FHA loans 4 multi units where owner "does not guarantee legality"

Multi-Family and Apartment Investing
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FHA loans 4 multi units where owner "does not guarantee legality"

Lewis Sutton
Rental Property Investor · Chicago, IL · Member since 2016 · 10 posts · 1 vote

Hello fellow deep pocket colleagues,

I found a multi-unit I like a lot in Chicago for a pretty good price. However, seller does not guarantee the legality of one of the apartment units. Has anyone been able to obtain an FHA loan for a property in this situation?

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Brie SchmidtBusiness Member
Moderator
Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
7y

@Lewis Sutton - FHA does not allow them, you will likely have to remove the kitchen or talk to your lender about doing the home possible loan which is thousands of dollars cheaper anyway

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  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    7y

    @Lewis Sutton if I had any doubts I would not take the seller's word as to legality-nor would the lender. I'd check with the municipality.

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  • Oleg Shalumov
    Rental Property Investor · Teaneck, NJ · Member since 2016 · 567 posts · 291 votes
    7y

    @Lewis Sutton you should be able to go to the city and look up how many units the property is. Not sure on Chicago, but in New York you could even do it online. 

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  • Daniel Cullen
    Specialist · Chicago · Member since 2015 · 64 posts · 56 votes
    7y

    http://www.cookcountyassessor.com/Search/Property-...  You can see how the county assesses the property by doing an address search at the link here. 

    You will also want to see the City of Chicago zoning certificate; here's some info from the city's website re this issue and it's critical info: https://www.chicago.gov/city/en/depts/bldgs/supp_info/illegal-conversions0.html

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    7y

    @Lewis Sutton - FHA does not allow them, you will likely have to remove the kitchen or talk to your lender about doing the home possible loan which is thousands of dollars cheaper anyway

    Podcast Guest on Show #132
    Second City Real Estate4.821 Reviews
    WebsiteView Page
    1Reply
  • Lumi Ispas
    Real Estate Consultant · Chicago, IL · Member since 2014 · 720 posts · 439 votes
    7y

    @Lewis Sutton , make the purchase contingent on the zoning of the building as 4 units and have the seller order the zoning. 

    There is a price difference between a 3 legal + an in-law unit and a 4 legal building. Also, the numbers that qualify you for the FHA loan might now work with a 3 unit, as you'll need more rent to cover 75% of the expenses of the building with only 3 units as the illegal unit's income is not taken in consideration.

    Good luck to you!

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  • Lewis Sutton
    OP
    Rental Property Investor · Chicago, IL · Member since 2016 · 10 posts · 1 vote
    7y

    Thanks, all. Great replies from everyone!

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  • Michael Facchini
    Lender · Chicago, IL · Member since 2017 · 438 posts · 193 votes
    7y

    Correct, it's more difficult to get an FHA loan done with an illegal unit, but not impossible. Conventional is easier. All stuff that can be figured out with the right lender that knows 2-4unit properties well.

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