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Buying a Home with Low Down Payment or 0 Down in Illinois

August 30, 2023

buying with zero down

Written by:

JR OBRECHT – Branch Manager Glen Carbon – (314) 393-1314

Illinois has specific mortgage programs available to purchase a home with very little down payment or even zero down payment. There are federal-sponsored programs, state-sponsored programs, and country-specific programs. Additionally, the tax laws in Illinois lend themselves to buying a home with very little down payment.

In addition to low down payment options, we will also cover property tax exemptions in Illinois, making it even more beneficial to buy in Illinois. These programs are for applicants using a home as their primary residence.

Helpful Definitions and Concepts:

Seller Concessions: When the seller pays for some or all of the buyer’s closing costs and prepaids. Seller concessions can be a way to lighten the buyer’s load and encourage the buyer to make an offer.

Closing Costs: Hard costs associated with getting a mortgage. Underwriting fees, appraisal fees, credit report fees, and title charges are all examples of closing costs. These costs are due at the closing of a purchase.

Prepaids: Items paid in advance that are required for the closing of a purchase. One year of homeowners insurance, escrow set up for taxes, and insurance are examples of prepaids.

Cost Example Breakdown:  A $200,000 purchase with a 5% down payment will mean a $190,000 loan amount and a $10,000 down payment. There will be $3,500 in closing costs and $2,500 in prepaids. The required amount of cash at closing needed is $16,000 ($10,000 down + $3,500 + $2,500).

Federal-Sponsored Loan Programs

There are various government-backed home loan programs that can help borrowers with options for the down payment amount required to purchase a home. We will cover the two major ones – VA loans and USDA loans.

VA Home Loans

The U.S. Department of Veterans Affairs (VA) helps veterans, surviving spouses, and service members with home loans. VA home loan programs will finance 100% of the home’s purchase price at a fixed interest rate. Including seller concessions in the real estate purchase offer enables the buyer to come to closing with as little to no cash for closing. With Homestead Financial Mortgage, we also offer NO lender fees for veterans.

VA mortgages are available to qualifying veterans of the US Armed Forces. Qualifying applicants will need to be honorably discharged with an acceptable certificate of eligibility COE.

Homestead Financial Mortgage is proud to be recognized as an approved VA lender. If you want to learn more, we break down all the requirements to get pre-approval for a VA loan.

There is an added benefit of buying a home for disabled veterans in the form of tax exemptions – we will touch on those below.

United States Department of Agriculture (USDA)

USDA, or the United States Department of Agriculture, also has a great mortgage program. The “Agriculture” could throw you, though. It isn’t for farms; rather, it is a sponsored mortgage program for people wanting to live in eligible rural areas.

Like VA, it allows for 100% financing of the purchase price. A USDA loan, however, allows financing closing costs into the mortgage, unlike VA loans.

The USDA buyer then has options if they want to close with little to no funds needed for closing. They can ask for seller concessions or try to finance the closing costs and prepaids.

USDA mortgages are limited to specific geographical locations. Rural areas are typically where USDA home loans are available. But there are some areas very near to more populated areas – it’s best to do some searching to see where the USDA areas are located near you. USDA mortgages also carry household income limitations. You can read a little more about USDA loans on our site here.

Qualifying income and limits and USDA qualifying areas can be viewed here.

State sponsored programs

Illinois Housing Development Authority (IHDA)

Illinois Housing Development Authority, or IHDA, is a state sponsored program that offers assistance to qualified individuals of up to $10,000 in down payment assistance to buy a home. IHDA uses a 1st and 2nd mortgage to help purchase a home with as little as $1,000 out of pocket. Some of the IHDA programs provide down payment assistance of up to $10,000 in the form of an interest-free loan with payments deferred for up to 30 years. One program offers down payment assistance that is forgiven monthly over 10 years, and there is also an option that offers repayment monthly over 10 years.

IHDA mortgages are underwritten in accordance with FHA, USDA, or conventional guidelines. Per IHDA, the minimum credit score is 640. If you’d like to read more about the specific programs and income requirements, head to ihdamortgage.org.

County Specific Programs

In St. Clair County, IL, buyers have access to an assistance program that helps provide funds for down payment and closing costs of up to $5,000 for eligible areas of St. Clair County. Buyers must have not owned a home in the past 3 years, contribute at least $1,000, and meet the income guidelines.

Similarly, Madison County, IL, has a HOMEbuyer program that offers one-time assistance to buyers who have not owned in the past 3 years. It is up to $5,000 and is in the form of a 5-year forgivable loan with a minimum requirement of $1,000 investment in the transaction. Households must also meet the income guidelines.

Some programs can overlap, and some cannot, so it’s important to work with a lender like Homestead Financial Mortgage, with years of experience lending in Illinois, who are familiar with the programs and can help you get the right loans and assistance for you and your family.

Property Taxes in Illinois 

Illinois collects property taxes in arrears. This means that there is usually a tax credit to the buyer at closing. The buyer will bring less to closing than they originally expected.

Additionally, in the state of Illinois, if you plan to live in your home as your primary residence, you qualify for an owner-occupied exemption, also known as the homestead exemption. This exemption is typically around $6,000 and will apply to the equalized assessed value of your home, which can help lower your tax bill. We break down tax bills a little more in-depth in our Demystifying Tax Bills in Illinois: A Guide for Homebuyers.

There is an added benefit of buying a home for disabled veterans. Disabled veterans have reduced property taxes in the state of Illinois. These also come in the form of exemptions. You can obtain this prior to closing or after closing. It is easier to set up prior to closing so that your principal, interest, taxes, and insurance payments are accurate.

How do I find out if I qualify?

To find out if you qualify for a zero-down mortgage program in Illinois, try to get your credit at or above 640, research the USDA loan areas, and find a good lender who is an expert in these programs! We know that buying a home can seem stressful, and grants and taxes can be confusing. Our expert loan officers in Illinois are available to help you navigate the home-buying process and help you find the home of your dreams.

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