New Construction Condo Loans in Chicago: What to Know (2026)

Last reviewed: November 8, 2026

Quick answer A unit in a new or newly converted Chicago condo building is harder to finance than one in an established building. For a conventional loan sold to Fannie Mae, the lender must do a full project review (or get Fannie Mae’s own PERS approval), and at least 50% of the units must already be sold or under contract to owner-occupants or second-home buyers, with a certificate of occupancy issued. FHA will not approve a condo project, or a single unit in one, until the project is complete and ready for occupancy, including all common elements. Illinois law gives buyers of new units disclosure, escrow and rescission rights, and owners take control of the board from the developer once 75% of units are sold or three years after the declaration is recorded, whichever comes first.

This guide is part of our complete guide to Chicago condo loans. It covers buying a unit in a brand-new building, a building still selling out, or a rental building converted to condos.

What counts as a “new” condo project for a mortgage?

Lenders do not use the building’s age. Fannie Mae’s Selling Guide (B4-2.1-01) treats a project as established only when all of these are true:

at least 90% of the total units have been conveyed to buyers;
the project is 100% complete, including all units and common elements;
it is not subject to more phasing or annexation; and
control of the association has been turned over to the unit owners.

If any one of those is missing, the project is new. That includes proposed or under-construction buildings, newly converted buildings, projects that will add phases, and any building where the developer still controls the association. There is a narrow exception: a project can count as established with as few as 80% of units sold if the developer is holding the rest as rentals (no more than 20%), construction and phasing are finished, the owners control the association, the developer is current on dues for its units, and there are no active or pending special assessments.

So a building that opened two years ago can still be “new” to a lender if the developer has not sold 90% of the units or has not handed over the board.

What does Fannie Mae require for a unit in a new building?

For a new attached condo unit, a conventional lender has two options under Fannie Mae’s guide: a full review documented in Fannie Mae’s Condo Project Manager (CPM) tool, or a Fannie Mae review through its Project Eligibility Review Service (PERS). An FHA project approval, which lenders can rely on for established buildings, is not one of the options for new attached units. (Since August 3, 2026 there is no limited review for any condo; see our post on that change.)

On top of the usual full-review standards in our warrantable condo guide, Fannie Mae adds these requirements for new and newly converted projects (B4-2.2-02, dated August 5, 2026):

Requirement	What Fannie Mae’s guide says
Presales	At least 50% of the total units in the project or subject legal phase are conveyed or under contract to principal-residence or second-home buyers. For a phased project, count the subject phase plus all earlier phases. Investor purchases do not count toward the 50%.
Completion	The project or legal phase is substantially complete: a certificate of occupancy (or similar document) has been issued, and all units and buildings in the phase are complete except buyer selection items, unless Fannie Mae approves other arrangements through PERS.
Phasing	No more than one legal phase per building.
Your unit	Available for immediate occupancy at closing.
Unfinished facilities	Acceptable completion assurances (cash deposits, letters of credit, assigned certificates of deposit or other assets easily turned into cash) guarantee completion of all facilities and common elements.
Defects	Similar assurances protect each unit against construction and structural defects that appear within one year of its closing, and cover the common facilities for one year after units representing at least 60% of the association’s votes have been transferred.
Master association	If owners pay more than $50 a month to a separate master association, the lender must review and accept the overall development plan.
Owner participation	The developer should provide for and promote unit owners’ early participation in managing the project.

The general full-review rules apply too. Two matter more in new buildings:

Reserves. The association’s annual budgeted replacement reserve allocation must be at least 10% of its budgeted assessment income (Fannie Mae B4-2.2-01, August 5, 2026), rising to 15% for full reviews on January 4, 2027 under Fannie Mae Lender Letter LL-2026-03. See our post on the 15% reserve requirement. A developer-written first-year budget is where a low reserve line shows up.
Developer-held units. Under Fannie Mae’s single-entity rule (B4-2.1-03, November 4, 2026), one entity may own no more than 20% of the units in a project of 21 or more units, and no more than 2 units in an 11–20 unit project (or a 5–10 unit project that is part of a master association). Units the developer owns that are vacant and actively marketed for sale don’t count toward the limit, but units it rents out do. On a purchase, the limit can be waived up to 49% if the entity is marketing units to get down to 20% or less, is current on assessments, and there are no pending or active special assessments.

Can you use an FHA loan on a new construction condo?

Only after the building is finished. Under HUD’s condominium rule (24 CFR 203.43b(d)(4)), a project must be “complete and ready for occupancy, including completion of all the common elements,” and not subject to further construction, rehabilitation, phasing or annexation, except for legal phases that meet HUD’s phasing rules. A phase in a vertical building must be contiguous, with all units built out and a certificate of occupancy.

Single-unit approval (FHA’s path for a unit in a building that is not on the FHA-approved list) also requires a complete project and a building of at least 5 units. So FHA usually is not an option for preconstruction contracts. HUD’s rule lets it set the minimum owner-occupancy level anywhere from 30% to 75% of units. Details are in our FHA condo approval guide.

VA runs its own condo approvals and has not accepted FHA approvals in their place since December 7, 2009. See our VA condo loans guide.

Do small new buildings of 2 to 10 units need a project review?

Often not, for Fannie Mae loans. Fannie Mae’s guide (B4-2.1-02) waives the project review for units in new and established two- to four-unit condo projects, and in five- to ten-unit projects that are not part of a larger development or master association; attached units in a five- to ten-unit project that is part of one need a Full Review. See financing small condo buildings for FHA, VA and insurance rules. Lenders can still add their own conditions, and the property, insurance and borrower rules apply as usual, so confirm with your lender early, before your mortgage contingency runs out.

How are converted buildings treated?

Chicago has many rental buildings converted to condos, and lenders sort conversions by how much work was done:

Detail	Gut rehabilitation	Non-gut conversion
What it means	Renovation down to the shell, including replacing all HVAC and electrical components (unless already up to current code)	Anything less, such as cosmetic updates to an existing rental building
Fannie Mae review path	Full review (or PERS)	Above a unit threshold, the lender must send the project to Fannie Mae for PERS review and approval. Fannie Mae’s guide currently gives two thresholds: more than four residential units in its full review section (B4-2.2-01) and more than ten attached units in its PERS section (B4-2.2-04), so ask your lender which one it applies
Extra documents	For a conversion legally created in the past 3 years, an architect’s or engineer’s report must comment favorably on structural integrity and the condition and remaining useful life of major components	Same report requirement for recent conversions. A PERS submission also needs a current reserve study with an engineer’s report, budget reserves that match the study, cash already in reserves for components due for replacement within 5 years, a utility contingency of at least 10% of last year’s utility costs if units aren’t separately metered, and generally at least 50% of units sold or under contract to owner-occupants or second-home buyers (B4-2.2-04)

A PERS approval comes as conditional or final. Only a final approval lets a lender deliver loans to Fannie Mae. Conditional approvals expire after 9 months and final approvals after 18 months, unless Fannie Mae sets a different term.

Illinois adds disclosures for conversions. Before you sign, the developer must give you, besides the standard documents, the actual repair and maintenance spending for the last 2 years, the reserve provisions for capital expenditures, and, in developments of more than 6 units, an engineer’s report on the structural components and utility installations (765 ILCS 605/22). Tenants of a building being converted get advance notice and a right of first refusal on their units under 765 ILCS 605/30.

How much can a developer pay toward your closing costs?

Builders often offer credits for closing costs, rate buydowns or prepaid assessments. On a Fannie Mae loan these are interested party contributions, capped as a percentage of the lower of the sales price or appraised value (B3-4.1-02). New units are appraised under special comparable-sale rules; see condo appraisals.

Occupancy	Loan-to-value	Maximum contribution
Principal residence or second home	Over 90%	3%
Principal residence or second home	75.01% to 90%	6%
Principal residence or second home	75% or less	9%
Investment property	All	2%

A developer paying your association assessments for up to 12 months after closing counts as one of these contributions. Anything over the cap is treated as a sales concession: it is subtracted from the price, and your loan-to-value is recalculated on the lower number. On a VA loan, seller concessions are capped at 4% of the reasonable value, while ordinary closing-cost credits are not limited.

What protections does Illinois law give buyers of new condos?

Disclosure before you sign (765 ILCS 605/22). The seller of a new unit must give you the declaration, the association bylaws, a projected operating budget with your estimated monthly payments, and the unit’s floor plan and street address before you sign. If anything is missing, you can void the contract until 5 days after the last item is delivered or until closing, whichever is earlier. If the seller never provides them, you can rescind before closing and get your deposits back with interest.
Deposits held in escrow (765 ILCS 605/24). Deposits toward the purchase price of a newly sold unit must be held in a segregated escrow account at a federally insured bank or savings institution until title is conveyed. Interest is credited to you at closing, unless you close within 45 days of signing.
Turnover to the owners (765 ILCS 605/18.2). The first owner-elected board must be elected within 60 days after the developer conveys 75% of the units, or 3 years after the declaration is recorded, whichever is earlier. Within 60 days of that election, the developer must turn over the association’s records, a detailed accounting, association funds (which must have been kept separate from the developer’s money), property and warranty documents, and a list of litigation.

Turnover matters for financing because Fannie Mae counts a project as new for as long as the developer controls the association.

What should you ask before signing a preconstruction contract?

How many units are closed or under contract, and how many of those buyers will live in the unit or use it as a second home? (Fannie Mae’s 50% test does not count investors.)
When will the building or phase get its certificate of occupancy, and how many legal phases are planned?
Has a lender already completed a full review, or does the project have a Fannie Mae PERS approval? Is it on the FHA or VA approved list yet?
How many units will the developer keep, rent out or sell in bulk?
What share of the first-year budget goes to reserves?
Who holds your deposit, and does your contract have a mortgage contingency that runs long enough for a new-project review?
What credits is the developer offering, and do they fit under the interested party contribution cap for your down payment?

Our condo questionnaire guide explains how to read the budget and documents. For buildings over the conforming limit, see our jumbo and high-rise guide; jumbo lenders set their own new-project rules.

Frequently asked questions

Can I get a conventional loan on a condo in a building that is still under construction?

Usually not until the building or your legal phase is substantially complete with a certificate of occupancy. Fannie Mae also requires at least 50% of the units in the project or phase to be sold or under contract to principal-residence or second-home buyers. Fannie Mae can approve other completion arrangements through its PERS review.

When does a new condo building become established for a lender?

Under Fannie Mae’s definition, when at least 90% of units have been conveyed, the project is 100% complete with no more phases, and the developer has turned control of the association over to the owners. A project can qualify at 80% sold if the developer holds the remaining units as rentals and meets other conditions.

Can I use an FHA loan for a preconstruction condo?

Not until the project is complete. HUD’s rule requires a condo project to be complete and ready for occupancy, including all common elements, before FHA approval, and single-unit approval also requires a complete project with at least 5 units.

How much can a condo developer contribute to my closing costs?

On a Fannie Mae loan for a principal residence or second home, up to 3% of the lower of price or appraised value if you put less than 10% down, 6% at 75.01% to 90% loan-to-value, and 9% at 75% or less. Investment properties are limited to 2%. Anything above the cap is subtracted from the price.

Is my deposit on a new Illinois condo protected?

The Illinois Condominium Property Act requires a developer to hold deposits on the initial sale of a unit in a segregated escrow account at a federally insured institution until title is conveyed, with interest credited to the buyer unless closing happens within 45 days of the contract.

When do owners take over the board from the developer in Illinois?

The first owner-elected board must be elected within 60 days after the developer conveys 75% of the units, or 3 years after the declaration is recorded, whichever is earlier. The developer then has 60 days to turn over records, funds and an accounting.

Sources

Educational content only. Chicago Condo Loans is not a lender or broker, and this is not lending, legal or financial advice. Rules change and every building and borrower is different; confirm details with a licensed mortgage professional and an Illinois attorney. See our Disclaimer.