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You want to buy a home, but wonder if you can afford it. Will you be able to get a loan? How big of a down payment do you need? South Florida real estate professionals say credit standards have relaxed and minimum down payments have decreased since the mortgage crisis ended in 2009. Here’s a look at what you can expect:
▪ Down payments: “A couple of years ago, it was hard to get financing,” said George Jalil, president of Real Living First Service Realty in Miami, who is slated to become chairman of Miami Association of Realtors in 2018. “People were having to put down 20 percent. … Today, it’s a lot better.”
There are a variety of mortgage loan types, and each has different requirements. Jalil said for single-family homes and townhouses, you can get a loan with 3.5 percent down if you qualify for a Federal Housing Administration, or FHA, loan. For conventional loans, down payments are as low as 5 percent for a single-family home. A Veterans Affairs, or VA loan, offers 100 percent financing.
Condo loans still require about 20 percent down, he said.
A cautionary note: a lower down payment will bring on other fees. “If you go for the lowest down payment, you’re going to have to pay private mortgage insurance, or PMI, which protects the lender if you default on the loan,” said Danielle Blake, senior vice president of government affairs and housing for the Miami Association of Realtors. “PMI is required for down payments of less than 20 percent.”
The down payment required for a specific purchase also can be affected by your credit score and the condition of the property.
▪ Credit standards: “It’s not as difficult to get a loan as people think,” said Lynda Fernandez, spokeswoman for the Miami Association of Realtors. “There are opportunities for people who don’t have perfect credit.”
Today, that probably means a minimum credit score of 640, said Jalil. “For a conventional loan, banks like to see at least a 680 or 700. … If you have a lower credit score, you can make up for that with a larger down payment.” (A conventional loan is not guaranteed by a government-associated agency.)
Christina Pappas, district sales manager for The Keyes Company in Miami, said FHA loans are one of the top opportunities for people with low credit. “One of our lenders is taking buyers with credit as low as 500,” she said. “We are seeing a loosening of credit standards, offering more money to people with lower credit scores.”
If you are already own a home, a good payment history will help. First-time home buyers don’t have mortgage history, so there’s more uncertainty for a lender, Jalil said. “If you’ve already had a mortgage loan for five or 10 years and paid your mortgage on time, or paid off a mortgage, that’s a big plus.”
▪ Bidding wars? “Whenever inventory goes down, you’re going to get multiple contracts on a property. When you have multiple offers, it will likely go to a bidding situation,” Jalil said. “Currently, we have low inventory, which means it’s a seller’s market, and bidding is more likely.”
But it’s not happening as much as five years ago, Pappas said. “I saw a bidding war in a condo in the High Pines area that was under $300,000, but I’m not seeing them often.” They are most likely to erupt when a property is priced right and is in a popular area with limited properties for sale.
“If you look by neighborhood or Zip Code or price range, you can see demand in certain areas, particularly with single-family homes in the mid-price range, because there is not a lot of supply,” Fernandez said.
▪ All-cash sales: The number of all-cash sales in South Florida has decreased in the past year, but buyers are still offering cash here more often than nationwide, Fernandez said. According to the Multiple Listing Service, in November 2015, 55 percent of single-family home, townhome and condo sales in Miami-Dade County were made with cash. In November 2016, that dropped to 43 percent. Nationally, all-cash sales accounted for 21 percent of transactions.
In Miami-Dade, condos make up the bulk of cash sales. In November 2016, 57 percent of condo sales were cash, compared to 29.5 percent of single-family home sales, Fernandez said.
Cash sales also decreased in Broward County, Jalil said. In November 2015, there were 383 all-cash sales. In November 2016, there were 304, he said.
Pappas said she see more cash sales at lower price points and for investment properties that buyers are going to rent out. “There are lots down south, for example, in the Cutler Bay area, where people are buying single-family homes to rent out,” she said. “I’m seeing less cash deals where it’s primary homeowners, in neighborhoods where there are not a lot of rentals.”
▪ How to compete? Cash isn’t always king. If you are going to finance a home, there are ways to make your offer more attractive to a seller, Jalil said.
“If you and other buyers come in with similar prices, consider putting down a larger deposit. It will look like a more solid offer,” he said. “Work on making your offer the best. The best offer doesn’t always mean the highest price.”
Shortening the home inspection period also could strengthen your offer, Pappas said. “You’re telling the seller you’re going to do the inspection quickly, so they’re not having to take if off of the market for an extended period of time,” she said. “For example, instead of a 15-day inspection period, offer to complete the inspection in 24 hours, and give them a decision within five days.”
▪ Leveraging your current home: Homeowners who bought at the right time could sell and use the equity or refinance to buy a bigger home. “It’s a way to build wealth, if you want to move into something bigger, to a different neighborhood or closer to the city center,” Fernandez said.
If you have owned a home for several years and have built equity, you can borrow that money with an equity loan and use it as additional down payment, Jalil said.
Investment property owners also can leverage what they own, he said. “Say you own a home that you have paid off, and use it as a rental,” Jalil said. “If you’re buying another home, the lender can use the rental as additional income to help you qualify for a more expensive home.”
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Getting your financial house in order is critical if you’re interested in buying a home. Here are some steps to take if you want to secure the best financing for your single-family home, townhouse or condo.
▪ Determine your price range: First, meet with a loan officer and give them your tax return and bank statements, said Daisy Gomez, branch manager at American Bancshares in Miami, a mortgage lender.
“A qualified loan officer will be able to tell you what price range you can afford and ask what kind of monthly payment you feel comfortable with,” she said. “For example, you may qualify for $2,500 a month, but you only want to pay $2,000 … so instead of buying a $350,000 house, you have to stay at $260,000 and under.”
Michelle LaPiana, a loan originator with Universal Mortgage & Finance in Miami Lakes, said the allowable ratio of how much debt you carry to how much you make varies by loan type. For Federal Housing Administration, or FHA loans, your debt-to-income ratio can go as high as 55 percent of your gross income. For conventional loans, you can go up to 45 percent, she said.
▪ Examine your credit record: There are steps to take besides saving money for a down payment, said Danielle Blake, senior vice president of government affairs and housing for the Miami Association of Realtors. Look at your credit reports and make sure they are correct, and that there is nothing on there that you’re not aware of, she said. “For example, a medical bill could have gone to a wrong address and then to a collector, and now it’s on your credit report,” Blake said.
Correct errors such as accounts listed on your report that don’t belong to you. Often this is mistaken identity; sometimes it’s a sign that you’re a victim of fraud. Look for notations that say an account is open, when you have paid it off and closed it. Review details regarding credit limits, amounts owed or account opening dates.
▪ Maintain good credit: If you are going to apply for a mortgage loan, keep your credit card balances to a minimum, and don’t apply for new cards. “Every time someone runs your Social Security number to check your credit, it takes points off of your score,” Blake said.
A loan originator can review your credit score to see if there are ways to improve it to help qualify for a lower interest rate, Gomez said. “We also run your credit through a credit simulator and we can tell them if they’re ready to buy now, or if they should wait three months or six months to give them time to do things to raise their credit score,” she said.
Credit simulators from the credit bureaus can determine how to boost a score by paying down an account or taking other actions. “Not all loan originators do this, but the ones who specialize in new construction do because you’re getting the person ready to buy within a certain period of time,” Gomez said.
If you have good credit, don’t head to the furniture store yet, LaPiana said. “Just because you have a preapproval doesn’t mean you should go trade in your car for a bigger one, open a new credit card or go shopping at Rooms To Go,” she said. A credit score is pulled the day before a closing, and it can affect a loan.
“One customer had a credit card with a $100 balance. A few days before closing, the balance was up to $600. It brought her credit score down to 618,” LaPiana said. “Two days before the closing, she had to rush to pay down the credit card balance and then pay $65 to have her credit rescored up to 620, because at 618 her interest rate would have been crazy.
“A few points can kill a deal, make a deal, or break a deal,” LaPiana said.
In terms of credit score, aim for a score of 580 or higher for a Federal Housing Administration, or FHA, loan, she said. For conventional loans, strive for a 660, LaPiana said. “Anything under that, and you will face higher premiums on mortgage insurance,” which protects the lender if a buyer defaults on a loan, she said. Private mortgage insurance, or PMI, premiums are dependent on credit score and down payment.
▪ Get prequalified: “It’s really important,” Blake said. “There’s a prequalification and a preapproval. The prequalification is a phone call, and you can get prequalified in five minutes. A preapproval means you’ve already turned over some of your financial records. It holds more weight.”
Most Realtors don’t even want to take people out if they aren’t prequalified or preapproved, LaPiana said. “To get prequalified, we run your credit. To get preapproved, we get more financial information to see if they qualify for a certain loan amount,” she said.
▪ Consider the extras: LaPiana said closing costs are about 5 to 6 percent of the purchase price.
After you sign a contract and turn it over to a lender to process, you are going to get a closing estimate up front, so you will know all the fees, such as points, attorney fees, closing costs, insurance and taxes, Blake said. “And they can’t go any higher than what was disclosed to you.”
Gather these documents before you apply for a mortgage loan:
▪ W-2 forms from the previous two years, if you collect a paycheck.
▪ Profit and loss statements or 1099 forms, if you own a business.
▪ Recent paycheck stubs.
▪ Most recent federal tax return, and possibly the last two tax returns.
▪ A complete list of your debts, such as credit cards, student loans, car loans and child support payments, along with minimum monthly payments and balances.
▪ List of assets, including bank statements, mutual fund statements, real estate and automobile titles, brokerage statements and records of other investments or assets.
▪ Canceled checks for your rent or mortgage payments.
Is it really too expensive to buy a home in South Florida?
It depends on what you’re looking for — and where you’re coming from.
For locals, especially those without advanced degrees, soaring home prices and stagnant incomes make finding your dream home a stretch. It’s been easier for foreign buyers who are wealthier and have benefited from a weak dollar. Foreign buyers also know that prices in Miami compare favorably to other major cities.
Three new factors are working in the favor of local home buyers: The dollar is strong, the boom in home prices is slowing down, and incomes are finally growing. But inventory remains alarmingly tight for the sweet spot of South Florida’s market (between $250,000 and $600,000), where most sales happen.
If you can find a good deal, take it, brokers say.
Like many fast-growing regions, the gap in South Florida between how much people make and how much an average house costs is daunting. In Miami-Dade County, the median household makes $43,000 per year. In Broward County, it’s $52,000.
Using a back-of-the-envelope calculation favored by housing experts — that you should spend no more than 3 1/2 times your income on housing — a typical Miami-Dade buyer should spend roughly $150,000 on a home. A Broward home buyer should spend $182,000.
How does that compare to the median sales price? It’s not pretty.
In Miami-Dade, existing single-family homes sold for $305,000 and condos for $210,000 in December. In Broward, single-family homes went for $320,000 and condos for $150,000.
That prices out many middle-class families.
The math gets better for a typical two-income, college-educated couple in Broward but still leaves them coming up short in Miami-Dade. That couple’s median earnings qualify them for a $288,000 dollar home in Miami-Dade and for a $320,000 home in Broward.
Most new construction is built at the luxury level for out-of-town buyers. And more people keep moving to South Florida — Miami-Dade, Broward and Palm Beach counties added 500,000 residents over the last five years — meaning greater competition for existing homes.
A study by Bloomberg ranked Miami as the eighth hardest major metro area in the United States for first-time home buyers because of the gap between incomes and home prices. The other cities in the top 10 were all in California, except for Honolulu.
“We had a sales meeting, and I said: ‘Put your hand up if you think the middle of the market is going to be less active next year,’” said Mike Pappas, president and CEO of Keyes Real Estate. “No one did.”
Even as the number of overall existing home sales falls in South Florida, the middle of Miami’s residential real estate market is booming.
In Miami-Dade, the number of sales for homes priced between $300,000 and $600,000 soared 27 percent year-over-year in December, according to the Miami Association of Realtors. Inventory is falling as high land costs restrict the ability of profit-conscious developers to build affordable product.
The number of listings in that mid-market price range has dropped nearly 20 percent over the past two years, according to Keyes. Buyers are snapping those homes up at a fast pace: Mid-market homes are staying on the market for 57 days, compared to 79 days in 2014.
There are now only 4.6 months of supply available for those homes, putting the mid-market firmly in seller’s territory. (A healthy market generally has between six and nine months of supply.)
The luxury market is going the other way, especially for condos.
In mainland Miami, there are enough luxury condos on the market to last an eye-popping 53 months, according to a fourth-quarter report from Douglas Elliman and Miller Samuel. Condos are spending 127 days on the market, compared to 56 last year.
Inventory and time on the market are also growing for single-family homes, although not to the same extent.
“Sellers have realized they have to lower their asking prices,” said Ron Shuffield, president and CEO of EWM Realty International.
The big problem for the luxury market is a strong dollar pricing out foreign buyers. For Argentineans, buying a condo in Miami became 24 percent more expensive over the last year because of currency fluctuations, EWM found. For Venezuelans, Miami condos are now 58 percent more expensive.
But compared to other global centers, Miami remains a good deal, especially with a growing arts, music and fine-dining scene.
In South Beach, an average 1,300-square-foot condo costs roughly $1.1 million, according to property analysis firm Gridics. In Brickell, that condo would go for about $545,000, Gridics found.
A similar apartment in some of the world’s most desirable cities far exceeds that price. According to Global Property Guide, an average 1,300-square-foot apartment in a prime downtown neighborhood costs $4.1 million in London, $3.1 million in Hong Kong, $2.2 million in New York and $1.9 million in Moscow.
“New Yorkers see this as a bargain,” said Alan Kleber, managing director of commercial real estate firm JLL. “And you’re on the water.”