When you’re planning to purchase your first home, you might worry about meeting the requirements for a down payment. Luckily there are resources available to help you reduce that required amount. The Federal Housing Administration (FHA) offers loan options and assistance to many first-time home buyers even if they have a limited budget and minimal cash reserves. Get familiar with the requirements for an FHA loan in Illinois to see if you finance that first home sooner than you think.
Because the federal government insures FHA loans, lending institutions can provide money to qualified buyers risk-free. This makes it easier for potential buyers to pre-qualify for an Illinois FHA home loan.
Here’s what else you need to know about requirements for FHA loans in Illinois:
Credit score and history
The first step to buying a new home is building credit. However, if your score isn’t the best, don’t fret. You may still qualify. As of 2022, you can access up to 96.5% of your home’s value with a FICO score of at least 580.
Down payment amount
That credit score, along with the FHA’s insurance of all loans, will land you a modest 3.5% down payment. If your score lands between 500 and 579, your lender will likely ask for a down payment of 10%.
Ideal debt-to-income ratio for an FHA loan in Illinois
Typically lenders like to see a debt-to-income ratio of less than 43%, but this can vary among financial institutions. Just remember—this information isn’t only valuable to your lender. It can also help you develop a solid, sustainable budget. To make sure you can comfortably afford your long-term mortgage payment, carefully calculate your expenses versus income.
Required employment history
Top off that shining debt-to-income ratio with a solid two years of continuous employment. Make sure there are no job history gaps that could potentially raise eyebrows.
A full two years of continuous employment may not apply for recent college graduates currently working in their field of study. Your loan officer can look at your current history to determine if this is possible for you.
Mortgage insurance premium (MIP) requirements
FHA requires an upfront mortgage insurance premium (MIP) to secure a loan, and the upfront MIP is 1.75% of your total loan. You don’t need to budget for this cost separately because it will be financed into your FHA loan.
Illinois FHA loan caps
Depending on the type of home and the local housing market, FHA mortgage lending limits can vary; however, across the board, loan caps in Illinois are $420,680 for a single-family property.
Homes and condos, which include short sales and foreclosures, are eligible for FHA financing as long as they’re in good, move-in condition. The FHA also offers 15- to 30- year loans featuring adjustable or fixed interest rates. Additionally, the FHA allows the seller to cover closing costs up to 6%.
Ready to own your first home? Let the experts at OVM Financial help you. Give us a call, or apply for an FHA loan. You can also check out other articles about FHA loan requirements in VA as well as the benefits of applying for an FHA vs. a VA loan.
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