Over the past few years, I have been preaching about the vital importance of helping Miami’s rapidly growing pool of young professionals transition from renters to homeowners. When I was a member of the Board of Governors for the Miami Association of Realtors, I encouraged educational and promotional campaigns that would teach renters how they could purchase the condos in which they currently live, while also building personal equity. The benefits of this trend are obvious: Not only would each individual renter-turned-homeowner enjoy better financial security, the entire community would reap the advantages of a healthier, more consistent real estate market.
The problem for most prospective buyers, as you might be experiencing or can imagine, is the outdated and stagnant model for securing a mortgage: 20 percent of the entire loan in a single down payment, lest the buyer assume expensive private mortgage insurance (PMI) costs. In the wake of the housing crash of the late 2000s, banks have been increasingly stringent on adhering to these and other demanding loan guidelines that made homeownership simply impossible for young renters. This unfortunate trend was further exacerbated by the nontraditional careers of many young renters, who earn their income as freelancers, multiple job holders, and self-employed entrepreneurs; a trend which some banks were slow to understand.
NEW OPTIONS EMERGE
However, thanks to progressive and “out of the box” thinking on the part of some innovative lending institutions, I am delighted to share several new, flexible, and creative financing options that put homeownership within even closer reach for motivated renters. As a city with a pronounced condo glut, this trend is especially promising for Miami.
(I should mention at this point that I am a real estate practitioner and not a banking professional, so the following information should be taken accordingly. Please speak to a lending representative to explore all the options, and use your best and most careful judgment when considering a home loan.)
At the moment, I am working with three different lenders who offer unique zero to 10 percent down payment programs on primary homes and condos, all with no PMI (in financially stable condo buildings.) To illustrate how these programs can open a pathway for former renters in real world terms, I’ll describe one situation of my own. As soon as I came to understand the first of these loan programs, I immediately had one of my listings at a desirable condo building approved for it, and then highlighted the program in all of my marketing for this listing. Within a week, I had seven renters and Realtors calling me, wanting to know more about the program and considering buying.
While we have not yet sold the unit at the time of this writing, the tenant currently residing in the listing is paying $1,900 rent each month. Were he to secure this unique “zero down payment” loan, he could be paying this exact same amount as a mortgage, and building his equity accordingly. Even if there is no appreciation in the Miami condo market over the next four years, he could build about $25,000 in equity over that time, which he could then use to buy a house or a larger condo. This is the model pathway for aspiring home buyers, and the lifeblood of a healthy real estate market.
The bank statement loan is another unique vehicle that allows today’s nonconventional renter to buy or refinance a home. When used responsibly, it is a great way for self-employed borrowers in the modern “gig economy” to demonstrate financial health with distributions and profits shown on personal statements, rather than W2s and other traditional tax forms. I know of one lender in particular that offers low-rate bank statement loans with just ten percent down.
Another exceptional option for renters interested in purchasing luxury units are high loan-to-value (LTV) jumbo loans with as little as 5 percent down, which would help with the oversupply of homes and condos in the $2 million-plus range. I work with one lender offering 70 percent LTV loans to foreign buyers on second homes and investment income properties, and another offering millennials 95 percent LTV up to $2 million, with no PMI.
FLEXIBILITY, AND SECURITY
While mention of nontraditional mortgages might make one recollect the “Big Short” days of banks irresponsibly handing out loans to under-qualified and poorly researched customers, I believe that the lending environment is much different in 2019. The banks have surely not forgotten and remain extremely vigilant about confirming reported incomes and debt ratios, investigating credit issues, and scrutinizing the properties themselves, to ensure that the borrower will be successful in their loan repayments.
Back in 2009, just 9 percent of U.S.-based mortgages were originated by non-bank lenders - by 2017, that number had jumped above 50 percent (according to Inside Mortgage Finance) which demonstrates the willingness of buyers to pursue nontraditional options. It is now incumbent on my fellow Realtors and industry colleagues to reach out to our clients and educate them on how they can now buy homes with options beyond the usual 20 percent down model. This will go a long way in making our real estate market more comprised of Miami citizens and homeowners, and less reliant on the whims of unpredictable international markets.
Master Broker Madeleine Romanello is a broker-associate with Compass Miami. She can be reached at 305-282-2133 and/or firstname.lastname@example.org
▪ This is an opinion piece written for Business Monday by a member of the Master Brokers Forum. The views expressed do not necessarily reflect those of the newspaper.
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