FHA Condo Spot Approvals Mean You can Still Buy a Chicago Area Condo Without a Big Down Payment
17th July 2008
I’ve received 4 calls this week from home buyers looking to buy condos in Chicago and the Chicago suburbs. With more 
condos on the market than at any time over the last several years this is a great time to buy. This means there is more of a selection to choose from, and the competition is bringing condo prices down. This is a great time to buy a new condo, but changes in the mortgage market have made financing condominiums harder than it used to be. Mortgage guidelines have gotten much tougher and mortgage insurance companies are even tougher. Fannie Mae and Freddie Mac have junked their declining market policy, but the mortgage insurance companies have kept the policies intact. What this means is that in declining markets the mortgage insurance companies require an extra 5% down payment in order to take on the loan, so if you were going to put down 5%, you would now need to have 10% for a down payment. Chicago and the entire Chicago area are now listed as declining real estate markets. The net result is that if you are going to buy condo anywhere in the Chicago area, and you are going for conventional financing, you may need a 10% down payment.
These new requirements are going to make it harder to finance Chicago area condos, but there is one way you can still buy with a minimal and in some cases no down payment. FHA financing allows a 3% down payment and this money can come from not only your own funds, but a gift from a relative or a grant from a down payment assistance program (at least for now). There’s only one catch. When you buy a condo with FHA financing, the condo needs to be approved by FHA. There are a lot of condominium complexes and buildings that are FHA approved, but most of these are older properties. Many of the condo units have been built or converted to condo in the last 5 years, and during this time FHA was looked at as a dusty old program with loan limits too low to even worry about. So the developers never applied for the FHA approval. But things have changed since then. The FHA loan limit in the Chicago metropolitan area has been raised to $410,000, and FHA now is able to approve more buyers than any other program. If you are looking for a condo the first thing you should do is to see if the property you are looking for is already FHA approved. There is a HUD web site where you can search for properties by address and zip code, to see what is already approved. If you have a question or want to see what FHA condos are available in your town, contact me illinois Mortgage Company first time home buyers loan and I’ll be glad to run the search. IF you are interested in a property that isn’t on the list, there is another option. FHA offers a way to approve condos units one at a time with a spot loan.
FHA spot loans are designed to make FHA financing available to home buyers in successfully run condo buildings which have not gone through the approval process. From the FHA guidelines, the following requirements must be met to approve a spot loan:
- The condominium project must be complete, including all common areas and facilities.
- Control of the common areas must have been turned over to the homeowners
- association for at least one year.
- The owners association must provide evidence that the project has the appropriate
- hazard, liability and flood insurance.
- Individual units in the project must be owned fee simple. The project’s legal documents must provide for undivided ownership of common areas by unit owners.
- The project’s documents should not place any legal restrictions on conveyance. Any provisions that seek to limit the free transferability of title is unacceptable. Such restrictions include rights of first refusal and restrictive covenants.
- At least 90% of the units in the project must have been sold.
- At least 51% of the units in the project must be owner occupied.
- No single entity may own more than 10% of the units in a project. The 10% restriction does not apply when the ownership of less than three units would disqualify an otherwise eligible project. The Department recognized that the 10% cap on the number of units that may secure FHA insured mortgages in a given project can place a small regime at a disadvantage, since only a few units will invoke the limit. Accordingly, a two tiered system was established. For condominium projects having more than 30 units, no more than 10% of the units may have FHA insured loans at any given ti
me.
First Time Home Buyers Loan | Chicago FHA loans
Condominium projects consisting of 30 units or less, can have up to 20% of the units encumbered by FHA insured mortgages under the spot loan rule.
It’s up to the mortgage lender (that would be me) to gather the correct documentation to show that the condo project meets all the eligibility criteria. Once we have all the documentation this would be submitted to the underwriter along with the rest of the file. Putting together an FHA spot approval takes a little more time and effort, but it allows home buyers to buy a condo they couldn’t buy with a conventional loan. In this market it may be one of the best tools available, for condo buyers and sellers alike.
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July 17th, 2008 at 9:39 pm
[…] Go to the author’s original blog: FHA Condo Spot Approvals Mean You can Still Buy a Chicago Area … […]
August 6th, 2008 at 11:56 pm
[…] buyers who are ready to take the plunge into home ownership. Yep, this is springtime in Chicago. First time home buyers Loan generally have two things in common. One, they are nervous about the home buying process and […]
August 8th, 2008 at 10:46 am
Today’s Most Popular Fha Loans
What is fha loans with bad credit ?
Fha loans are the most popular consumer mortgage loans you can possibly have today.
Also fha bad credit loans are done by the government, basically the government have created these loans years ago and it was actually very popular.
Fha bad credit loans also called fha hud loans have their fha guidelines and fha requirement.
So for you to get a consumer mortgage and an fha approval you need to know the guidelines.
1.Fha fees- fha fees are not so much different than any other conventional mortgage loans you had in the past.
The problem is that some of us that apply to have a consumer mortgage are being charged high points in conventional mortgage loans.
If you will read the fha guidelines you will understand that with fha lending it’s a much safer way to go because there are some restriction with the fha fees.
2.Fha appraisal- fha appraisal is also not so different from a normal appraisal you will have to get done in a conventional mortgage.
But here the appraiser that will appraise your home will have to be fha approved to get you an fha appraisal done.
3.Fha conventional- fha conventional is not a normal term but some people are using this term for some reason.
Fha conventional is not related to one another, fha is fha and conventional is conventional.
4.Fha lenders- there are not a lot of fha lenders and fha brokers.
A lot of people think that every mortgage broker can help them with their fha Home mortgage, no.
Only a few Mortgage brokers out there are really fha approved, so before you make a decision about the next mortgage broker you will use make sure they’re approved.
5.Fha loan limits- the fha loan limits have changed recently. Until march of 2008 the fha limits were up to $417,000, because of states like California, New york and Florida the fha loan limits have changed to $729,000.
The new loan limits will help many homeowners to refinance their homes and avoid foreclosure.
6.Fha pmi- fha pmi is the mortgage insurance you required to pay.
Please read the fha requirements, in conventional loans you will pay pmi only if your loan is more than 80% ltv.
Since fha programs don’t offer a second loan on your mortgage they will make you pay pmi instead, which is good because paying pmi is much better then a second loan.
7.Fha rates- fha rates are much better then conventional interest rates.
Conventional banks have a higher interest rates because they charge to the index of your loan a margin. Fha interest rates have no margin since the fha program is done by the government.
Fha rates are lower then conventional rate loans.
So again learn the fha guidelines and the fha requirements.
now you will know the fha loan limits.
1. you will probably have to pay fha pmi.
3. The fha rates shouldn’t be higher then conventional rate loans.
Now go find fha lenders or an fha broker, get your refinance or mortgage done and save your home.
August 8th, 2008 at 11:45 pm
[…] Not so long ago, FHA loans were the red-headed step child in the housing market. They didn’t get any respect. That wasn’t always the case. Back in the old days FHA loans were the only option for most first time home buyers or others who had little money to put down. FHA was the way for many borrowers to take their first steps into home ownership here in the Chicago area. Not only could you buy a home with a small down payment, but the entire down payment could be a gift, and your credit didn’t have to be perfect. There were problems with FHA loans, though. It took longer to get a loan approved and closed than with a conventional loan, and if there were issues with the homes condition (like peeling paint) the issues had to be fixed before closing. Many people felt that FHA underwriters were professional nitpickers, so if they had a choice, many Realtors and home sellers would take a conventional buyer over an FHA buyer. As time went on FHA became less and less of a factor in the market. Conventional loans came out with low, and later no down payment options, and other loans catered to borrowers with bruised credit. Another part of the problem was that FHA didn’t keep up with the market values. As home prices moved up in Dupage County and throughout the Chicago area, FHA kept their loan limits low, and became a non-issue for all but the lowest priced homes. Now, as the conventional market is in turmoil, it looks like FHA has another shot at its glory days, and there is no doubt that FHA financing is the best loan option for many Chicago area home buyers. […]