Jeff Baird is a real estate valuation consultant based in Chicago. He founded Lakeshore Analytics to bring comprehensive, understandable housing data and analysis to Chicago-area readers. The site features a blog with free market news and charts, summary data on 20 top neighborhoods, and quarterly data subscriptions.
FHA-insured loans are now a quarter of all mortgage loans issued in the U.S., according to new Census Bureau figures. Until as recently as the end of 2007, the FHA backed less than 5% of all new loans.
In just three years, the FHA has tripled the number of new loans it insures annually to about 90,000. At the same time, the total number of loans issued has gone down as fewer people buy homes and fewer people take cash-out refinances.
Anecdotally, it seems like most new condominium projects in Chicago have “FHA approved” in their marketing and have also partnered with a bank that issues FHA loans. (Consumers don’t get loans directly from the FHA: they go to a bank that offers an FHA product; the government in turn insures the loan on behalf of the bank.)
Homeowners associations go back and forth about whether they want to go through the trouble of FHA approval, but the calculus may change now that this is such a big part of the mortgage market.
Great article, thanks for the information.
With the use of FHA loans coupled with low interest rates, many buyers will be surprised to see that their monthly mortgage, insurance, and taxes on a single family home or two-flat will be lower than they think. An FHA loan is generally easier to get done on fee simple properties (fee simple town homes, single family homes and multi-units) thans on condo units.
If looking at condos in a certain price-point, I ask clients if they ever considered a two flat… the numbers as an investment and the lifestyle are pretty good! However, you have to be a certain bird to take on the responsibility of your own property. But, with low monthly payments it makes sense to look into it.
If looking at FHA loan for a condo building that has not been already FHA approved and on “the list”, a good mortgage consultant (your lender) may initiate the FHA approval during your contract to purchase.
We have helped several buyers and sellers get condo buildings FHA approved to put together a deal.
Eric, is the rental market really good enough for that to be sound advice? My friends with two-flats have been having a hard time getting tenants lately.
Sheridan B,
Back in the 80s I was renting two dozen duplex apartments in DePaul at one of my projects, and another dozen at a loft project on Fullerton through a partnership.
It took a while to learn that we were competing with the new high-rises that were opening at the time downtown. Never would have guessed that tenants would have opted for high-rises over our very distinctive units. They did.
We had to drop our rents 30% to overcome that competition.
I wouldn’t be surprised if your friends weren’t being impacted in a similar way.
SheridanB,
I know many people are having trouble getting tenants depending on location and the asking for the rental prices.
My “advice” (really and idea to think about), is you can own a two flat for close to the price of a condo depending on your budget and what you want.
If you $300-400K mortgage on a condo in Lincoln Square for example, then I will certainly ask if you have considered a two flat. You can get your OWN building and charge lower than the going rent and still have a pretty great payment and tax benefit in comparison to a condo purchase.
The minus is in luxury items, but this is for someone who may not have thought they can own and control their own piece of property. Also, with some of the deals I have been a part of and researched, some people may buy a move-in two falt rather than an expensive condo and simply not need to rent out a unit (or rent it out for a year while planning). You can covert slowly. It’s one way to get a larger building for less money than a smaller move-in quality house.
Many two flats for sale have renters that desperately want to stay. I was just part of a couple deals in Northcenter where my buyer clients wanted the building vacated but tenants really wanted to stay and/or had solid leases running into the next year with good rents (one deal was killed and another was done off MLS, FSBO).