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.
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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.”