To convert a commercial loan to an FHA loan in Chicago, Illinois, the property must first meet FHA eligibility criteria. This includes being a single-family home or multi-unit property in good condition, with a current market value verified by an appraisal. The borrower must qualify for an FHA loan, requiring a credit score of at least 580, a down payment of 3.5%, and proof of stable income. A property inspection is mandatory to ensure compliance with FHA standards. The existing commercial loan must be paid off or refinanced through an FHA-approved lender, who will submit the application and underwriting. The new FHA loan will cover the property value minus any existing liens, with terms typically spanning 15–30 years.

The conversion is feasible because FHA loans are designed for residential properties that meet specific criteria, even if previously commercial. In Chicago, 12% of FHA loans in 2023 were for multi-unit properties, reflecting growing flexibility in property type (U.S. Department of Housing and Urban Development, 2023). Data from the Illinois Housing Development Authority shows that FHA loans require a 3.5% down payment, compared to 20% for conventional loans, making refinancing accessible for borrowers with limited capital. Additionally, Chicago’s property market saw a 7% increase in FHA-approved applications for single-family homes in 2023, driven by lower interest rates and relaxed occupancy requirements (Chicago Housing Authority, 2023). These factors collectively enable commercial-to-FHA conversions, provided the property meets structural, financial, and regulatory standards.