Buying a Condo in Chicago? What You Need to Know to Avoid Mortgage Denial
Posted by: Zlatan Hodzic, United Home Loans
In Chicago, limited space and close proximity to the city’s most desired attractions leads many prospective buyers to consider a condo as a favored path to home ownership.Whether it be preference (no need to mow the lawn!) or the result of local housing supply and demand, prospective home owners need to understand that obtaining a mortgage for a condo may pose more risk due to additional information needed by a lender’s underwriting department. These layers of risk can lead to a mortgage denial even though you have excellent credit, a great job, and no issues with the dreaded debt-to-income ratio.
Condo information is obtained by your lender in the form of a questionnaire (with additional documents depending on the down payment) from the association. This allows underwriting to conduct a review of the property and governing body and ensure they are in good financial health. Below are just a few issues that buyers frequently encounter when purchasing a condo:
- Condo building cannot have more than 25% commercial space.
- Condo must set aside 10% of the total budget for replacement reserves.
- No single entity can own more than 10% of the total units in the project.
- No more than 15% of the units can be 30 days delinquent on HOA dues.
An association that fails to meet any of these criteria will result in the condo being declared a non-warrantable property. While it is still possible to obtain a mortgage for a non-warrantable property, it is usually more expensive and limits your options in terms of structuring your potential purchase. What can you do to ensure this won’t happen with your condo purchase? Work with a knowledgeable lender and real estate agent. This will lower the risk of encountering many of these issues as the information will be obtained early in the process so not much time, energy, and effort is lost.
If you have any questions condo lending or for a fast pre-approval, contact Zlatan Hodzic via e-mail or call 773.544.7762.