Getting FHA loans in Chicago is a smart choice, especially since the higher loan limits set by HUD apply to the six counties around the Chicagoland Area. This is great news because houses in Chicago and the neighboring collar counties usually carry a heftier price tag compared to other parts of Illinois. If you’re looking to buy a home, you can snag an FHA loan for a property with up to four units in Chicago and its surrounding counties. The best part? You only need to put down 3.5% as your down payment. FHA loans in Chicago offer a practical way for many homebuyers to enter the housing market.
Why People Get FHA Loans in Chicago
FHA loans are extremely popular in Chicagoland and its six surrounding counties. Over 35% of all Chicago and its suburbs loans are FHA loans. There are several reasons why FHA loans are a preferred choice for many homebuyers in this region:
Higher FHA Loan Limits
Chicago and its six-collar counties—Cook, Lake, Will, McHenry, DuPage, and Kane—have higher FHA loan limits than the rest of Illinois. This is due to the higher cost of living and more expensive real estate market in these areas. The 2024 FHA loan limits for single-family homes in these high-cost areas can be up to $1,089,300, making it feasible for buyers to purchase homes in more expensive neighborhoods.
Lower Down Payment Requirements
You only need a 3.5% down payment for FHA loans if your credit score is 580 or higher. This makes homeownership more accessible, especially for first-time homebuyers or those with limited savings. Apply For mortgage loan with low credit score
Lenient Credit Score Requirements
FHA loans have flexible credit score requirements. People with credit scores as low as 500 can still qualify. However, for scores between 500 and 579, a higher down payment of 10% is required. This flexibility makes it easier for more people to qualify for a mortgage, even if they have had credit problems in the past.
Higher Debt-to-Income Ratio Allowance
FHA loans allow for higher debt-to-income (DTI) ratios than conventional loans. If you have a credit score of 620 or higher, you can have a DTI (debt-to-income) ratio of up to 56.9%. This makes qualifying for a mortgage easier for people with existing debt. It is especially helpful in expensive areas like Chicago, with high living costs.
Assistance with Credit Rebuilding
FHA loans offer a pathway to homeownership and help rebuild credit for borrowers with lower credit scores. Programs like those from Gustan Cho Associates provide guidance to improve credit scores for better loan terms in the future.
Owner-Occupied Multi-Unit Properties
Chicago’s diverse housing market includes many multi-unit properties. FHA loans allow borrowers to purchase two to four-unit properties with the same down payment requirements as single-family homes. This option is attractive for buyers looking to live in one unit while renting out the others to offset mortgage costs.
Competitive Interest Rates
Despite the lenient credit and down payment requirements, FHA loans often have competitive interest rates. This makes them an affordable option for many borrowers and provides savings over the life of the loan.
Accessible for First-Time Homebuyers
FHA loans are very popular with people buying a home for the first time. First-time purchasers discover it simpler to get into the real estate market with these mortgages, as they require a smaller initial payment and have less strict credit criteria. FHA loans also help and support guide first-time buyers through buying a home.
Protection for Lenders
The Federal Housing Administration backs FHA loans, reducing lenders’ risk. This insurance makes lenders more willing to offer FHA loans with good terms, even to borrowers who may not qualify for traditional loans.
FHA Loans Chicago and Surrounding Suburbs Requirements
When looking into FHA loans in Chicago and its nearby suburbs, it’s important to note that because homes tend to be pricier in these regions, the U.S. Department of Housing and Urban Development (HUD) has set the borrowing limits a bit higher to match. This is especially helpful for people looking to buy their first home or move into a place that’s a bit roomier, as these loans cover owner-occupied homes from one to four units.
As of 2024, if you’re eyeing a single-family home in areas where the home prices are generally around the national median, you can borrow up to $472,030.
However, the FHA loan limit can soar up to $1,089,300 for those looking in more expensive neighborhoods. This is great news for potential homebuyers, making homeownership more accessible in higher-priced markets.
The Six High-Cost Counties Surrounding Chicago:
- Cook County
- Lake County
- Will County
- McHenry County
- DuPage County
- Kane County
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The Role of the U.S. Department of Housing and Urban Development (HUD)
HUD, the parent of FHA, does not lend money. Instead, it insures FHA loans originated and funded by private lenders. This insurance makes lenders more willing to offer FHA loans with low interest rates and low down payments.
HUD Guidelines on Gaps in Employment
Borrowers can qualify for FHA loans with employment gaps in the past two years. If you were unemployed for six months or less, you must be employed for 30 days at your new job. If you were unemployed for more than six months, you must be employed at your new job to qualify for FHA loans. FHA has W-2 income-only mortgages for borrowers who have substantial unreimbursed expenses.
Illinois FHA Credit Score Requirements
For folks living in or around Chicago looking to get an FHA loan, it’s essential to know what your credit score needs to be. If you’re aiming for the lowest down payment option, only 3.5%, your credit score must be at least 580. This makes things easier for many homebuyers to enter the market with a smaller upfront cost.
However, if your credit score is a bit lower, between 500 and 579, don’t worry! You can still qualify for FHA loans in Chicago. The main difference is that you’ll need to put down a larger down payment of 10%. This option provides a pathway to homeownership for more people, even if their credit isn’t perfect.
FHA Loans in Chicago with 500 Credit Scores
In Chicago, getting an FHA loan with a credit score of 500 is totally doable. Here’s the lowdown: if your credit score is between 500 and 579, you’ll need to put down a 10% deposit. When we talk about how much debt you can have and still get one of these loans, there’s something called a debt-to-income ratio, or DTI for short. This DTI number changes depending on your credit score.
For folks with a credit score of at least 620, FHA loans in Chicago are pretty lenient, allowing a DTI of up to 46.9% for your upfront costs and up to 56.9% for your total monthly debt. However, if your credit score is under 620, the rules tighten a bit, capping your DTI at 43%.
So, for anyone looking into FHA loans in Chicago, especially if their credit score isn’t exactly top-notch, remember these numbers. They’re key to understanding what you’ll need upfront and how your monthly debt affects getting your loan approved. Get Qualify for FHA Loans in Chicago with low credit scores
FHA Loans for Bad Credit Borrowers in Chicago
If you’re in Chicago and your credit isn’t the best or your income doesn’t meet the tougher requirements of some loan programs, FHA loans could be right for you. FHA loans are known for having easier credit and income rules, which means you might still qualify even if you’ve had some financial hiccups or your debt-to-income ratio (DTI) is on the higher side. The great thing about FHA loans in Chicago is that you don’t need to save up for a huge 20% down payment or have perfect credit scores to get approved. This opens doors for many borrowers who might not otherwise be able to buy a home.
Types of Properties You Can Buy with FHA Loans in Chicago
FHA loans offer flexibility in the types of properties you can purchase, making them an excellent choice for many homebuyers in Chicago. Here’s a detailed look at the property types eligible for FHA financing:
Single-Family Homes
A single-family home is a house made for one family and is not connected to any other house. These are the most common types of properties financed with FHA loans. Benefits of buying a single-family home with an FHA loan include:
- Lower down payment requirement (3.5% with a credit score of 580 or above)
- More straightforward maintenance compared to multi-unit properties
- Typically easier to resell in the future
Multi-Unit Properties (Two to Four Units)
FHA loans allow for the purchase of multi-unit properties, including duplexes, triplexes, and fourplexes. This can be a strategic choice for buyers looking to live in one unit and rent out the others. Benefits include:
- Potential rental income to offset mortgage payments
- Only a 3.5% down payment is required if your credit score is 580 or above
- The same lenient credit and DTI requirements as single-family homes
Condominiums
Each condo is owned individually within a larger complex. FHA loans can be used to purchase condos, provided the complex is FHA-approved. Benefits of buying a condo with an FHA loan include:
- Lower maintenance responsibilities compared to single-family homes
- Shared facilities like swimming pools, recreational areas, and fitness centers are available.
- Community living environment with security and managed services
Manufactured Homes
Manufactured homes are built in a factory and transported to the home site. To be eligible for FHA financing, they need to meet certain criteria.:
- The house must be constructed after June 15, 1976, and meet HUD’s Manufactured Home Construction and Safety Standards.
- The home must be permanently affixed to a foundation
- The borrower must own the land on which the home is situated
Townhouses
Townhouses are multi-floor homes that share one or more walls with adjacent properties but have their entrances. They combine some benefits of single-family homes and condos:
- Typically more affordable than single-family homes
- Lower maintenance requirements compared to standalone houses
- Possible access to shared community amenities
Important Considerations for FHA-Approved Properties
- Property Condition: FHA requires that the properties meet certain safety, security, and soundness standards. Homes must undergo an appraisal that assesses these aspects.
- Occupancy: FHA loans are for homes you plan to live in. You must move in within 60 days of closing and stay there for at least one year.
- Condo Complex Approval: Before purchasing a condo, you must ensure that the FHA approves the entire complex. You can see if your application is approved on the HUD website or ask your lender for assistance.
Understanding which types of properties qualify for FHA loans can help you choose the best home for your needs and situation. Whether you’re looking for a single-family home, a multi-unit investment, or a condo, FHA loans provide a flexible and accessible financing option.
Rebuilding Credit to Qualify for FHA Loans in Chicago
If you have a credit score under 580 and need to boost it, Gustan Cho Associates can help. We know a few tricks to raise your credit score to 580 or above. This way, you can qualify for a 3.5% down payment instead of 10%. Whether you’re buying a single-family home or a two—to four-unit property, the credit score and down payment requirements are the same.
FHA Loan Limits in Chicago
FHA loan limits in Chicago depend on the county. The 2024 loan limits for the six counties surrounding Chicago are higher than the rest of Illinois:
- Single-Family Unit: $472,030
- Two-Family Unit: $604,400
- Three-Family Unit: $730,525
- Four-Family Unit: $907,800
FHA Loan Limits for the Rest of Illinois:
- One-Unit: $472,030
- Two-Unit: $604,400
- Three-Unit: $730,525
- Four-Unit: $907,800
FHA loan limits are lower outside the six counties due to lower housing values.
Automated Underwriting System (AUS) Findings on FHA Loans
The Automated Underwriting System (AUS) is a critical tool lenders use to assess a borrower’s eligibility for FHA loans. An AUS evaluates the borrower’s financial information to determine if they meet the criteria for an FHA loan approval. Here’s a closer look at how AUS findings impact FHA loan approval:
Timely Payments in the Past 12 Months
To receive an approve/eligible finding from the AUS, borrowers need to have a history of on-time payments for the past 12 months. This means no late payments on existing debts, demonstrating the borrower’s reliability and ability to manage their financial obligations responsibly. Maintaining timely payments is crucial as it significantly affects the AUS evaluation and loan approval process.
Debt-to-Income (DTI) Ratios
The AUS uses the borrower’s debt-to-income ratios to assess their ability to manage monthly payments on the new FHA loan. For FHA loans, HUD allows:
- Front-End DTI: Up to 46.9%. This ratio includes housing-related expenses such as mortgage payments, property taxes, and homeowner’s insurance relative to the borrower’s gross monthly income.
- Back-End DTI: Up to 56.9%. This ratio, compared to the borrower’s gross monthly income, includes all monthly debt obligations, such as credit card payments, car loans, student loans, and housing expenses.
These higher allowable DTI ratios make qualifying for FHA loans easier for borrowers with existing debt, especially in high-cost areas like Chicago.
Non-Occupant Co-Borrowers
For borrowers with lower income or insufficient income to meet the DTI requirements, FHA loans allow the inclusion of non-occupant co-borrowers. These individuals are typically relatives or trusted friends who do not reside in the home but are willing to take on the loan obligation jointly. The income and credit profile of the non-occupant co-borrower are considered in the AUS evaluation, increasing the chances of loan approval. This feature is particularly beneficial for first-time homebuyers or those with limited income.
Credit and Employment Verification
The AUS evaluates the borrower’s credit history and employment status. Consistent employment and a stable income history improve the chances of getting an approve/eligible finding. Borrowers should report all their employment details and credit history accurately to increase the likelihood of approval.
Key Takeaways for FHA Borrowers
- Maintain Timely Payments: Ensure all bills and debts are paid on time for at least 12 months before applying.
- Understand DTI Ratios: Know your front-end and back-end DTI ratios and how they compare to HUD’s limits.
- Consider Non-Occupant Co-Borrowers: A non-occupant co-borrower can help meet the required DTI ratios if your income is insufficient.
- Accurate Documentation: Provide accurate and up-to-date information regarding your employment and credit history for a smoother AUS evaluation
Can I Get FHA Loans in Chicago with Unpaid Collections?
When looking to get FHA loans in Chicago, you don’t have to worry about clearing out those outstanding collections or charge-offs first. The guidelines set by HUD are accommodating. They understand that sometimes life gets complicated, and those collections might be outside your top priority.
What’s even better is that FHA loans in Chicago allow for what’s called non-occupant co-borrowers. This means that someone who isn’t going to live in the house can still help you qualify for the loan.
And here’s another piece of good news. If you’re stressing about where the money for the down payment or closing costs will come from, FHA loans in Chicago got your back with the allowance of gift funds. Money gifted by family or friends can go towards getting those keys in your hand. Remember, the sellers can pitch in, too. According to HUD guidelines, sellers can contribute up to 6% towards the buyer’s closing costs, making it easier for you to become a homeowner.
So, having unpaid collections doesn’t bar you from pursuing FHA loans in Chicago. With the flexibility of co-borrowers, gift funds, and seller contributions, your dream of owning a home in Chicago might be closer to reality than you thought. Apply For FHA Loans in Chicago with Unpaid Collections
Comparison of FHA Loans and Conventional Loans
When borrowers in Chicago are looking for a loan to buy a house, they often choose between two main types: FHA loans and conventional loans. Another choice is VA loans, but those are specifically for people who have served in the military.
The big difference between FHA and conventional loans lies in how easy it is to qualify for them. FHA loans are generally more flexible and forgiving. They’re a great choice if your credit score is much higher or you can afford a big down payment.
On the other hand, conventional loans have tougher requirements. If you have a higher credit score and a larger down payment, these loans are a good choice for those who qualify. For someone in Chicago exploring their options, FHA loans in Chicago might be the way to go if you’re finding the world of loans a bit tough to navigate. They opened the door to homeownership for many who thought it impossible.
FHA Loans with No Overlays
Gustan Cho Associates specializes in FHA loans with no lender overlays. This means we follow the minimum HUD guidelines without adding extra requirements. Our mortgage lending model is simple: no overlays on credit scores, debt-to-income ratios, or collection and charge-off accounts.
Getting Qualified and Pre-Approved for FHA Loans in Chicago
Let the FHA mortgage specialists at Gustan Cho Associates help you navigate the mortgage loan application process. Call 800-900-8569 or text for a faster response today. Or email us at alex@gustancho.com. We are experts in government and conventional loans with no lender overlays and non-QM loans.
FHA Lenders in Chicago, Illinois, with No Overlays Business Model
Most lenders have some form of lender overlays, but not Gustan Cho Associates. Our no overlay model means we follow the minimum guidelines set by HUD. We offer:
- No Overlays on credit scores for government and conventional loans
- No Overlays on debt-to-income ratios
- No Overlays on collection and charge-off accounts
- Verification of rent only for manual underwrites
- Automated findings on all government loan programs
- No overlays on VA Loans or USDA Loans
FHA loans in Chicago are a great option for homebuyers with low credit scores, high debt-to-income ratios, or those needing a low down payment. The higher loan limits in Chicago and its six surrounding counties make FHA loans even more appealing. Contact Gustan Cho Associates to get started on your FHA loan application and take advantage of our no lender overlay model. Call us at 800-900-8569 or email alex@gustancho.com. We are available seven days a week, evenings, weekends, and holidays to help you with your mortgage needs. Speak With Our Loan Officer about Your Mortgage Today
FAQs: FHA Loans Chicago With No Overlays on Government Loans
- 1. What are the benefits of FHA loans in Chicago? FHA loans in Chicago come with higher loan limits, lower down payment requirements (3.5% for credit scores of 580+), and more lenient credit score requirements. These features make it easier for many people, including first-time homebuyers, to qualify for a mortgage.
- 2. How much do I need for a down payment on an FHA loan in Chicago? If your credit score is 580 or above, you’ll need to make a 3.5% down payment for an FHA loan in Chicago. If your credit score is on the lower side, you’ll need to make a 10% down payment.
- 3. Can I qualify for FHA loans Chicago with a low credit score? In Chicago, you can get an FHA loan even if you have a low credit score. If your score is between 500 and 579, you’ll need to put down a 10% down payment instead of the usual 3.5%.
- 4. What types of properties can I buy with an FHA loan in Chicago? An FHA loan allows you to purchase single-family houses, properties with multiple units (up to four units), condominiums (as long as the complex is FHA-approved), manufactured homes, and townhouses.
- 5. Are FHA loans in Chicago only for first-time homebuyers? FHA loans can be used by more than just first-time homebuyers. They are for anyone who meets the FHA requirements, whether they want to buy a new home or refinance an existing mortgage.
- 6. Can I use an FHA loan to buy a multi-unit property in Chicago? Yes, FHA loans allow you to purchase a property with up to four units. This is a great option if you plan to live in one unit and rent out the others to help cover your mortgage payments.
- 7. What is the maximum loan amount for an FHA loan in Chicago? The maximum FHA loan amount for a single-family home in Chicago and its six surrounding counties can be up to $1,089,300 for 2024. These limits are higher due to the higher cost of living in the area.
- 8. What is the Automated Underwriting System (AUS) and how does it affect my FHA loan application? The AUS is a tool lenders use to evaluate your financial information and determine if you meet the criteria for an FHA loan. To get an approve/eligible finding, you need timely payments in the past 12 months, meet debt-to-income ratios, and possibly include non-occupant co-borrowers if needed.
- 9. Do I need to pay off my collections to get an FHA loan in Chicago? No, FHA guidelines do not require you to pay off outstanding collections or charge-offs to qualify for a loan. However, having unpaid collections may affect your overall credit profile and loan terms.
- 10. How can I improve my chances of getting approved for an FHA loan in Chicago? To improve your chances, maintain timely payments on all debts, keep your debt-to-income ratios within the required limits, consider including non-occupant co-borrowers if necessary, and ensure all your financial and employment information is accurately reported.
If you have about FHA Loans Chicago, please contact us at 800-900-8569. Text us for a faster response. Or email us at alex@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.
This blog about FHA Loans Chicago With No Overlays on Government Loans was updated on August 7th, 2024.
