How to Qualify for an FHA Mortgage in Chicago

Best place for Qualify for an FHA Mortgage in Chicago

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Living in Chicago, Illinois is a great life-choice. Being the largest city in Illinois, Chicago accommodates the diverse cultures of America. Not only does Chicago have many tourist centres, its environments are safe, serene and loaded with fun activities. Bad news is homes in Illinois aren’t on the cheap side. Don’t despair however, you can still definitely move to Chicago. The introduction of FHA mortgage in Illinois has changed that.

FHA Home Loan – What’s it about?

The FHA home loan, Illinois, is a mortgage program insured by the Federal Housing Administration but issued by private mortgage lenders. This doesn’t make FHA the mortgage lenders, no, no. It makes them the insurer of such home loans provided by private lenders. 

How does it work? All FHA loans are sponsored by the government which adds an extra guarantee to loans given by private lenders. So, if the borrower defaults the loan repayment, the FHA will reimburse the lender the amount of the remaining principle. This guarantee by the government is the major reason why the mortgage loan is so attractive. It allows people who can’t afford a down payment or who have low credit score to afford the home of their dreams.

What are the FHA mortgage rates? That’s the great thing about FHA mortgage, Chicago. The down payment requirement is a meagre one, which can go as low as 3.5%. These low FHA mortgage rates make it very easy for borrowers to buy homes. Word of advice however; if you can afford more than the down payment of 3.5%, you can save money on interest and private mortgage insurance by paying a bigger down payment.

How much of FHA mortgage rates should you pay? You should aim to pay more than 20% of your down payment. Borrowers who pay less than 20% will be asked to buy private mortgage insurance (PMI). A PMI is a monthly premium which protects the lender against default and eventual bad debt. So, lenders will most certainly protect their interest by including this premium into your total loan estimate. To avoid the extra cost, pay a larger down payment.

Benefits of FHA Mortgage Loans

  • Perfect for first time buyers
  • Helps buyers acquire houses with a low down payment.
  • FHA mortgage rate is as low as 3.5% on any house purchase.
  • Perfect for buyers who have very low credit scores – the requirement is 580 credit scores
  • Perfect mortgage program for low-income earners
  • Monthly housing payments and total debt burden do not exceed to 31% and 43% of gross monthly income respectively.
  • Outstanding charge off accounts and collections payoff is not required to qualify for FHA mortgage Chicago.
  • FHA home loans can be financed by non-occupant co-borrowers, in case home buyer cannot meet income requirement.
  • Borrowers with gaps in unemployment can still qualify for FHA home loans.

Who can apply for FHA Loans?

The application for FHA mortgage loan is basically accessible to anyone interested. Since all FHA mortgages are financed by the government, private lenders are open to accepting all applicants. However, it is important to note that while FHA has its minimum requirements; private lenders do often set their own standards.

FHA Loans and Chicago

Did you know that about 35% of loans in Chicago and its surrounding suburbs are FHA loans? Yup, that’s how much Chicagoans love FHA mortgage. Due to FHA home loans popularity in Chicago, its setup, and requirements, is different from other areas in Illinois. 

Requirements for FHA Loans Chicago

You’ve made a great decision by choosing to apply for FHA loan in Chicago. Because FHA mortgages, Chicago are extremely popular due to the city and its suburbs having higher home prices than all other Illinois areas. Home values in Chicago are very high because the Housing and Urban Development (HUD) set higher FHA loan limits for the city. 

So, here are the requirements to qualify for FHA Loans Chicago:

  1. Buyer has to be owner occupant of primary homes
  2. The FHA program covers only 1 to 4 unit residential properties. However, if the house is in a condo, the condominium itself needs to be FHA approved
  3. To qualify for a 3.5% down payment in the FHA Loan Chicago, buyer must have credit score of 580.
  4. If the buyer’s credit score is under 580, he or she can still qualify for FHA Loans. However, the down payment rate will be 10% and not 3.5%
  5. The FHA loans Chicago’s debt to income ratio (DTI) is flexible and depends on the buyer’s credit score. For buyers who have a credit score of at least 620, DTI rate may be higher. Borrowers who have lower credit scores have caps on DTI.
  6. A buyer can get an approved/eligible per Automated Underwriting System with a maximum DTI of 43%.

Other Facts about FHA Loans Chicago

Loan Limits

First thing you should know is that FHA Loans Chicago has certain loan limit restrictions. What this means is that FHA Loans Chicago limits depends on the location of the property within Illinois. Overall, six counties in the state of Illinois have higher FHA loan limits; and they are: Cook, Lake, Will, DuPage, McHenry and Kane. The following loan limits for family units in these counties surrounding Chicago are as follows:

  • Single Family Unit – $368,000
  • Two Family Unit – $471,100
  • Three Family Unit – $569,450
  • Four Family Unit – $707,700

Credit Score

The FHA requires that applicants for home loans have a minimum credit score between the range of 500 and 579 to qualify for minimum down payments of 10%. To qualify for a minimum payment of 3.5%, borrowers must have a credit score of 580 or higher.

Income Requirements

The great thing about FHA loans is that there is no specific income value for application. However, buyers do need to demonstrate their capacity to fully repay the home loan. Basically, FHA income requirement boils down to your DTI. A debt to ratio measures your debt in relation to your monthly income. Private lenders love it when your monthly income exceeds your monthly payments. A ratio of 31:43% is generally acceptable.

Interest Rate

The government does not regulate the FHA mortgage rates. You will have to make your own research of private lenders who offer the best rates. Interest rates have daily fluctuation tendencies. So it’s very important to watch the market lenders’ charts for any increase or decrease in interest rates.

Personal factors also determine FHA interest rates. Things like your credit score, DTI ratio and down payment could raise or lower your lender’s FHA mortgage rate. A good credit score can lower mortgage rates significantly, because it also determines your down payment minimum amount; so improving your credit score is your best bet to reducing FHA mortgage rate.

FHA Mortgage or Conventional Loans

The major determinant of which type of mortgage loan you choose is your financial situation. Conventional loans are suited for home buyers who have high credit scores and can afford a higher down payment—about 20%— for larger homes.

FHA mortgages, on the other hand, are more suited to home buyers who have average credit scores and can’t put down a 20% down payment. FHA home loans are also easier to obtain as the government (FHA) insures the deal. So if a borrower defaults a series of payments, the government intervenes and pays the remaining principal amount. In addition to government insurance, FHA mortgages offer very flexible packages for young buyers and low income earners. When you factor in things like outstanding student debt and credit card debts, FHA loans are the best options to go for if you don’t earn very much. Check out the Chicago Tribune for more reasons why you should choose FHA home loan over conventional loans.

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