Buying your first home is an exciting accomplishment. Like many first-time homebuyers, you probably have a lot of questions about the financing process.
To help, Benzinga has compiled this quick guide to walk you through the steps for applying for an FHA, or first time homebuyer’s loan. We’ll help you understand the credit score requirements, review state assistance programs and share the best mortgage lenders in the Prairie State, so you can confidently navigate the home buying process.
The Best FHA Loans in Illinois:
- Best Overall in Illinois: Rocket Mortgage® by Quicken Loans
- Best for a Variety of Options: New American Funding
- Best For Face-to-Face Service: US Bank
- Best for Mobile Applications: guaranteed Rate
- Best for Quick Mortgage Applications: Fairway Independent Mortgage
What is an FHA Loan?
FHA home loans are commonly referred to as first time homebuyer’s loans. The Federal Housing Administration (FHA) funds these loans and offers incentives for first time buyers. They have more flexible eligibility requirements than many conventional loans (mortgages funded by banks) and often offer lower interest rates.
FHA loans can help low- to mid-income buyers realize their dreams of homeownership. The main benefits of FHA loans are the low down payment and credit score requirements.
While most FHA loans are purchase loans used to finance your first home, there are also refinance options available to help existing homeowners refinance their current mortgages.
Even though these loans are funded by the federal government, you’ll still need to find an FHA lender to apply. Most conventional and online mortgage lenders offer FHA loans.
Requirements for an FHA Loan
You’ll need to meet several requirements to be eligible for an FHA loan. You should familiarize yourself with them before applying. The 2019 requirements include:
- A minimum of 580 credit score with a 3.5% down payment
- A minimum of 500 credit score with a 10% down payment
- A debt-to-income (DTI) ratio less than 43%
DTI refers to your total debt versus income. To find your DTI, divide your total monthly debts and expenses by your monthly pre-tax income.
- Proof of income and a steady job history
- The home being financed used as your primary residence
While these are the main FHA requirements set by the federal government, each lender might have additional criteria. Alternatively, some lenders may have different credit score requirements.
Lender Specifics for FHA Loans
Different types of FHA loans have different eligibility requirements. Many lenders have credit score minimums you’ll need to meet to apply for an FHA loan.
To give you a better sense of this criteria, let’s look at some of the top FHA lenders in Illinois, so you can see the difference among credit scores, loan servicing and down payment requirements.
| Lender | Minimum Credit Score | Loan Servicing | Minimum Down Payment |
|---|---|---|---|
| Quicken Loans® | 580 | In house | 3.5% |
| PNC Financial Services | 640 | In house | 3.5% |
| Flagstar | 580 | In house | 3.5% |
| Fairway | N/A | In house | 3.5% |
Interest Rates for FHA
The interest you pay on your mortgage is determined by your mortgage rate. Your lender determines your mortgage rate, who considers factors like your credit score, LTV, home location, and loan term.
There are 2 main types of loan rates: adjustable and fixed.
Adjustable-Rate
An adjustable-rate mortgage, also known as an ARM, does not have a set rate. You’ll pay a fixed rate for an introductory period of time. After the initial period, your payments and rate will fluctuate based on the real estate market.
A common example of an FHA ARM would be a 5/1 ARM. With this loan type, you pay a set rate for 5 years, after which your rate will change for the remainder of your loan period. ARMs might be a good choice if you think you’ll sell shortly after your introductory period or believe you’ll make more money after this amount of time.
Fixed-Rate
A fixed-rate FHA mortgage refers to a loan term with a fixed rate throughout the life of the mortgage. This means you’ll pay the same amount each month for the length of your home loan.
The 2 most common types of home loans are 15- and 30-year fixed mortgages. A 15-year fixed mortgage has higher monthly payments because they’re spread across a shorter amount of time. You’ll pay less interest with 15-year fixed mortgages. A 30-year mortgage will have more affordable monthly payments, but results in you paying more interest over the lifetime of your loan.
Do You Need Mortgage Insurance?
Mortgage insurance is often required when you can’t pay a down payment equal to 20% of the home’s selling price. With FHA loans, you’ll need to purchase a type of mortgage insurance called a mortgage insurance premium (MIP). Mortgage insurance is used to protect your lender in case you default on your home loan.
At the time of closing, you’ll be expected to pay 1.75% of your home loan amount to fund your MIP insurance. After that, expect to pay between 0.45% to 1.05% of your loan amount each year. Sometimes, the upfront cost due at closing can be rolled into your loan amount.
While some mortgage insurance can be cancelled once you successfully pay off 20% of the value of your home, MIP usually cannot be cancelled. You’ll pay for MIP throughout the lifetime of your home loan.
How to Apply for an FHA Loan in Illinois
Now that you know more about the mortgage process and FHA home loan options and requirements in Illinois, you can start looking for the right lender for your new home.
Before you apply, make sure you have the below documentation ready to go:
- Your Social Security number
- Your last 2 months of income (pay stubs)
- Your last 2 years of taxes
- Your profit and loss statements if self-employed
- Your bank statements (checking, savings, investing, retirement)
- Your current total debt (credit cards, loans)
Illinois also offers 3 different down payment assistance programs to help first time home buyers afford the upfront costs of buying a home. Typically these loans and grants can be coupled with FHA loans, but you’ll want to check with each lender to be sure.
The down payment assistance programs include:
- IHDAccess Forgivable: With this grant, you’ll receive up to 4% of the home’s value (or up to $6,000) in assistance. This grant does not have to be repaid if you stay in your home for 10 or more years. You’ll need to meet state income requirements and should have a 640 credit score to be eligible for this assistance program.
- IHDAccess Deferred: This down payment grant offers up to 5% of the home’s value (or $7,500) in assistance. This interest-free loan does not have to be paid off until you sell your home, pay off your mortgage or refinance your home loan. You’ll need to meet state income requirements and should have a 640 credit score to be eligible for this program.
- IHDAccess Repayable: This grant offers up to 10% of the home’s value (or up to $10,000) in down payment assistance. This interest-fee loan is repaid over a 10-year loan period. You’ll need to meet state income requirements and should have a 640 credit score to be eligible for this program.
When you’ve figured out how much of a down payment you can afford and if you can receive assistance with these upfront costs, you’re ready to start the home loan application process.
5 Best Lenders for FHA Loans in Illinois
Now that you’re ready to apply for your FHA loan, you’ll want to check out some of the top lenders in the state. We’ve grouped the top lenders in Illinois into 5 categories to help you find the best fit for your financial situation.
1. Best Overall: Rocket Mortgage®
Rocket Mortgage®, owned by Quicken Loans®, is one of the top online mortgage lenders in the country.
Rocket Mortgage® makes it easy to apply for an FHA loan entirely online or with the help of its dedicated customer service staff (available via phone, chat or app).
Its intuitive application and fast approvals help speed up the home buying process.
Get started today and use their mortgage calculator to see how much house you can afford.
2. Best for a Variety of Options: New American Funding
An FHA loan is ideal for those who have less than perfect credit or no credit history. You'll have the option of 30 year fixed or 15 year fixed loans with a low down payment option. To qualify for an FHA loan though New American Funding you'll need a credit score of 580 or higher, 3.5% - 10% down depending on credit score and proof of steady income. Along with that, mortgage insurance is required, there are higher home inspection standards and the loan will have to be used for a primary, residential property.
New American Funding has a A+ rating with the BBB and over 236k reviews. There's something to be said about reputation and borrower satisfaction when it comes to New American Funding. Apply today for an FHA loan.
3. Best for Face-to-Face Service: U.S. Bank
If you’re interested in finding a lender you can sit down with to explore your FHA options, U.S. Bank is a great choice.
It has a variety of locations throughout Illinois, top-rated customer service and alternative credit options to help determine your overall creditworthiness.
U.S. Bank also offers some perks and discounts to existing bank customers.
Their minimum credit score is listed as 620.
They have an average loan process of 44 days.
4. Best for Mobile Applications: guaranteed Rate
guaranteed Rate is a growing mortgage lender in Illinois with a simple, easy-to-use web and mobile applications.
guaranteed Rate has a high customer service rating and its sleek interface makes it easy to upload income verification documents.
If you’d rather manage the entire mortgage process on your own, guaranteed Rate is worth exploring.
5. Best for Quick Mortgage Applications: Fairway Independent Mortgage
Like guaranteed Rate, Fairway Independent Mortgage also has a state-of-the-art mobile app that makes online applications a breeze.
Fairway stands apart from many online competitors with its fast approval process and 10-minute application. Fairway also has an extensive FAQ section to guide you along your way.
Get the Right FHA Loan for Your Illinois Home
Finding the right FHA mortgage for your financial future is an important part of the home buying process. Before settling on an FHA loan, make sure you fulfill the minimum requirements. Next, look for lenders who offer FHA home loans to start applying.
Be sure to find a lender who offers the incentives that are most important to you when financing your home, from low down payment options to face-to-face support.
Frequently Asked Questions
Q: How do I get pre-approved?
First, you need to fill out an application and submit it to the lender of your choice. For the application you need 2 previous years of tax returns including your W-2’s, your pay stub for past month, 2 months worth of bank statements and the lender will run your credit report. Once the application is submitted and processed it takes anywhere from 2-7 days to be approved or denied. Check out our top lenders and lock in your rate today!
Q: How much interest will I pay?
Interest that you will pay is based on the interest rate that you received at the time of loan origination, how much you borrowed and the term of the loan. If you borrow $208,800 at 3.62% then over the course of a 30-year loan you will pay $133,793.14 in interest, assuming you make the monthly payment of $951.65. For a purchase mortgage rate get a quote here. If you are looking to refinance you can get started quickly here.
Q: How much should I save for a down payment?
Most lenders will recommend that you save at least 20% of the cost of the home for a down payment. It is wise to save at least 20% because the more you put down, the lower your monthly payment will be and ultimately you will save on interest costs as well. In the event that you are unable to save 20% there are several home buyer programs and assistance, especially for first time buyers. Check out the lenders that specialize in making the home buying experience a breeze.
Get Ready for Take Off
Rocket Mortgage® is an online mortgage experience developed by the firm formerly known as Quicken Loans®, America’s largest mortgage lender. Rocket Mortgage® makes it easy to get a mortgage — you just tell the company about yourself, your home, your finances and Rocket Mortgage® gives you real interest rates and numbers. You can use Rocket Mortgage® to get approved, ask questions about your mortgage, manage your payments and more.
You can work at your own pace and someone is always there to answer your questions — 24 hours a day, 7 days a week. Want a fast, convenient way to get a mortgage? Give Rocket Mortgage® a try.