FHA Loan Limits in Chicago – Everything You Need to Know

The Federal Housing Administration (FHA) insures mortgages made by approved lenders, allowing buyers with lower credit scores or incomes to qualify for home loans. FHA loans require mortgage insurance and have limits on the amount you can borrow based on home prices in your area. If you’re looking to buy a home in Chicago with an FHA-backed mortgage, it’s important to understand the loan limits that apply.

FHA Loan Limits for Chicago and Surrounding Counties

The FHA has both a floor and a ceiling for loan limits across the country. For 2022, the floor is $356,362 while the ceiling is $970,800 for most high-cost areas like Chicago. Here are the current FHA loan limits for Chicago and surrounding counties:

• Cook County: $970,800
• DuPage County: $970,800
• Kane County: $970,800
• Lake County: $970,800
• McHenry County: $970,800
• Will County: $970,800

These counties fall under the Chicago-Naperville-Arlington Heights, IL metropolitan area, which has a high-cost limit. So buyers can qualify to borrow up to $970,800 with an FHA loan.

In surrounding counties like DeKalb Grundy Kankakee etc. the limit is lower at $456,200. And in rural counties the limit can be as low as $356,362.

How FHA Loan Limits Are Determined

The Department of Housing and Urban Development (HUD) sets FHA loan limits based on home prices in counties across the nation. For most areas, the limit is set at 115% of the median home price. But it can’t exceed the ceiling ($970,800 in 2022) or fall below the floor ($356,362).

Factors that determine the FHA loan limits include

• Median home sale prices in the county from the last 12 months
• Median prices in the larger metro area the county belongs to
• Economic conditions and growth indicators
• Statutory ceilings and floors set by Congress

FHA limits are adjusted annually and released at the start of the year. They tend to increase in areas where home values are rising

Loan Limit Differences for Condos

For condos and coops, FHA loan limits are lower than for single family homes. They are calculated as a percentage of the limit for single family properties:

• One-unit condo: 75% of single family limit
• Two-unit condo: 87% of two-unit single family limit
• Three-unit condo: 104% of three-unit single family limit
• Four-unit condo: 108% of four-unit single family limit

So in Cook County, the condo unit limit would be 75% of $970,800, or $728,100 for a one-unit property. Always check the HUD site for exact condo limits in your county.

Benefits of FHA Loans

FHA loans are popular options for Chicago homebuyers because they offer more flexible qualification guidelines such as:

• Lower minimum credit scores starting at 580
• Lower down payments from 3.5%
• Higher debt-to-income ratios allowed
• More lenient standards for bankruptcies and foreclosures

This allows more buyers to qualify who might not with conventional loans. FHA mortgages can be used to purchase or refinance single family homes, multi-family properties, condos and manufactured homes.

Qualifying for an FHA Loan

To be eligible for an FHA mortgage, you must meet some baseline requirements:

Credit score: At least 580 for 3.5% down, 500+ for 10% down

Income: Steady income that covers mortgage payments and other debts

Down payment: At least 3.5% from your own funds

Debt ratios: Typically allow ratios up to 43%

Home appraisal: Property must pass FHA appraisal standards

Owner occupancy: You must intend to live in the home as your primary residence

Mortgage insurance: Required for entire loan term

Always check with lenders for their specific underwriting policies on FHA loans. Some may require higher scores or lower debt ratios than these minimums.

Applying for an FHA Mortgage

When applying for an FHA loan, you’ll need to provide documents that verify your eligibility:

• Loan application with personal and financial information
• Credit report and scores from all three bureaus
• W-2s, paystubs and tax returns for income verification
• Bank statements to show funds for down payment
• Debt-to-income ratios from total monthly expenses
• Signed sales contract and disclosures if purchasing a home

The lender will have the property appraised and underwrite the loan based on FHA guidelines. You’ll receive loan estimates detailing your interest rate, monthly payment, closing costs, cash needed to close and other terms.

Shopping with multiple lenders can help you compare options and interest rates. Online lenders also offer an easy way to see customized rate quotes for FHA loans. This can potentially save you thousands over the loan repayment period.

How Much House Can I Afford with FHA?

FHA loans allow higher debt ratios than conventional mortgages. This enables buyers to qualify for larger loan amounts relative to their income. As a general rule, you can potentially afford a home that is 3-6 times your gross annual income with an FHA loan.

More precisely, your maximum affordable home price is based on:

• Down payment amount
• Interest rate and loan term
• Principal and interest payment you qualify for

FHA lenders look at your:

• Income sources and history
• Current debts and credit profile
• Assets and reserves
• Down payment funds

They use all this data to determine the monthly mortgage payment you can afford. Online mortgage calculators can also help estimate your price range with estimated PITI payments, HOA fees, taxes, etc. factored in.

Getting pre-approved from a lender is the best way to know your true maximum loan amount and home budget. Their underwriting will analyze your specific situation to qualify and approve you for a certain FHA mortgage amount. This allows you to shop confidently knowing your price parameters.

Next Steps to Buying with FHA

If you’re considering using an FHA loan for your Chicago area home purchase, your next steps should include:

• Getting pre-approved to see your borrowing power and interest rate
• Finding a real estate agent experienced with FHA buyers and homes
• Making a list of must-have home features to begin your property search
• Getting educated on the home shopping and closing process
• Saving for closing costs which average 3-5% of the purchase price
• Comparing mortgage lenders to find the best loan program and rate
• Reading disclosures, asking questions, and understanding your loan terms before committing

The FHA limit in Chicago allows generous borrowing potential. But make sure to choose a home with a payment you can afford long-term, factoring in taxes, insurance, maintenance and other ownership obligations. An FHA-approved lender can guide you through the process from pre-approval to closing.

FHA Loans Enable Homeownership for More Buyers

FHA mortgage programs expand buying power for borrowers who may not qualify through conventional lending standards. This helps more people realize the dream of homeownership.

Understanding the FHA loan limits for Chicago is the first step. Then you can work with a lender and real estate agent to find an affordable property within your parameters. The FHA allows more flexible debt ratios, credit scores, and down payments – so don’t assume you can’t buy until exploring this option.