Looking into Des Plaines condo loans? They’re a bit harder to get than loans on a house. They are harder because they’re riskier: lenders don’t have to worry just about you and your unit but also about
- common areas,
- homeowners’ association
- and other unit owners.
So do you. Here’s how things go, using my imaginary friend Bob, who lives in an imaginary rental unit in Niles, as an example:
Would-Be Borrower Bob Looks for a Des Plaines Mortgage Broker
Let’s say borrower Bob wants to buy a condo in Uptown Park Ridge or somewhere close to the METRA station in Des Plaines. He’d consider Mount Prospect’s downtown area, though it feels kind of far. He starts by Googling Des Plaines mortgage brokers and ends up working with a Des Plaines mortgage specialist at a national bank’s branch in Park Ridge.
No matter which one he chooses, his mortgage broker, to give him the best rate, will want to get him a conventional, conforming loan. (FHA loans, though they have lower interest rates, come with mortgage insurance. That makes them more expensive than conforming loans.)
If you’re looking for a mortgage specialist in Illinois, call me at 847-840-8884 now.
The First Thing Bob’s Des Plaines Mortgage Specialist Tells Bob
The first thing to keep in mind is that it is a lot harder to get an FHA condo loan than a conventional, conforming one. What makes them harder is that the FHA insures only loans against condo units that are in an approved project or if someone spot-approves the unit. Getting a project or a unit approved takes time, effort, and can cost money too.
That means that there are few projects or units that are approved. As a matter of fact, as of the writing of this article, you will find only two Des Plaines condo projects on FHA’s approved list: Metropolitan Square and The Library Courte.
This is the link to check if a condo project is approved by the FHA: https://entp.hud.gov/idapp/html/condl….
So, the first thing people who’re looking to buy or refinance a condo unit is to determine whether they qualify for a conforming conventional loan or not.
Or if the mortgage broker or lender they’re working with can do unwarrantable condos, i.e., condos that don’t fit the criteria of Fannie Mae, Freddie Mac or FHA.)
Unwarrantable condo mortgage loan programs have looser qualifying criteria but they still have criteria.
Want a condo mortgage? Call 847-840-8884 to see if the condo association meets the criteria of any lender.
The Most Common Traps on the Way to Bob Getting a Mortgage on His Des Plaines Condo Loan
There are seven common traps that await anyone looking into Des Plaines condo loans.
1. Budgets must call for an amount equal or higher than 10% of the association’s budget to be transferred into the reserves account a year.
2. No entity can own more than
A) 1 unit in projects with 4 units or less;
B) 2 units in projects with 5-20 units;
C) 10% of the units in projects larger than 21 units.
3. All of the association’s income must come from things that are essential to running an association (i.e., regular or special assessments and maybe from cable fees; none can be from a business the association is running, or rents).
4. No more than 25% of the project can be commercial in nature.
5. The developer must have turned over control to the association.
6. The association cannot be involved in a litigation that’s not about foreclosure if there are monetary motivations at play.
7. 51% of the units must be owner-occupied (units listed for sale are considered owner-occupied)..
There are many other restrictions, but associations not meeting them are rather rare.Still, people who are thinking about getting a mortgage on a condo should talk to a loan officer early in the process.
Call 847-840-8884 now to talk about the condo unit you want to finance.
What Borrower Bob Should Do To Get His Des Plaines Condo Loan The Easy Way
The documents that reveal whether the condo project meets or does not meet the requirements for conforming conventional or FHA loans are:
3. Condo Rules and Regulations
4. Articles of incorporation.
Borrower Bob (or anyone else thinking about getting a mortgage on a condo) should, at the very least, ask the person in charge of running the association questions that would reveal if the project meets the criteria listed above and get a copy of the budget and provide it, together with the answers from the person in charge of the association, to his Des Plaines mortgage specialist.
The earlier Bob’s mortgage specialist has the required condo information, the better.
Condo Loans the Easy Way
Lenders don’t always look that carefully at condo documents. It depends on how strong of a borrower they’re dealing with.
Still, even limited condo reviews involve budgets and a questionnaire that someone at the association (or association management) must fill out. And, the appraiser also comments on some of the items above.
So, even for strong borrowers, the best idea is to know the information early.
What If Borrower Bob Wanted to Refinance a Condo, Not Buy One?
The same applies, of course. And, if Bob’s condo association does not pass the test, Bob has the following options:
- deal with a lender that does non-warrantable condos
- get the association to comply with the rules
- apply with a regular lender, and hope they don’t catch on.
Non-Warrantable Condo Lenders
They are lenders who are more relaxed about one or more of the rules that Fannie, Freddie and the FHA abide by.
The thing to keep in mind is this: your loan officer must be dealing with one that is relaxed about the particular rule the condo association you’re interested in breaks. And relaxed enough.
This is what I mean:
Some non-warrantable condo lenders can stomach associations that have 40% commercial space, while others can only stomach 35%.
Some non-warrantable condo lenders are relaxed about the occupancy rule, but they are just as strict with the other aspects of condo associations as the warrantable condo lenders.
Call 847-840-8884 if you think you’re dealing with a non-warrantable condo.
The best thing to do when looking into Des Plaines condo loans in earnest is to talk to a mortgage specialist and review the condo documents early.