Chicago Renovation Loans: What You Need to Know

Chicago renovation loans come in a number of varieties. There are two broad groups: conventional and non-conventional. Each group has some advantages and some disadvantages.

Your credit, down payment (equity) and type of property to be rehabbed all play a role in the type that is best for you.

Call 847-840-8884 if you’re looking for renovation loans in Chicago and its suburbs.

Conventional Chicago Renovation Loans

The conventional loans come in two broad groups: private and Government-backed.

The most common conventional loans are the Government-backed ones. They tend to have the lowest interest rates, and the rules are more similar from lender to lender. For the private ones, each lender sets its own rules.

Since private conventional rehab loan rules vary widely and are less common, I will cover only the Government-backed conventional loans here.

The non-conventional ones come in two groups: those insured by the FHA and those insured by the VA.

They have five advantages over the Government-insured loans:

1. the loan limits are higher,
2. there are no limitations to what can be rehabbed / added
3. pre-approvals for conventional rehab loans are perceived by many (wrongly) to be stronger than those for Government-backed renovation loans,
4. they can be used to remodel investment properties  and second homes (1-unit only).
5.  for 2 to 4-unit properties, the down payment (equity) is high: 15% of the value of the property for 2-unit properties; 20% for 3 and 4-unit properties.

Chicago FHA 203K Loans

FHA 203K loans in Chicago (and everywhere else) come in two varieties: Standard and Limited.  The Standard one allows structural changes and has no rehab funds limits. The limited does not allow structural changes, and all the repair funds cannot exceed $35,000.

Neither program allows for repairs or additions of luxury items (swimming pools, barbecue pits, etc.).

FHA 203K loans have two great advantages over the common conventional renovation loans available in Chicago:
1. they can be used on 2-4-unit properties
2. they are easier to qualify for.

They have three disadvantages:
1. they can not be used on investment properties; at least one of the borrowers must use the property as their main residence
2. the loan limits are lower
3. FHA pre-approvals are perceived (wrongly) by many sellers and agents to be inferior to conventional pre-approvals.

Chicago Rehab Loan Limits

For conventional rehab loans, the limit is set across all types of properties at :
1. purchases: 75% of the lesser of the purchase price plus renovation costs, or the “as-completed” appraised value for purchase transactions;
2. refinances: and 75% of the “as-completed” appraised value for refinance transactions.

For FHA 203K loans, the limit is $35,000 for the Limited version and $75,000 for the Standard version.

For either, the rehab money and the mortgage money together cannot exceed the posted limits for the area.

Call 847-840-8884 if you’re looking for a renovation mortgage in the Chicago area.

Each mortgage loan type has many more requirements, but this should be enough to get you thinking that you do not need your property to be in great shape to get a mortgage loan on it.  Call 847-840-8884 to find out which loan type you and your property qualify for.

Chicago FHA 203K Loans

There are two ways to go, depending on a number of factors:
1. conventional
2. commercial.

The commercial option is less attractive than the conventional one.

Among the conventional loan programs available to Chicago, there are several types, based on how you qualify:
1. full documentation (lowest interest rates).
2. bank statement
3. DSCR (debt service coverage ratio)
4. asset based.

They tend to have pre-payment penalties, and be hybrid (1/5, 1/7, 1/10).

Interested in other types of Chicago mortgages?

Conclusion

Which of these Chicago mortgages is best for your situation is going to be determined mainly by the type of property you are going to renovate, your scores and your down payment (equity). You have the most options if you’re dealing with a 1-unit property you use as your primary residence.

If you’re dealing with a 2-4-unit property that’s an investment, I have programs for those too