speak with us or visit the website for the IHDA .
Updated: Welcome Home Illinois is currently not available. Please review other programs on this page, or speak with a home loan representative to find out what other program are available that you may be eligible for.
Illinois Mortgage Revenue Bond
Receive up to $6,000 in assistance to use for your down payment. This state bond program requires that you be a first time home buyer (or to have not owned a home in the last 3 years). Similar to Welcome Home Illinois, you must contribute the greater of $1,000 or 1% of the purchase price.
There is not a lot of information about this program online. If you are interested in finding out more or seeing if you qualify, we can help answer any of your questions.
Illinois Mortgage Credit Certificate (MCC)
In general, homeownership doesn’t net enough of a tax break to make it financially feasible for those with lower end income. Luckily, for first-time homebuyers, a Mortgage Credit Certificate (MCC) provides more than just a standard cut.
A few years ago, the IRS implemented an $8,000 tax credit for first-time homebuyers as a way to spur on home buying during the economic slump. While this specific one has been retired, there still remains a way to get a larger tax credit for a home through an MCC. While federally created, these certificates are issued through both the states and cities themselves and only award them to borrowers holding mortgages from participating institutions.
The MCC gives eligible mortgage owners a dollar-for-dollar tax credit that subsequently reduces the amount of taxes they have to pay to the IRS every year and can remain active year after year so long as the loan is maintained and the home the mortgage belongs to remains the primary residence. This mortgage can be FHA, conventional, VA or USDA.
Determining how much this credit amounts to is based on a percentage of mortgage interest paid on the first mortgage loan. This exact percentage varies from state to state and city to city. For Illinois, this percentage is typically 25%, though this number can vary. Once the percentage is determined, the final total is how much less a homeowner would be required to pay in taxes come the end of the year. For instance, if the 25% totaled out to $3,500, that would be $3,500 less owed to the government, provided that much was even owed in the first place. Should you not owe that much, the remainder can be carried over to the next year’s taxes for a period of three years. Keep in mind, however, for the full tax credit, the mortgage will need to have been paid in full for an entire year. Therefore if you only pay for six months of the mortgage, you’ll only receive a credit equal to the determined percentage of six months of interest.
The MCC program does come with a list of qualifications that all have to be met in order to qualify and claim one.
First-Time or Target Location
For the past three years prior to closing a mortgage that is available for this assistance, the borrower cannot have owned any primary residence. In addition, non-first-time homebuyers are also allowed to apply should their property be located in a designated area. To determine if an area is designated or not, look up the residence’s address on the US Department of Housing and Development’s (HUD) QCT Map.
Income limits are split into two groups based on if the area is a targeted area or not. Typically, household income limits are lower in non-target areas than in target areas. These limits also vary widely from city to city as they are all based on HUD’s calculations an area’s median income and are subject to change at any time.
Simply put, the home cannot cost more than what is federally and locally mandated. Like the income, the price is lower for non-target areas. In addition, for many areas in Illinois, new construction is entirely ineligible, though Chicago does allow for single unit new construction buildings.
Use and Size
Following the closing date, the home must be occupied as the principal residence within 60 days. It can also be used only as the primary residence, meaning it cannot serve as an investment property or a recreational property and no more than 15% of it can be used as a business. As for size, the property can only have one to four units. Single residences can be detached homes, townhomes, condos or a single unit of a duplex. A property made up of multiple units requires that one of them be the primary residence. On top of this, the entire building must have been used as a residential place for at least five years prior to the closing of the loan.
The mortgage the MCC is applied to must be a first mortgage. This mortgage cannot be entered into as a way to replace another mortgage. That being said, there are a few pockets in Illinois that allow for the MCC to be reissued following a refinance. On top of this, the MCC for this mortgage has to be correctly clamed on the borrower’s federal tax return every year.
Are You Eligible for Down Payment Assistance?
A mortgage specialist can help you check your eligibility for down payment assistance. If you would like to receive some help checking what down payment assistance programs you may be eligible for, fill out this form. We will match you with a mortgage lender that can help you see if you qualify for any down payment assistance.