Last reviewed: November 8, 2026
Quick answer A Chicago co-op is financed with a share loan, not a condo mortgage, because you buy stock in a corporation that owns the building plus a proprietary lease on your unit. Fannie Mae buys co-op share loans only from specially approved lenders, only for a principal residence or second home, and only when the co-op itself meets its project rules (for example, at least 50% of shares owned by principal-residence buyers and no more than 15% of owners 60+ days behind). FHA insures co-op loans only where the building has an FHA-insured blanket mortgage, and VA cannot currently guarantee co-op loans at all. Expect fewer lenders, a board approval step, and a different set of documents than a condo purchase.
This is part of our Chicago condo loans guide.
How is a co-op different from a condo?
With a condominium, you get a deed to your unit and a percentage interest in the common elements, and the Illinois Condominium Property Act governs the association. With a cooperative, a corporation owns the whole building. You buy shares (stock) in that corporation, and the shares come with a proprietary lease or occupancy agreement that lets you live in a specific unit. The lender’s collateral is those shares and your rights under the lease.
| Detail | Condo | Co-op |
|---|---|---|
| What you own | Deed to the unit plus a share of the common elements | Shares in the co-op corporation plus a proprietary lease or occupancy agreement |
| Type of loan | Mortgage on real estate | Share loan secured by the shares and the lease (Fannie Mae B4-2.3-04) |
| Who can lend (Fannie Mae) | Any Fannie Mae-approved lender, subject to the condo project review | Only lenders specially approved to sell co-op share loans (B4-2.3-02) |
| FHA | FHA-approved project or single-unit approval | Section 203(n) only, and only if the blanket mortgage is FHA-insured |
| VA | VA-approved condo project | Not available under current law |
| Building debt | No mortgage on the building as a whole | The corporation may have a blanket mortgage, paid through the monthly charges |
| Buyer approval | Set by the association’s documents | If the co-op approves buyers, the lender must document that approval (B4-2.3-03) |
Which loans can you use for a Chicago co-op?
| Loan type | Available for co-ops? | Key condition |
|---|---|---|
| Conventional (Fannie Mae) | Yes, through specially approved lenders | Principal residence or second home only; the co-op must meet Fannie Mae’s co-op project rules; loan at or under the $832,750 Cook County conforming limit for 2026 |
| FHA | Rarely | Section 203(n) requires the building to be covered by a blanket mortgage insured under the National Housing Act (24 CFR 203.43c) |
| VA | No | The co-op authority in 38 U.S.C. 3710(a)(12) applied only to loans guaranteed from December 22, 2006 to December 22, 2011 |
| Jumbo or portfolio | Depends on the lender | Each lender sets its own co-op rules, down payment and reserves |
Because so few programs apply, the first step is finding a lender that actually makes co-op share loans in Illinois. Ask early, before you make an offer, and ask whether the lender has closed a loan in that particular building. A loan above the 2026 conforming limit of $832,750 is a jumbo loan; see our jumbo and high-rise guide.
What does Fannie Mae require of the co-op building?
A co-op gets a project review just as a condo does, but under its own section of the Selling Guide (B4-2.3-02, dated May 6, 2026). The main tests:
- Tax status. The corporation must qualify as a cooperative housing corporation under Section 216 of the Internal Revenue Code.
- Owner occupancy. At least 50% of the total shares must have been sold to principal-residence buyers (or, for new construction, be under contract to them).
- Finances. The budget and financial statements must cover the current debt and operating costs and provide adequate replacement and operating reserves. Any negative cash flow for the current year can’t exceed 5% of the most recent audited financial statement, and the co-op can’t have two consecutive years of operating losses. The lender reviews the operating budget and two years of audited statements or corporate tax returns.
- Delinquency. No more than 15% of owners more than 60 days behind on what they owe the corporation, including special assessments.
- Completion. All units, common areas and facilities 100% complete, with no further phasing or annexation.
- Title and blanket mortgage. The corporation must have good and marketable title. The blanket mortgage can be a market-rate FHA-insured or conventional loan. If Fannie Mae owns an interest in the blanket mortgage, your maximum share loan is reduced by your unit’s share of that balance.
- New conversions. A newly converted co-op that was not a gut rehab generally must go through Fannie Mae’s Project Eligibility Review Service (PERS). The guide makes exceptions for two- to four-unit non-gut conversions and for some projects converted at least three years before the note date whose only “new” trigger is sponsor ownership above 20%.
- Ineligible projects. The same ineligible characteristics that apply to condos (Fannie Mae B4-2.1-03) apply here, and manufactured housing projects are ineligible. See warrantable vs. non-warrantable condos for that list.
What do the co-op’s documents have to say?
Fannie Mae’s legal requirements for co-op projects (B4-2.3-03) protect the lender if you stop paying. The co-op’s documents must:
- Require the corporation to evict a shareholder who defaults on a share loan, and end that shareholder’s lease, if the lender asks.
- Not impose unreasonable limits on selling, transferring or subleasing a unit.
- Either require the corporation to sign a separate agreement recognizing the lender’s rights (a recognition agreement) or contain those protections in the documents themselves.
- Generally not let the corporation restrict a sale or transfer of a unit owned by the lender after a default.
If the corporation has the right to approve buyers, the lender must have evidence that the board approved you. In practice, that means the board package and interview have to be finished before closing.
How do lenders value a co-op and count the monthly charges?
Every co-op owner pays a monthly charge to the corporation (often called maintenance or carrying charges). Fannie Mae counts co-op fees in your monthly housing expense, alongside principal, interest, insurance and any special assessments (B3-6-03), so a high maintenance charge shrinks the loan you qualify for just as condo dues do. Our guide to HOA dues and your mortgage approval shows how much.
If the building has a blanket mortgage, part of each unit’s value is effectively already financed. Fannie Mae (B4-2.3-04) allows two ways to compute your loan-to-value ratio:
- If you are treated as assuming your share of the blanket mortgage: divide the loan amount by the lower of the sales price or the appraised value of the shares and occupancy rights, each “unencumbered by” the unit’s pro rata share of the blanket mortgage (Fannie Mae’s wording). Ask your lender how it applies the blanket share for your building.
- If you are not: divide the loan amount by the lower of the sales price or the appraised value of the shares and occupancy rights, with no deduction for the blanket mortgage.
Ask the managing agent for the size, rate and maturity of any blanket mortgage. A large underlying loan or one coming due soon affects both the monthly charges and the lender’s view of the building.
What is a flip tax, and when is it a problem?
Many co-ops charge a transfer fee, often called a flip tax, when a unit sells. Fannie Mae accepts a flip tax in three situations (B4-2.3-04):
- The lender (or its successors) is exempt when it acquires the unit through foreclosure or a transfer in lieu of foreclosure.
- The fee is charged only on profit above the owner’s purchase price.
- Any other flip tax is no more than 5% of the property’s value and is figured as a flat fee, a per-share fee, a percentage of price or a per-room amount.
What Chicago and Illinois rules apply to co-ops?
- Transfer tax. The City of Chicago treats a co-op interest as a beneficial interest in real property, so selling a co-op unit is subject to the city’s Real Property Transfer Tax regardless of the form of the transfer, even the transfer of a single share (Department of Finance Ruling 1). For rates and who pays, see our condo closing costs guide.
- Property taxes. Property taxes are generally the corporation’s obligation and are passed to owners through the monthly charges. Under 35 ILCS 200/15-175, the homeowner exemption applies to co-op buildings under a special formula, and the co-op must credit the savings only to the share of the owner who qualified. The Cook County maximum is $10,000 of equalized assessed value.
- Federal tax deduction. Under 26 U.S.C. 216, a tenant-stockholder in a qualifying cooperative housing corporation may deduct a proportionate share of the corporation’s real estate taxes and mortgage interest. Ask a tax professional how this applies to you.
- Disclosures. The Illinois Condominium Property Act, including its section 22.1 resale disclosures, governs condominiums. For a co-op, ask the seller and managing agent for the proprietary lease, bylaws, house rules, the latest budget, two years of financial statements, blanket mortgage details and any pending assessments. Our questionnaire and HOA review guide explains how to read a budget and reserves the way a lender does.
How do you buy a Chicago co-op with a loan, step by step?
- Confirm the ownership type in the listing and the seller’s documents: shares and a proprietary lease mean a co-op.
- Find a lender that makes co-op share loans and ask whether it can lend in this building.
- Get the building’s budget, financial statements, blanket mortgage details and flip tax terms early, and give them to your lender.
- Make your offer contingent on financing and board approval.
- Submit the board package and complete any interview; your lender will need proof of approval.
- Close with the share loan documents and, where required, a recognition agreement signed by the corporation.
Frequently asked questions
Can I get an FHA loan for a Chicago co-op?
Only through FHA’s cooperative program, Section 203(n). Under 24 CFR 203.43c, the co-op unit must be in a development covered by a blanket mortgage insured under the National Housing Act. A co-op whose building loan is a conventional mortgage does not meet that rule, and FHA condo approval does not apply to co-ops.
Can I use a VA loan to buy a co-op?
Not under current law. The authority in 38 U.S.C. 3710(a)(12) to guarantee loans for co-op shares covered only loans guaranteed between December 22, 2006 and December 22, 2011. A bill to restore it, the Fair Access to Co-ops for Veterans Act of 2025 (H.R. 1803), had not passed either chamber as of October 5, 2026.
Can I buy a co-op as a rental with a Fannie Mae loan?
No. Fannie Mae buys co-op share loans only when the borrower occupies the unit as a principal residence or second home. Investment properties are not eligible.
What is a flip tax, and can it block my loan?
A flip tax is a transfer fee the co-op charges when a unit sells. Fannie Mae accepts it if the lender is exempt after a foreclosure, if it is charged only on profit, or if it is no more than 5% of the property’s value.
Do co-op owners in Cook County get the homeowner exemption?
Yes, if they qualify. Illinois law (35 ILCS 200/15-175) applies the general homestead exemption to cooperative buildings, using a special formula, and requires the co-op to credit the savings only to the tax share of the owner who qualified. The Cook County maximum is $10,000 of equalized assessed value.
Sources
- Fannie Mae Selling Guide B4-2.3-02, Co-op Project Eligibility (05/06/2026): selling-guide.fanniemae.com
- Fannie Mae Selling Guide B4-2.3-03, Legal Requirements for Co-op Projects (11/06/2024): selling-guide.fanniemae.com
- Fannie Mae Selling Guide B4-2.3-04, Loan Eligibility for Co-op Share Loans (08/06/2025): selling-guide.fanniemae.com
- Fannie Mae Selling Guide B3-6-03, Monthly Housing Expense for the Subject Property: selling-guide.fanniemae.com
- 24 CFR 203.43c, FHA Section 203(n) cooperative unit mortgages: www.law.cornell.edu
- 38 U.S.C. 3710, VA purposes of loans (paragraph (a)(12) and subsection (h)): www.law.cornell.edu
- H.R. 1803, Fair Access to Co-ops for Veterans Act of 2025: www.congress.gov
- 26 U.S.C. 216, Cooperative housing corporations: www.law.cornell.edu
- 35 ILCS 200/15-175, General homestead exemption: codes.findlaw.com
- City of Chicago, Real Property Transfer Tax Ruling 1: Real estate cooperatives: www.chicago.gov
- City of Chicago, Real Property Transfer Tax (7551): www.chicago.gov
Chicago Condo Loans is an independent educational resource, not a lender or broker. This page is for education only and is not lending, legal, tax or financial advice.