Buying Home With Illegal Apartment In Chicago

This BLOG On Buying Home With Illegal Apartment Was Written By Gustan Cho NMLS 873293

There are many multi unit residential properties with an illegal apartment in the basement or attic.

  • For example, a large percentage of two unit building in the Chicagoland area have basements that have been converted to apartments without permits and the homeowner is renting it out. 
  • The apartment does have two entrances, kitchen, bathroom, living area, and many of them are very nice. 
  • Homeowners rent these basement apartments out to tenants and some even go as high as $1,000 per month. 
  • Most of these non-conforming dwelling units have been constructed without proper building permits and these two units are still classified as two units and not three unit residential units. 
  • The same with attics. 
  • Many homeowners have remodeled their unfinished attics and converted them to rental units without pulling the proper permits. 
  • How do mortgage lenders view these illegal non-conforming dwelling units? 
  • Can you still purchase and get financing with two unit buildings with non-conforming basements and attic spaces?

Buying Home With Illegal Apartment In Basement In Chicago

In Chicago, two unit multi unit properties are normally called two flats and many of them have so called in-law apartment units where the homeowner rents these so called in-law apartment for income.

  • Most non-legal units have a full functional kitchen, bedrooms, bathrooms, and living area. 
  • They also have two separate entrances, however, most of them have electrical, water, and gas meters connected to one of the other units. 
  • Most non-conforming basement apartments have lower ceiling height. 
  • Unfortunately, a large percentage of two and three unit multi family residential homes have apartment in basements and attics and even though the homeowners are collecting rent, they cannot be classified as an additional unit and no rental income can be used even though the tenant has a lease. 
  • Most municipalities do not enforce this code violation and it is very common, especially in the city of Chicago.

Financing Multi Unit With Non-Conforming Apartment

A home buyer purchasing a home with an in-law suite apartment that is not legal can still get financing and can still close on their prospective home purchase. Again, buying home with an apartment unit that does not conform is very common in Chicago where a large percentage of two to four units have non-legal basement apartments. Many homes have dormers where homeowners converted to apartments. This practice of of converting storage into apartments without proper building permits in Chicago has been going on for decades and most of the time, city building inspectors do not enforce illegal housing units. Local lenders who finance homes with dwelling units that has been converted illegally think nothing of this. However, many times, the appraiser will require that the kitchen be disassembled or the gas, electric, and water be disconnected and will classify the non-permitted apartment in the basement or attic as a storage space and/or recreation room.  You do not have to demolish the kitchen but every hookup in the kitchen needs to be disconnected and the kitchen cannot be functional.  Mortgage lenders will just consider storage spaces converted to living spaces as a remodeled recreational area and you should have no problem in getting a mortgage loan approval. This is the case when you are collecting rent. Rental income that you get from these living spaces will not count as qualified income even if you declare them on your income tax returns.

2017 Update On Financing Home With Modified Space As Rental Units Without Permits

Mortgage lenders will still finance two to four unit properties with basement apartments and attics that has been converted to apartments or in-law suites without building permits. However, appraisers may ask that you disconnect the kitchen and just count that space as a recreation room or storage area.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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