Home Purchase With Illegal Apartment In Chicago

Financing Home Purchase With Illegal Apartment In Chicago

Gustan Cho Associates are mortgage brokers licensed in 48 states

This Article On Home Purchase With Illegal Apartment In Chicago

One to four-unit residential properties is eligible properties of government and conventional financing.

  • FHA only requires 3.5% down payment on owner occupant two to four-unit properties
  • The United States Department of Veterans Affairs (VA) offers 100% financing on two to four-unit home financing
  • However, Fannie Mae and Freddie Mac both require 15% down payment on two to four-unit homes

There are many multi-unit properties, especially in Chicago, where there is an illegal basement apartment or illegal attic apartment. The city of Chicago has the most two to four-unit residential homes than any other city in the nation. A large percentage of 2 to 4 unit housing in Chicago has illegal basement apartments.

In this article, we will discuss and cover Financing Home Purchase With Illegal Apartment In Chicago.

Chicago Real Estate Market

In Chicago and surrounding suburbs, it is not uncommon where a homeowner of a two to four-unit property has converted the basement into an illegal basement apartment with a bedroom, bathroom, and functional kitchen:

  • Homeowners will illegal basement apartments do not just use it as an in-law suite
  • Most rent them out to tenants
  • The city of Chicago Building Department is well aware of this
  • Building inspectors just let these homeowners slide
  • There are basement apartments that have been grandfathered in and are considered legal
  • However, a large percentage of basement apartments are not legal

Homeowners continue to rent them out for rental income.

Can I Get A Mortgage On Home Purchase With An Illegal Apartment In Chicago?

All mortgage lenders will require a home appraisal on the subject property. 

  • The home appraiser will note the legality of the basement apartment
  • The appraiser will note that the basement apartment is illegal

Lenders do want to see proper building permits and check with the county records with regards to square footage when it comes to discrepancies on the appraisal report.

Square Footage Of Property Versus County Records

If there was a room addition added on the home, whether it is on the ground floor or whether it is a second-floor addition, the square footage on the appraisal report needs to match those recorded on county or city records

  • Basements are exceptions
  • Basements are not considered as part of living square footage
  • Basements are exempt with square footage verification
  • Most lenders are aware of illegal basement apartments and will let that slide

If a mortgage lender gives a hard time in a home purchase with an illegal apartment, borrowers may have to disconnect the kitchen gas and electricity.

Rental Income Cannot Be Used On Home Purchase With Illegal Apartment
Rental Income Cannot Be Used On Home Purchase With Illegal Apartment

On home purchase with illegal apartment, the rental or potential income cannot be used.

  • Home purchase with Illegal apartment will only be considered as a furnished basement and not an income-producing basement apartment.  Homebuyers of 2 to 4 unit properties with an illegal basement apartment should not be concerned when it comes to financing it.
  • Most mortgage lenders who originate and fund loans in Chicago and surrounding suburbs in Chicago do understand and know about illegal basement apartments.

If the mortgage lender is giving a hard time on the illegal basement apartment, please contact us at Gustan Cho Associates Mortgage Group at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

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  1. Is it ok for a landlord to uninstall a kitchen in an illegal unit for an appraisal, and reinstall the kitchen once the appraisal is complete? There is a tenant living in the illegal unit and needs use of the kitchen for the duration of her lease.

    1. Yes, perfectly fine to uninstall the kitchen and once the appraisal is done, reinstall it. This is how it is normally done.

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