Chicago First-Time Home Buyer Programs
Down payments are a major obstacle to people purchasing homes. The smaller your down payment is, the larger your monthly mortgage payment will be. More so, when you purchase a home you’re asked to pay for closing costs, which can cost anywhere between 2 and 5 percent of the cost of a home.
Many cities, including Chicago, offer programs to help first-time home buyers purchase homes. These extra funds can help you cover closing costs and hopefully some of the down payment.
They can also come in handy if you’ve reached the end of your rent to own deal, and you need help coming up with the needed down payment to close.
Chicago has two prominent first time home buyer programs. The Home Buyer Assistance Program and 1stHomeIllinois.
The Home Buyer Assistance Program
Chicago boasts the the Home Buyer Assistance Program, which helps homebuyers afford their down payment and closing costs.
Families and individuals that earn less than $131,775 each year are eligible for the program. Generally, participants will also need to have a credit score of at least 640.
You can use the money from these grants to purchase single-family homes, townhouses, condos and even investment properties with up to four units if the owner is living in one of the four.
To participate in the program as a first-time home buyer, you need to complete an 8-hour training course that will ensure you have all of the information you need to make a smart purchase.
To qualify, you’ll need to have at least a 620 FICO credit score. You can choose between FHA or conventional. They max out at loan to value ratios of 97 percent.
The downside to this grant is that as the amount you earn increases, your interest rate does as well.
The grant can provide up to 7 percent of the cost of the property you are buying, but you’ll need to contribute at least 1 percent or $1,000 of the cost of the home prior to closing. Therefore, buyers using an FHA loan need to be mindful that they’re contributing enough money to the down payment.
To participate in this program, you must use one of the city’s qualified lenders.
This program is primarily for first-time homebuyers in Illinois. However, repeat buyers can use it if they’re buying in specific counties that officials have targeted for development.
1stHomeIllinois gives the home buyer $7,500 flat to use for down payment or closing costs. You can combine the grant with an FHA, VA, USDA or conventional loan, but the loan must last at least 30 years.
Recipients of the grant don’t need to pay back the grant so long as they live in the property for at least five years before selling or turning it into an investment property.
How to Decide Which to Use
Choosing between the two depends on what interest rates you’re qualifying for and how expensive your property is.
If your mortgage on a property will be less than $107,000 – go for 1stHomeIllinois. You’ll get more money than you would through The Home Buyer Assistance Program, plus you won’t need to worry about the 8-hour course or rising interest rates.
Remember, your mortgage is the total cost of the home minus your down payment. If you give a 20 percent down payment, a home that sells for $133,000 will have a mortgage of about $107,000.
If the bank is quoting you an interest rate of near 6 percent and your property is on the more expensive side, you’ll want to consider The Home Buyer Assistance Program. Consider this option if your interest rate is already high. Otherwise, the increase in interest rate might cause you to spend more money in interest over the course of your loan term than the money was actually worth.