Financing a Chicago home

The down payment is smaller than you think

Twenty percent down is an option, not a rule, and for most first-time buyers it is not the norm. The real minimum depends on two things: the loan program, and whether you will live in the building. Here is the whole menu.

Every figure in that column is the program minimum, not a recommendation. The right number for you balances the monthly payment against keeping real savings after the closing, because the year-one surprises (a water heater, an assessment, a tax bill) do not care how recently you bought.

Where the money can come from: your savings, documented gifts from family with a short gift letter, proceeds of something you sold, and in some cases assistance programs (there is a question on those at the end). And the down payment is only part of the cash you bring; the other part is closing costs, which have their own guide, itemized to the dollar.

The four loan types, in one pass

Conventional

The default loan. Not government-insured, just underwritten to the standards Fannie Mae and Freddie Mac set for the loans they buy. Down payments start at 3% for first-time buyers and 5% as the common floor otherwise, credit works from about 620 with the best pricing arriving as scores climb into the mid-700s, and PMI rides along under 20% down until the equity builds and it cancels. Most buyers with steady income and solid credit land here.

FHA

Insured by the Federal Housing Administration and built to say yes earlier: 3.5% down with credit scores from around 580 (lower can sometimes work with 10% down), more patience for a thin or bruised credit file, and the same low down payment on a two-flat, three-flat, or four-flat as on a house. The trade is mortgage insurance that costs more and runs longer (MIP, below), and on 3- and 4-unit buildings an extra test where the building itself must pencil. The FHA appraisal also checks the property against minimum property standards, which matters on rough rehabs.

VA

For eligible service members, veterans, and some surviving spouses, and it is the strongest program in the book: zero down on 1 to 4 units and no monthly mortgage insurance at all. In place of the insurance there is a one-time funding fee that most borrowers finance into the loan, and some borrowers, including many with service-connected disabilities, skip it entirely.

Jumbo

Above the conforming limits in the next section, the loan is jumbo: no Fannie or Freddie behind it, so each bank writes its own rules. Expect a bigger down payment (10 to 20% is common), more months of reserves in the bank, and full documentation. Pricing is often competitive with conforming loans, because banks want these borrowers on their books.

None of these programs sets your interest rate by itself; the rate is built from the bond market plus the details of your file. Mortgage rates, explained walks through the whole assembly, and shows where to check the true weekly average.

The 2026 loan limits, the same in every county here

Each program caps how much it will lend, and the cap grows with the building. Illinois has no high-cost counties, so one set of numbers covers the whole map: the city, suburban Cook, DuPage, Lake, Will, Kane, McHenry, and every other county in the state. No looking up the suburb.

Above the conventional column, the loan turns jumbo and the rules change, as covered above. Both sets of limits reset every January: the conforming numbers come from the FHFA’s annual announcement and the FHA numbers from HUD’s. Notice what the growing cap means: a four-flat buyer can borrow past a million dollars with 3.5% down and still be inside FHA. That is not a loophole; it is the program working as designed.

PMI and MIP: what the insurance letters cost

Put down less than 20% on a conventional loan and the payment carries PMI, private mortgage insurance. It insures the lender against default, not you or the house, and you pay for it monthly. The price depends mostly on your credit score and the size of the down payment, which is why two buyers at the same price can see different PMI quotes. The payment a lender quotes you will usually also include escrowed property taxes and insurance, so always compare whole payments, not just rates.

PMI is a phase, not a life sentence. By federal law you can request cancellation once the balance pays down to 80% of the home’s original value, sooner at many lenders with a new appraisal showing the value grew, and it must end automatically at 78%. The CFPB’s summary covers the fine points.

MIP is FHA’s version, and it works differently: 1.75% of the loan upfront, almost always financed into the balance so you never write the check, plus 0.55% a year on the typical low-down 30-year loan, billed monthly. With less than 10% down, the annual piece runs for the life of the loan; with 10% or more down, it ends after 11 years. In practice the common exit is refinancing into a conventional loan once you have 20% equity, which is exactly what many FHA buyers do a few years in.

The live-in multifamily move

Chicago’s housing stock makes one strategy unusually available here: buy a two- to four-unit building, live in one unit, and let the rent from the others carry part of the mortgage. Because you live there, the programs treat you as an owner-occupant, and the down payment is a fraction of what an investor would put down for the same building.

Two numbers make it work. First, the down payment: 5% conventional on 2 to 4 units since the 2023 rule change (it used to take 15 to 25%), or 3.5% FHA. Second, the income: the appraiser’s market rent for the units you will not occupy counts toward qualifying, generally at 75% of its face value, so the building helps you afford itself. The commitment on your side is living in one unit for at least a year.

One wrinkle to know before you fall for a three-flat: on FHA loans for 3- and 4-unit buildings there is a self-sufficiency test, where 75% of the whole building’s market rents must cover the entire monthly payment. Plenty of Chicago buildings fail it at today’s prices. A building that fails can still work on the conventional 5% route, which has no such test, and a two-flat skips the test entirely on either program.

The whole strategy, from the buildings themselves to what they cost to run, is in the Chicago two-flat guide, and the rent vs. buy calculator will show what a building like this does to your monthly cost of living.

How to get pre-approved, step by step

First, the vocabulary, because the two words get traded like synonyms and are not: a pre-qualification is an estimate from a conversation, and a pre-approval means the lender verified your income, assets, and credit. Listing agents can tell the difference at a glance, and in a multiple-offer weekend it shows. Here is the road.

1. Pick two or three lenders

   A big bank, a local lender or broker, maybe a credit union; we are glad to name the ones our clients have closed well with. Get the quotes on the same day, with zero discount points, and ask each how long their rate lock runs. Credit scoring treats all mortgage inquiries inside a short window (45 days on current FICO models) as one, so shopping does not stack dings on your score.

2. Hand over the file

   Government ID, a month of pay stubs, two years of W-2s (tax returns instead if you are self-employed), two months of statements for the accounts holding your down payment, and a gift letter if family is helping. The faster the file is complete, the faster everything after it moves.

3. The lender pulls credit and runs the numbers

   The hard credit pull happens here, and the math is mostly your debt-to-income ratio: your monthly debts, the new payment included, against your gross income. Expect questions about any large recent deposit; the money needs a paper trail, which is a lender rule, not nosiness.

4. The letter arrives

   Often within a day or two of a complete file. It states the loan amount you are approved for, and most letters stay good for 60 to 90 days, refreshing with updated documents after that. You are not committed to that lender, and the letter is free; what it buys you is the ability to offer on the day the right place appears.

5. Hold the picture still until closing

   The file gets re-checked before closing day, so between the letter and the keys: no new credit cards, no car loans, no job changes without a call to your lender first, and no undocumented money movements. Buy the furniture after closing, not before.

Questions we hear every week

Do I really need 20% down?

No. The table at the top is the real menu, and it starts at 0 to 5%. Twenty percent buys you no PMI and a somewhat better rate, and it is the right call for some buyers, but putting every dollar into the down payment and keeping nothing for reserves is how a first year goes wrong. This is a math conversation, not a virtue conversation.

What credit score does it take?

Conventional loans generally work from 620 up, with pricing improving as the score climbs. FHA reaches to around 580 at 3.5% down, and sometimes lower with 10% down. Below those bands, a few months of focused credit repair usually moves the answer more than shopping ever will, and a good loan officer will map the path for free.

Is there down payment help?

Illinois runs assistance programs through the Illinois Housing Development Authority, typically a few thousand dollars layered onto an IHDA first mortgage through participating lenders, with income and price limits attached. City and county programs come and go as funding does. Whether one fits is a per-buyer question; ask us and we will point you to lenders who run them every week.

Can family help with the down payment?

Yes, on every major program. Gifted funds are allowed with a gift letter, a short signed note saying the money is a gift and not a loan, and the lender will want to see the transfer land in your account. What does not work is mystery cash appearing the week before closing; paper trails are the whole game.

Does getting pre-approved hurt my credit?

A mortgage inquiry costs a small, temporary dip, and all the mortgage pulls inside the shopping window count as a single inquiry, so comparing three lenders costs the same as one. A pre-qualification with a soft pull costs nothing at all. Against what is at stake on the rate, this is the cheapest diligence in the whole purchase.

What about condos?

The loan also has to approve of the building. Condo buildings now get their own review before nearly any conventional loan clears: reserves, insurance, the owner mix. A building that fails is called non-warrantable, and the options become a portfolio lender, a different loan, or a different building. The size of your down payment no longer changes how deep that review goes. We pull the building’s paperwork as soon as it is made available to us, so the answer arrives early, not at the closing table.

Where these numbers come from: the 2026 conforming limits are the FHFA’s, the 2026 FHA limits and MIP rates are HUD’s, and the PMI cancellation rules come from the federal Homeowners Protection Act, summarized by the CFPB. Limits reset every January and programs change; your lender’s worksheet, not this page, is the binding math. We are brokers, not lenders, and this is orientation, not loan advice.