Mortgage Options for First-Time Buyers in Chicago: FHA, Conventional and VA

Most first-time buyers in Chicago use one of three loan types: an FHA loan with as little as 3.5% down, a conventional loan such as Fannie Mae’s HomeReady with as little as 3% down, or, for eligible veterans and service members, a VA loan with no down payment. Down payment programs like HomeGrown work with these loans but add their own rules, such as requiring a fixed rate.

Last reviewed October 1, 2026 · Chicago First Time Home Buyer editorial team

At a glance

Loan	Minimum down	Mortgage insurance	2026 limit in Cook County (1 unit)	Good fit for
FHA	3.5%	Required; does not cancel at 20% equity the way conventional insurance can	$541,287	Buyers with modest savings or credit, and two-flats
Conventional (HomeReady)	3%	Required under 20% down; can be cancelled at 20% equity	$832,750	Buyers with income at or below 80% of area median income
Conventional (standard)	Varies by lender and program	Required under 20% down; can be cancelled	$832,750	Buyers with stronger credit or larger down payments
VA	None, if the price is not above the appraised value	No PMI or mortgage insurance premium	Set by your lender and VA entitlement	Eligible veterans, service members and some surviving spouses

FHA loans

FHA loans are insured by the Federal Housing Administration, part of HUD, and allow a down payment as low as 3.5% of the price. They are common for first-time buyers because credit standards are more flexible. FHA also lends on two- to four-unit buildings when you live in one unit, which is why many Chicago buyers use it for a two-flat. In Cook County, the 2026 FHA limit is $541,287 for one unit and $693,050 for two. See 2026 loan limits.

Conventional loans and HomeReady

Conventional loans are not government-insured; most follow Fannie Mae or Freddie Mac rules. Fannie Mae’s HomeReady allows 3% down for buyers whose income is at or below 80% of the area median. For a four-person household in the Chicago area in 2026, 80% of median income is $97,200. You do not have to be a first-time buyer, a homeownership course may be required, and mortgage insurance can be cancelled once you reach 20% equity. The 2026 conforming limit for one unit is $832,750.

VA loans

VA-backed loans for eligible veterans, service members and some surviving spouses need no down payment as long as the price is not higher than the appraised value, and they carry no private mortgage insurance. Most VA loans charge a one-time funding fee instead.

How assistance programs fit

HomeGrown works with any first mortgage from a lender licensed in Illinois, but it must be a standard fixed-rate loan. Adjustable-rate, interest-only and bought-down loans are not allowed, and your debt-to-income ratio cannot exceed 38%.
IHDAccess Home is paired with IHDA’s own 30-year fixed-rate first mortgage through a participating lender.
The two cannot always be combined. See HomeGrown vs. IHDAccess Home.

Common questions

What is the minimum down payment to buy a home in Chicago?

It depends on the loan: 3.5% for FHA, as little as 3% for conventional programs such as HomeReady, and none for eligible VA borrowers. Down payment assistance can cover part or all of it.

Is FHA or conventional better for a first-time buyer in Chicago?

FHA often suits buyers with lower credit scores or a two-flat purchase. A conventional loan often costs less over time for buyers with stronger credit, because its mortgage insurance can be cancelled at 20% equity. Ask a lender to price both.

Can I use an FHA loan with HomeGrown?

Yes, as long as it is a standard fixed-rate first mortgage from a lender licensed in Illinois and your debt-to-income ratio is 38% or less.

Sources

Cite this page: Chicago First Time Home Buyer, “Mortgage Options for First-Time Buyers in Chicago,” reviewed October 1, 2026, chicagofirsttimehomebuyer.com/buying-process/mortgage-options/.