In 2024, the US mortgage application rejection rate rose to 20.7%, and the biggest reason is poor credit scores. It may seem challenging to buy a house with bad credit in Illinois, but it isn’t impossible.
In Illinois, you can buy a house with bad credit through FHA, VA, and USDA loans. The Illinois Housing Development Authority (IHDA) also offers programs to help with financing. There’s no reason to wait, start your home search right away!
👉 Illinois Homes for Sale: Browse listings and find your dream home today!
Can You Get Loans in Illinois for Bad Credit?
Yes, you can get a mortgage to buy a home with bad credit in Illinois.
A credit score below 580 is considered a poor score. It reflects a history of high debt and missed payments. However, government-backed mortgages have lenient criteria. Illinois also offers specialized programs to help bad-credit buyers achieve homeownership.
5 Steps to Buy a House with Bad Credit in Illinois
16% of Americans have a poor credit score. If you fall into this category, here’s how you can still go about buying a house in Illinois with bad credit:
Step 1: Review Your Credit Score
Before you buy a house in Illinois, check your credit report for errors and negative marks that could affect your credit score. If you find mistakes on your credit report, you can dispute them directly with the credit bureau.
Step 2: Look for Mortgage Options With Bad Credit
Here’s a list of Illinois mortgages and their minimum requirements:
- Conventional Loans: The minimum credit score required for conventional loans is 620 for Fannie Mae and 660 for Freddie Mac. However, a 3% down payment is mandatory.
- FHA Loans: With FHA loans, you can buy a house with a credit score as low as 500 with a 10% down payment. If your score is 580 or above, you can put 3.5% down. However, you can only use FHA loans to purchase a primary residence.
- VA Loans: VA loans are ideal for active-duty military and their spouses in Illinois, home to over 500,000 veterans. While VA loans have no strict credit score requirement, most lenders prefer a minimum score of 620.
- USDA Loans: The US Department of Agriculture offers USDA loans to encourage homeownership in rural areas like Gallatin, Lee and Bureau. While the loans don’t have a minimum credit score, lenders prefer a score of 620 or above.
Step 3: Consider Subprime Lenders
Subprime lenders, like the Illinois Housing Development Authority (IHDA), offer mortgages tailored for people with bad credit in IL. They evaluate factors such as your employment history, income, and ability to pay down, rather than relying solely on credit scores.
These lenders also provide flexible loan terms and accept a higher debt-to-income ratio (DTI), often 50% or more for subprime mortgages. However, DTI requirements can vary by lender and loan type, which makes it easier for you to secure financing.
Step 4: Save for a Larger Down Payment
For traditional mortgages in Illinois, the minimum down payment typically ranges from 3% to 20%. However, if you have a bad credit score, a minimum of 10% is usually required.
In the Illinois real estate market, a larger down payment can improve your chances of securing a loan. Lenders also view this as a sign of financial responsibility.
Step 5: Get Pre-Approved
For first-time home buyers in Illinois, a mortgage preapproval is important, especially for those with bad credit scores. It informs you about your mortgage interest rate and monthly payments, and helps you manage your finances better.
How to Get Illinois Loans With Bad Credit?
It can be challenging to get a home loan for bad credit in Illinois. But it’s possible if you have the right approach. Here’s what to do:
- Pay Off Existing Debt: Before buying a house with bad credit in Illinois, you should pay back the money you already owe. Illinois lenders often consider a debt-to-income ratio below 36% as a sign of financial stability.
- Budget Wisely: Factor the cost of living in Illinois into your home-buying budget. This includes utilities, insurance, property taxes, and transportation costs.
- Get a Co-Signed Mortgage: Look for a co-signer with a strong credit score to strengthen your loan application. This person will be responsible for paying back the co-signed mortgage if you default on payments.
- Explore Illinois-Specific Programs: Illinois offers programs like the Illinois Housing Development Authority (IHDA) Program to help buyers with bad credit. It assists low-to-moderate-income residents with lenient credit requirements if their income is 120% or less of their county’s median household income.
- Understand the Mortgage Application Process: You must be well-versed with Illinois’ mortgage requirements, including state disclosures and lender criteria. Prepare documents like income proof and credit explanations to strengthen your application with Illinois lenders.
6 Best Cities in Illinois for Buyers With Bad Credit
| City | Best Suited for Bad Credit Buyers | Find Houses for Sale |
|---|---|---|
| Chicago | Subprime lenders, FHA, and VA loans | Houses for Sale in Chicago |
| Rockford | FHA loans, rent-to-own options, and local credit unions | Houses for Sale in Rockford |
| Naperville | First-time buyer grants, FHA, and community lending | Houses for Sale in Naperville |
| Elgin | USDA eligibility nearby, FHA-friendly communities | Houses for Sale in Elgin |
| Bloomington | Down payment assistance, FHA, and local lender programs | Houses for Sale in Bloomington |
| Champaign | Credit counseling programs, FHA, and subprime options | Houses for Sale in Champaign |
Can I Get a Mortgage With Bad Credit?
Yes! You can get a mortgage with bad credit in Illinois. There are various options available for buyers in this situation. FHA loans need a minimum credit score of 500 with a 10% down payment, while VA loans for veterans have no strict credit score requirements.
Apart from that, lenders also assess more than just your credit score; they also consider your income, savings, and overall financial situation. So, don’t wait! Make your dream of homeownership in Illinois come true today!
Frequently Asked Questions
Can I get a mortgage with bad credit in Illinois?
Yes. It's possible toget a loan with bad credit in Illinois. You can avail of the IHDA Access Homebuyer Program or opt for government-backed loans that accept low credit scores.
What are the best loan options for bad credit in Illinois?
FHA loans are most popular for buyers with bad credit in Illinois. You can also consider USDA loans for rural areas, and VA loans for veterans.
How much down payment is required to buy a house with bad credit in Illinois?
In Illinois, FHA loans require a down payment of 10% if your credit score is below 500. If your score is 580 or higher, you may qualify for 3.5% down.
How can I improve my chances of buying a home in Illinois with bad credit?
There are some steps to buy a house with bad credit in Illinois, like make a large down payment, reduce your debt-to-income ratio, and correct errors on your credit report.
