Buying Home With Illegal Basement Apartment

Buying Home With Illegal Apartment In Basement And Attic

Gustan Cho Associates are mortgage brokers licensed in 48 states

In this blog, we will cover and discuss buying home with illegal apartment in the basement and attic. There are many

Most of these non-conforming dwelling units have been constructed without proper building permits. 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. Converted them to rental units without pulling the proper permits. How do mortgage lenders view these illegal non-conforming dwelling units?  Can home buyers 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. Many of them have so-called in-law apartment units. Homeowners rents these so-called in-law apartments for income. Most non-legal units have a fully functional kitchen, bedrooms, bathrooms, and living area. They also have two separate entrances.

Non-Conforming Basements and Attics For Family Living Quarters

Most of them have electrical, water, and gas meters connected to one of the other units. Most non-conforming basement apartments have a lower ceiling height. Unfortunately, a large percentage of two and three-unit multi-family residential homes have an apartment in basements and attics. Even though the homeowners are collecting rent, they cannot be classified as additional units. 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

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. They can close on their prospective home purchase with illegal living units. Again, buying a home with an apartment unit that does not conform is very common in Chicago. 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 converting storage into apartments without proper building permits in Chicago has been going on for decades.

Enforcement by City Building Inspectors

Most of the time, city building inspectors do not enforce illegal housing units. Local lenders who finance homes with dwelling units that have been converted illegally think nothing of this. However, many times, the appraiser will require that the kitchen be disassembled or the gas, electricity, and water be disconnected. Will classify the non-permitted apartment in the basement or attic as a storage space and/or recreation room. Sellers do not have to demolish the kitchen. But every hookup in the kitchen needs to be disconnected and the kitchen cannot be functional.

How Lenders View Illegal Basements and Attics

Lenders will just consider storage spaces converted to living spaces as a remodeled recreational area. Should have no problem in getting a mortgage loan approval. This is the case when homeowners are collecting rent. Rental income that owners get from these living spaces will not count as qualified income

Update On Buying Home With Illegal Apartment As Rental Units Without Permits

Lenders will still finance two to four-unit properties with basement apartments and attics that have 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.

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