How to Buy a House in Illinois: 6 Steps

Purchasing a house is a major financial decision that requires careful consideration. In Illinois, the average home value is $270,647, lower than the national average of $362,481. This difference may make homeownership more attainable for buyers in the state.

Understanding down payment assistance programs, mortgage types and regulations specific to the Prairie State can streamline your journey toward homeownership. MoneyGeek compiled essential pointers to help you navigate the homebuying process in Illinois, from saving for the down payment to finding the best financing option for your needs and credit history.

According to the U.S. Census Bureau, the homeowner vacancy rate in Illinois for the second quarter of 2024 was 1%. The homeowner vacancy rate measures the percentage of homeowner-occupied housing units that are vacant and available for sale.

A stable vacancy rate for homeowners is considered to be 2%, allowing homebuyers some choice and flexibility. With a vacancy rate of 1%, Illinois is experiencing high housing demand for limited inventory. This means that homebuyers may face competition and limited options in the market.

Before buying a house in Illinois, you must examine your financial and credit history. A strong financial profile improves your chances of getting approved when applying for a mortgage.

Your credit score plays a significant role in determining the mortgage loans and interest rates you qualify for — the higher your score, the more likely you are to get a desirable rate. According to Experian, the average credit score in Illinois is 720.

If you have bad credit (between 300 and 579 on the FICO scale), getting approved for a mortgage may be more difficult. Check the table below for your best mortgage type based on the minimum credit score requirements.

Source: Experian

Your debt-to-income (DTI) ratio helps lenders see how much of your monthly income goes to paying off debts. This allows them to evaluate the amount of mortgage debt you can take on. In Illinois, the average mortgage debt is $194,636, according to Experian. This figure highlights the additional financial responsibility you may consider when taking on a mortgage.

Monthly debt payments included in your DTI calculation are credit card payments, car loans and student loans. Use our DTI ratio calculator below to see your front-end DTI, back-end DTI and total monthly debt payments. Front-end DTI focuses on housing-related debt, while back-end DTI includes all monthly debt obligations.

Purchasing a home is a significant financial commitment, and avoiding the pitfall of buying a house you can't afford is crucial. The 28% rule serves as a practical guideline, suggesting that you should not spend more than 28% of your monthly income on your mortgage payment. This rule helps ensure that you maintain a healthy balance between your housing expenses and other financial obligations.

According to the U.S. Bureau of Labor Statistics, the median annual income in Illinois as of April 2024 was $48,730. This translates to a gross monthly income of $4,061 before taxes. Applying the 28% rule, you should aim to spend no more than $1,137 on your monthly mortgage payment.

Use our mortgage calculator below for a more precise estimate tailored to your situation.

A down payment is the initial amount a buyer pays upfront when purchasing a house, often set at 20% of the home's price. This standard can be a considerable obstacle for many homebuyers. In Illinois, for example, the average home value is $270,647, making a 20% down payment $54,129. For homes priced above average, say at $300,000, the down payment would be $60,000.

Fortunately, saving up for a 20% down payment is not a requirement. Most mortgage types allow you to put less money down. For instance, VA loans don't require a down payment, and FHA loans only require 3.5% down.

Note that if you opt to put down less than 20%, your lender might require you to take out private mortgage insurance. Use our PMI calculator to estimate your monthly private mortgage insurance (PMI) premium based on your credit score and down payment.

Illinois offers several down payment assistance programs that make homeownership possible for many individuals. These programs aim to reduce the initial financial burden of buying a home, making it more accessible to a broader range of people. Check out the table below for the available down payment assistance programs in Illinois offered by the Illinois Housing Development Authority (IHDA).

Choosing the right location in Illinois involves considering several factors. Average house prices can vary significantly across different cities and neighborhoods. Proximity to family, friends, work and school is another crucial aspect. Additionally, access to public transportation, parks, restaurants and shopping centers can significantly enhance your living experience.

The cost of living also affects your decision when choosing your new home. According to the Missouri Economic Research and Information Center (MERIC), Illinois' cost of living index is 93, lower than the national average of 100. Here are some essential expenses to consider when choosing the right location:

• Food
• Healthcare
• Clothing
• Utilities
• Education
• Transportation
• Entertainment

Source: Zillow

Working with a real estate agent can expedite your house hunt in Illinois. They provide the advice you need, extra hands to deal with paperwork and an expanded list of property options you won't have access to alone. They can also recommend other service providers like title companies and inspectors to help you buy your home in Illinois.

When finding a real estate agent, do your due diligence and interview agents with experience in the neighborhoods you're interested in. Consider the following tips:

• Find someone compatible with your needs and personality
• Verify the agent's credentials, training, and licensure
• Ensure they have in-depth knowledge of the area
• Shop around for agents and compare their rates

The homebuying process involves finding a mortgage that fits your budget. In Illinois, you can choose from various mortgage types, including conventional loans, jumbo loans, FHA loans, VA loans and USDA loans. You also have the flexibility to select terms ranging from 10 to 30 years and decide between a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Choosing the best financing option not only increases your chances of approval but also helps you save money over time.

Interest rates on a mortgage can change daily due to factors like the type of mortgage, the lender and the economy. The annual percentage rate (APR) differs from the interest rate as it includes additional costs like fees, providing a clearer picture of the actual cost of borrowing.

As of September 2024, the APR for a 30-year fixed conforming loan in Illinois is 6.04%, while the APR for a 30-year fixed rate FHA loan is 7.81%. Check the table below to see the current mortgage rates in Illinois by mortgage type.

Getting pre-approved for a mortgage in Illinois can streamline your home buying process. By securing pre-approval, you gain a clearer picture of how much you can borrow, which can guide your house hunting. Lenders usually provide a pre-approval letter, which can make your offer more appealing to sellers. This letter typically remains valid for 60 to 90 days, giving you a window to find the right home.

To obtain a mortgage pre-approval, you need to submit several documents:

• Proof of income (e.g., pay stubs, W-2 forms, tax returns)
• Credit history report
• Employment verification
• Identification (e.g., driver's license or passport)
• Bank statements

Understanding the difference between mortgage pre-approval and prequalification is essential. Pre-approval involves a thorough review of your financial situation by the lender, providing a more accurate borrowing limit. In contrast, prequalification is a preliminary assessment based on self-reported financial information, offering a general estimate of your borrowing capacity.

Home inspections are highly recommended in the homebuying process to identify potential issues before finalizing the purchase. Inspectors will examine structural components, roofing, plumbing, electrical systems, and heating and cooling. The inspection report typically includes findings on the condition of these components and recommendations for repairs. This helps buyers understand the property's actual condition and anticipate necessary repairs or maintenance.

For example, an inspection might reveal major issues such as a damaged roof, outdated electrical wiring or a failing foundation. These issues can significantly affect the home's appraised value, potentially lowering it. This information could lead buyers to reconsider their offer or rescind altogether based on the inspection's results.

Home inspections in Illinois are regulated by the IDFPR, ensuring that standards are consistently met. Home inspectors must adhere to specific standards of practice as outlined in the Home Inspector License Act. Additionally, they are required to provide a written home inspection report within two business days after completing an inspection. This report details the condition of the home's systems and components that were inspected.

If you're looking for a home inspector in Illinois, make sure they are licensed. It's wise to check what other clients have said by reading online reviews and asking for references. You can also use the IDFPR's professional regulation license look-up tool to find or verify licensed home inspectors in Illinois. These steps will help ensure you hire a qualified professional who meets regulatory standards.

Home appraisals determine a property's fair market value. This necessary step ensures buyers do not overpay and that lenders can confidently provide a mortgage. According to the 2023 Appraisal Survey from the National Association of Realtors (NAR), the median appraisal cost in 2023 was $500.

A home appraisal differs from a home inspection in several ways. Although an appraisal assesses the value of a property, a home inspection evaluates its condition, identifying any potential issues that may need repair. Lenders require appraisals to ensure the property is worth the loan amount they are providing.

Closing is the final step of buying a house in Illinois, where the final transfer of ownership occurs and you receive the keys to the property. Your lender must provide a closing disclosure document three days before the official closing. This document includes loan terms, projected monthly payments, fees and other closing costs. Plan a final walk-through of the property with your real estate agent near closing day to ensure it's still in the expected condition.

On closing day, you'll review and complete a variety of paperwork that finalizes your home purchase. These documents ensure that all parties involved are protected and that the transaction is legally binding. Below is a list of the key documents you'll need to sign:

• Final loan application: This document confirms the details of the mortgage loan you have secured, ensuring that all information is accurate and up-to-date.
• Deed transfer: The deed transfer is a legal document that transfers ownership of the property from the seller to you, the buyer. Signing this document officially makes you the owner of the home.
• Promissory mortgage note: This note is a written promise to repay the loan under the agreed-upon terms. It outlines the amount borrowed, interest rate, and repayment schedule.
• Homeowners insurance: Homeowners insurance protects your new home against potential risks such as fire, theft, or natural disasters. In homeowners insurance in Illinois, specific policies can offer coverage tailored to the unique risks of the area.

Closing costs are the fees and expenses you must pay when finalizing a mortgage. In Illinois, the average closing costs are $4,377, according to the NAR. These costs cover various services required to complete the home purchase. Some of the fees included are:

• Appraisal fee: The cost of having a professional appraiser determine the property's value.
• Title search and insurance fee: Fees for verifying the property's title and securing insurance to protect against future title disputes.
• Escrow deposit: Funds held in a mortgage escrow account to cover future property taxes and insurance premiums.
• Prepaid costs: Advance payments for property taxes, homeowners insurance and mortgage interest.
• Other closing costs: Additional fees such as loan origination, recording and credit report fees.

If you are a first-time homebuyer, learning about the different first-time homebuyer programs in Illinois can help you achieve homeownership faster.

Buying a house in Illinois is a long-term financial commitment. We answered some frequently asked questions about buying a house in Illinois to kickstart your homebuyer journey.