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CHICAGO CONDO BUYERS: For Many, Tighter Lending Requirements Keep Them From Their New Home!

MOST LOW-DOWN-PAYMENT PROGRAMS HAVE VANISHED - FHA RULES PRECLUDE MANY CONDOS FROM APPROVAL!

By definition, a "Buyer's Market" is a time when home buyers should BUY!  But for many looking for a new condo, today's new, more stringent lending rules may prove to be a major obstacle.

A couple of years ago, when the market was booming here in Chicago, prospective condo purchasers held many mortgage loan options.  Today, however, many lenders are looking carefully at the financial credentials of the condo association.  They also are concerned that buyers with low down payment may be more likely to default, with loss of equity, than those who have saved a more substantial downstroke.

In some cases, even a solid, 20% down payment is not sufficient. 

Last month, our Team sold a beautiful condo in the River North Neighborhood of Chicago to a successful dentist, earning a high-six-figure income, with excellent credit.  However, concerns the lender raised about the condo association's financial statement forced her to add another 5% to her down payment - on the day of closing!  Luckily, for the buyer, and for our seller, she had the additional money down readily available.

As recently as 18 months ago, buyers with strong credit could buy a condo with little or no money down.  Today, the only low-down-payment option is an FHA-insured loan.   Here, beginning October 1st, only 3.5% down will be required.

FHA, however, requires certain condo conditions before granting a loan.  Condo buildings need a minimum of 4 units, so small condo complexes will not qualify.  The association documents cannot have a "Right of First Refusal," where the condo board can refuse a sale and purchase the unit, on behalf of the board, instead.

Condos must be on the FHA-Approved Condo List to qualify, or pass a Spot Approval for potential buyers to qualify for financing.  Owner Occupancy Rates need be high, and at least 90% of the units must have been sold (unless a new construction project has been approved by the FHA).

Qualification for Private Mortgage Insurance would be required for buyers not going the FHA route, but still attempting to buy with less than 20% down.  Several of the major PMI Companies classify the Chicago area as a "Declining Market," and may require an additional 5% down to buy.  Therefore, condo buyers need to have this additional 5% in their back pockets, if needed, in case it is demanded by the lender.

Often, PMI companies apply their own close scrutiny to condo rules and budget figures, and may pass on certain condos they feel offer too much risk for the loan.

Jim Quist, President of New Castle Home Loans in Chicago, suggests that prospective buyers allow additional time for loan commitment and approval, just in case FHA, the lender, or the Private Mortgage Insurance company throws out additional requirements, or is tardy with their approval.

Read Marilyn Kennedy Melia's article in today's Chicago Tribune Real Estate Section for more info.

DEAN MOSS & DEAN'S TEAM CHICAGO

Posted: Sunday, September 14, 2008 10:39 AM by Dean's Team

Comments

BlogChicagoHomes.com said:

Good Morning! More stringent lending and underwriting requirements , coupled with the need for a 20%

# September 14, 2008 7:25 PM
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