Are you thinking of buying a condo in Chicago? The condo market inChicago remains hot as companies continue to move from the suburbs to the city. There is also the draw of all the amenities and things to do in the Loop area. In addition, for those not wanting to deal with exterior maintenance, condos are a great option.
Like the overall market, condos are experiencing a seller’s market in terms of inventory levels. The supply of inventory is 18.6% lower in Chicago than May 2015 levels. However, despite the tight supply of condos available, prices are flat compared to prior year levels with only a 1.7% increase. This may be a great year to buy!
For those considering buying a condo in Chicago, there are a few things to keep in mind:
Financing: Financing for condos can be more difficult than a single family home. Credit score requirements are higher and the condo association has to meet its own set of requirements in addition to the borrower. The biggest condo association qualifications that tend to be problematic are:
- Less than 15% of association fees delinquent for 60 days
- Less than 50% investor/renters
- Less than 50% concentration of FHA loans
- Adequate reserves in association budget (10% of budget)
- Functional condo association – with no association it will be very difficult to get financing
Also, in order to use FHA financing, the condo community must be FHA approved. Many are not, so you may have more choices with conventional financing. Discuss this with your lender.
Association Fees: The association fees cover the costs of the property taxes and insurance on the building, utilities for the common areas, exterior maintenance, etc. You want to be certain what amenities are included in the association fee. With condos, the monthly association fees can sometimes be fairly pricy. You want to factor in the amount of the monthly association fees in addition to the purchase price. Often, the loan amount that you qualify for can be impacted by high association fees (it affects the amount of your monthly housing payment).
Special Assessments:Condo associations will levy special assessments for projects such as roof replacement and other capital improvements. In addition, a building in great shape may need to shore up its capital reserves with a special assessment if needed. Ask about any planned special assessments and the history of them in recent years. You can request this information from the seller or association during your attorney review period.
Restrictions in the Bylaw:The condo’s bylaws set up rules and restrictions for the condo owners in the building. It is recommended that you review these as part of your due diligence. Some associations restrict the renting of units so if your future plans are to rent your unit for income, this may be an issue. There may also be other restrictions that impact remodeling, etc. Do your homework as part of the purchase process so you don’t face any unpleasant surprises down the road.
IL Condo Act:This act in Illinois applies to the purchase of foreclosed condos only. It basically holds the buyers of foreclosed condos responsible for paying up to 6 months of past due condominium assessments and all the legal fees associated with the association’s attempts to collect those assessments. You will want to confirm whether there are delinquent fees prior to the offer or definitely during the attorney review period. Again, this is only an issue for foreclosed condos.
Other Concerns: Some other concerns when purchasing condos are whether parking is included (a real issue in some Chicago neighborhoods) and is there a pending or existing legal action against the association.
Even though there are concerns that need to be kept in mind, a condo can be a great option for many people. These are just items to routinely check off to minimize unexpected and unwelcome surprises. If you have questions or are looking to buy and sell in the Chicagoland market, please give me a call.