Illinois FHA Loan: Mortgage Program Requirements and Guidelines

Illinois FHA Loan

The FHA mortgage is a great way for people to buy a home. Whether it is their first home or 6th home, getting an Illinois FHA loan makes it possible to achieve home ownership with several advantages.

Illinois FHA Loans Offer Lenient Credit Requirements

Generally speaking, the credit requirements for obtaining an FHA loan are less strict than the rules for a conventional loan. This allows people with limited credit history, or even some past blemishes, to qualify for a mortgage. While a conventional loan will often require a minimum credit score of 740 or higher to qualify, FHA loans are often approved with scores in the lower 600 range.

The most important aspect of a person’s credit history, in the eyes of FHA, are the most recent 12 months payment record. If the last 12 months shows that a person is able to meet all of their obligations on time without resorting to borrowing more money, that is usually a sign that the person is ready to take on home ownership.

Income Documentation

Since the FHA loan is guaranteed by the federal government, you can expect a fair share of documentation requirements. For people that receive a W-2 form each year, the following list represents what will be required of you in order to prove your income

  • Your pay stubs from your employer. You must have paystubs covering at least the last 30 calendar days. Additional paystubs could be requested depending on how far out the closing date is.
  • Your W-2 forms from at least the past 2 years
  • Your personal federal income tax returns from the last 2 years with all schedules

If you are self-employed or receive income in other forms, you will need the following:

  • Your personal federal tax returns from the last 2 years
  • Your business federal tax returns from the last 2 years
  • Profit and Loss statement from the 1st of the year through the application date

Depending on your specific situation your loan officer may ask you for more information. Be prepared to show any of your financial documents to the lender in a timely manner to keep the loan process moving along.

Besides showing your actual income, the lender will verify employment to make sure that you have been consistently employed for the last 2 years. While it is ok to change jobs, make sure that you are bettering yourself with a new employer and that there are no unexplained gaps in your work record.

Primary Residence Only

The Illinois FHA mortgage is designed for people that will live in the home as their primary residence. FHA does not loan money for vacation homes or rental properties.

However, FHA is flexible about the type of property that you buy. While a stick built, single-family home is the most common property financed through an FHA mortgage, there are other types of properties eligible for financing. The following list shows the kind of homes that FHA will consider financing:

  • Single family home
  • Duplex (you must live in one section. You may choose to rent out the other section)
  • Three-unit (you must live in one section. You may choose to rent out the other sections)
  • Four-unit (you must live in one section. You may choose to rent out the other sections)
  • Condominium

While a condo can be approved for an FHA loan, it takes a bit more of paperwork. Depending on whether it is a newly constructed condo or a pre-existing condo will dictate which guidelines have to be met. Your loan officer can walk you through these guidelines and help you find out if the condo is approved for an FHA loan.

Documenting Your Down Payment

The Illinois FHA rules state that a person buying a home must pay 3.5%* of the home’s purchase price as a down payment. This means, for example, that a person buying a home priced at $200,000 would need to pay $7,000 at the closing for the down payment.

As long as it is properly documented, the money for the down payment can come from a variety of sources.

  • Personal bank accounts (checking and savings) or money market account: if your most recent two months bank statement shows that you have had the down payment money for the entire 60 days, you may use that money
  • Retirement accounts: if you are allowed to access money from your retirement account either by a withdrawal or a loan, and the last 2 months statement shows a balance above the amount for the down payment, you can use the retirement account funds

Gift Money Used for Down Payment

FHA also has a generous feature that helps a lot of first time home buyers. The money used for the down payment can be a gift from a relative or significant other. In order for the gift to be allowed, you and the relative will need to produce copies of your bank accounts. A 60 day paper trail showing where the funds have been withdrawn from and deposited to will be required. You will also need to write a brief letter explaining that the money is a gift and not expected to be repaid.

Be sure to watch out for these no down payment mistakes!

Illinois FHA Loan Limits

There are upper limits for the maximum loan amount available for Illinois FHA mortgages. Homes priced at or below the limits can be eligible for FHA financing. Certain areas of the state have higher limits due to the overall economic health of the area. The following list shows the higher cost areas and their available FHA loan limits

County FHA Loan Limit
Boone $339,250.00
Cook $365,700.00
Dekalb $365,700.00
Grundy $365,700.00
Kane $365,700.00
Kendall $365,700.00
Lake $365,700.00
McHenry $365,700.00
Will $365,700.00
Winnebago $339,250.00

The remaining counties in Illinois have an FHA loan limit of $275,655

Adams De Witt Henry Mclean Perry Stephenson
Alexander Douglas Iroquois Macon Piatt Tazewell
Bond Dupage Jackson Macoupin Pike Union
Brown Edgar Jasper Madison Pope Vermillion
Bureau Edwards Jefferson Marion Pulaski Wabash
Calhoun Effingham Jersey Marshall Putnam Warren
Carroll Fayette Jo Daviess Mason Randolph Washington
Cass Ford Johnson Masaac Richland Wayne
Champaign Franklin Kankakee Menard Rock Island White
Christian Fulton Knox Mercer St Clair Whiteside
Clark Gallatin La Salle Monroe Saline Williamson
Clay Greene Lawrence Montgomery Sangamon Woodford
Clinton Hamilton Lee Morgan Schuyler
Coles Hancock Livingston Moultrie Scott
Crawford Hardin Logan Ogle Shelby
Cumberland Henderson McDonough Peoria Stark

View additional program details on our FHA page FHA mortgage insurance requirements.

Important Disclosure

*3.5% down payment on $193,000, 4.125% / 5.713% APR, 640 FICO, 30-year fixed rate mortgage. Mortgage insurance is required. Rates subject to change. Subject to credit approval.

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