What Impact Will Fannie, Freddie Changes Have on Chicago Condo Market?
July 15th, 2009 categories: Chicago Info/News, Economic Recovery, For Buyers, For Homeowners, For Sellers, Housing Market, Mortgage Info
This isn’t the best time to be selling a Chicago condo. In May, condo sales were down 56 percent from one year earlier, according to Midwest Real Estate Data LLC’s multiple listing service.
Starting in July, selling a condominium in Chicago – or anywhere in the country – got a bit harder. That’s when a new Freddie Mac rule kicked in. The agency will no longer guarantee mortgage loans in new condominium buildings where less than 70 percent of the units have been sold. Fannie Mae adopted the same guideline in March.
Previously, both agencies would guarantee mortgage loans in new condo buildings as long as 51 percent of the units inside them had been sold.
The move places more stress on Chicago condominium developers. In today’s tough real estate market, it’s no simple task to sell 70 percent of a new building’s units. Sales just aren’t taking place that quickly today.
This is why a growing number of condominium developers in the city are applying to have their developments approved by the FHA. Developments that gain this approval have a big advantage over their competitors: Potential buyers can receive FHA-backed mortgage loans if only 51 percent of the building’s units are sold. And buyers only have to come up with a down payment of 3.5 percent.
Many condo buyers are first-time homebuyers. For them, coming up with a large down payment is often the tallest financial hurdle they have to overcome. Many first-time buyers can easily afford monthly mortgage payments on a new condominium in Chicago. But they can’t come up with enough money for a large down payment. The FHA funding solves this problem.
There was a time not too long ago when FHA financing was considered a last resort. That’s because it took so much longer to gain approval for an FHA loan. That’s changed now, though, as the process has become far more streamlined.
Today, in fact, FHA loans are extremely popular among buyers who simply can’t come up with down payments that are too large.
While Fannie and Freddie, then, make it more difficult for buyers to obtain traditional financing for new condominium units, the FHA is providing a lifeline to all those condo developers in Chicago hoping to sell brand-new units to eager Chicagoans.
PLEASE CLICK HERE TO VIEW PROPERTIES NOT YET ON THE MARKET.
FHA will not be the life line for condo’s. HUD and FHA’s recent lender memo will limit the FHA loan concentration in a Condo project to 30%, with this in place and the FHA 51% pre-sale along with freddie and Fannies 70% pre-sale will make it almost impossible for someone to finance in a project until the 70% pre-sale is meet.
Have you seen many special assessments from HOA’s due to owners being behind on payments? It’s starting to be a significant issue in California.