Purchasing a first home is an exciting and crucial step in most people’s financial lives. However, if your first home happens to be in a city like Miami, FL, the experience may quickly prove frustrating, particularly if you don’t have at least a 30% down payment. The city’s attraction to foreign investment, coupled with its historically volatile housing prices, make navigating the market for the average single or couple seem near impossible to break into. Luckily, when paired with the right Realtor, there are ways around lending restrictions and low inventory availability.
For many Miami first-time-home-buyers the realization that their competition is not just investors from around the nation, but from around the globe, all with cash in hand, could feel intimidating. The attractively low housing prices, in comparison to some of the worlds more expensive cities (London, Toronto, Paris), lure investors with the desire to diversify their real estate portfolios, and own a piece of the “hottest” city in US. Not surprisingly, the largest majority of foreign investors from Latin America, and are essentially changing the landscape of the Magic City. Individuals and groups from countries such as Brazil, Venezuela, Columbia, and Argentina, may view their governments as less stable than the US government, and as a result treat properties as bank accounts, where they can purchase units for both long term investment and short term rental income. The influx of money towards condos and homes may seem alarming, except that the city’s infrastructure, local economy, and even culture appear to be thriving as a result… Neighborhoods such as Wynwood, Edgewater, and Brickell, which used to be utilitarian for work, or avoided and under-inhabited due to poverty and crime, are now destinations in themselves, with thriving restaurants, community parks, and art scenes. This is excellent for the real estate values of the city, but for first time home-buyers, these once budget-friendly neighborhood options are beginning to scale price-points above an average buyers reach.
An even more so than a rise in prices, the banks have become the largest blockades for new house hunters. Just under a decade ago, Miami was one of the hardest hit cities by the housing bust, leaving banks weary of lending for purchases towards condos. – When securing funding, the banks do full reviews of condo associations, examining factors such as rent-to-owner ratios, number of foreclosures in recent years (which unfortunately for most associations have been unavoidable), number of funds in reserves, budgets, and so on. Foreclosures were prevalent in the 2008-09 years, causing associations to cover the dues of defaulted units, leaving the association’s reserves and budgets low, thereby appearing as risky investments to the banks. This causes banks to require a minimum of 25% down payment on most associations, not including closing costs. On an average priced unit of $250,000, the down payment amounts to $62,500, in additional to roughly $10,000 for closing costs – This is a large difference than the $8000 down payment required just under a decade ago.
Seem discouraging? Enter a good Realtor – Working with an experience real estate agent will save you time, money, and a lot of dead ends by helping you navigate the various options available under common first-time buyer constraints, such as small down payments, lack of knowledge for writing aggressive offers, and knowing attractive alternative neighborhoods. Here are the 3 most common issues first-time-home-buyers in Miami experience, and the solutions an expert Realtor offers, leading to stress free closings.
1) Single Family Homes
As previously stated, the banks make it extremely difficult to secure loans for condos within unhealthy associations (majority of condos in Miami) – However, single family homes, if not ruled by a master association, forego such interrogations. Since single family homes are independent of an overall association, the investment is viewed as less risky to the bank. Therefore, the down-payment requirements may be as low as 5%, making houses the affordable new alternative to first time home buyers. Luckily, Miami is FULL of lush, unique, trendy, charming single family home neighborhoods, all commutable to Jackson Memorial Hospital, Brickell, and Coral Gables, and at more affordable prices than homes located in Miami Beach. Below is a list of notable Miami single family home neighborhoods to include on your home search –
- Biscayne Park
- Coconut Grove
- Coral Gables
- El Portal
- Miami Shores
- Miami Gardens
- North Bay Village
- The Roads
- San Souci
- Upper East Side
All have their own unique characteristics, whether you fancy newly built model homes, or historic tropical architecture… Miami has no shortage of lifestyles to choose from.
2) Don’t have 30% Down? Fannie Mae and Freddie Mac to the rescue!
Most first time home-buyers won’t have almost $100,000 to secure their first purchase with, and that is nothing to be ashamed of. While some families have the resources to pass large sums of money for down payments to their adult children, some singles and couples are left to their own devices to build their own net worth, and this is both a noble and a grand accomplishment. However, it may not feel as idealistic when missing zero’s in the bank account feel as though putting down roots will ever be a realistic option. Luckily, Fannie Mae (http://www.homepath.com) and Freddie Mac (http://www.homesteps.com) are two organizations which assist first-time buyers and primary residents to purchase homes previously foreclosed on. But the unique solutions they provide are “First Look” – a program that gives primary residents first-dibs on the properties, before investors (usually a 2 week period) and “Homepath Loans” or “Homesteps Loans” – These two loans allow primary residents to purchase the particular properties with as little as 5% down. Two disclaimers to note when placing offers on these homes are #1 – Get your inspections, as with any home… the foreclosure process can cause previous owners to become negligent. And #2 – Make sure you analyze the comparable recent sales. Both agencies tend to price the units above market value, and they are not subject to the appraisal process, eliminating and extra check and balance for valuing the property. They typically drop the prices every month or so, but as with any house, the longer they stay on the market, the more you are at risk for losing it to another buyer.
3) Pre-qualification – The ONLY first step to home-buying
Most buyers hate this step, as the lenders pull your credit, request tax documents, etc. However, should your Realtor show you a home which you fall in love with, and there happens to be other offers on it, chances are you will lose that property to another buyer. Most sellers today will not even consider offers on their property without being accompanied by a pre-approval letter. And if you are working with a smaller lender that has more flexibility, they may even be able to prepare a commitment letter (stronger than pre-approval letter) with a guaranteed close date. Guarantees to close, and tight closing dates may be more valuable to some sellers than several thousand dollars, and in the end can win you your ideal property. Of course, this may not trump an all cash deal, but it should help against other financing offers. Working with an experienced real estate agent who expertly conveys the solidarity of an offer, and expressly communicates a guaranteed closing, helps make all of the difference between winning the bid and being overlooked.
As you can see, navigating the Miami real estate market is complex for those without familiarity to the process. This is all the more reason to sit down with a seasoned real estate agent, devise a list of must-haves, consult with a lender to obtain a budget and pre-approval letter, and begin the house hunt tactically. Should red flags arise along the way, allow for a Realtor who has experienced those pitfalls to warn you ahead of time. And best of all, Realtor services are FREE to buyers in Miami (sellers pay the Realtor fees) which in turn may be the best money you’ve NEVER had to spend!.