If you’re looking to buy a home in Chicago, you likely know that your first step is to get pre-approved for financing when a “cash buy” is not an option. But did you know that a financing pre-approval is also crucial for a condo building whether you’re looking to buy – or sell – a condo?
Getting approved for financing is two-fold: a personal credit (you) and collateral (property) approval are both required and all condominium buildings must meet certain guidelines in order to be financeable. Meaning that if you want to sell quickly, you need to know what type of buyer financing is available. If a condominium project does not meet specific guidelines, one of the following worse case scenarios may have a negative impact on the overall sale:
- Buyer financing may be delayed and could delay a contract’s closing date as a result
- Buyer must seek alternative financing, which often means reduced terms, increased down payment and higher interest rates
- Buyer cannot obtain financing and must pay cash, or walk again from the deal
All of the above could negatively impact a condo owner’s ability to sell. If a buyer’s financing terms are more expensive, higher price points could be impossible. Financing issues that could delay closing or terminate the sale will likely cause the seller additional expenses.
There are a few items that a homeowner should do to pre-approve their condo building and to better prepare a buyer for its potential purchase. Owners who secure this information in advance will ensure a smoother transaction.
- Attend HOA meetings to be aware of potential special assessments, building violations and/or pending association litigations.
- Review the condo annual budget to confirm it’s balanced (expenses do not exceed income) and sufficient funds are being set aside in reserves for future expenses (10% of income).
- Have available a complete copy of the recorded declarations and by-laws and any addendums. This set of documents must be provided to a buyer, and often times their lender.
The ability for a condo building to be financeable – or warrantable – may fluctuate at various times throughout the year. The definition of warrantable, in this context, is when a condominium project complies with conventional financing guidelines. A great resource for understanding what it takes for a condo building to be warrantable is www.condolifenow.com. In taking the time to pre-approve the property first, you will ensure a smoother sale – and potentially top dollar – for anyone buying or selling a condo in Chicago, especially in popular neighborhoods like Streeterville, South Loop and Lakeview. That is a BIG DEAL.