When I start working with new buyers interested in purchasing Miami Beach Real Estate, one of the first most challenging issues for me to discuss with them is how they plan to purchase the property. Usually when they say financing, I cringe because I know I have a long battle ahead of me.
I will also preface this post with the fact that I am referring to condominium buildings, not single family homes. I will explain more later.
Unfortunately most condominium buildings in Miami Beach (also in Miami and surrounding areas) are currently not eligible for financing.
This means if you want to purchase a condominium in Miami Beach or Miami and you want a lot of options, you are probably going to have to pay cash. I really dislike telling buyers who need financing that they cannot buy in many of the buildings in our area. I feel even worse, when they send me listings off the Internet and I go to look them up and know the properties are in buildings that are currently only cash buildings.
Trust me, this is one of the hardest things about working with buyers today. Who wants to tell a potential client, “no”?
Sometimes it’s like looking for a needle in a haystack. What’s even worse is that the information that a lender or an agent needs to know is held by the property managers of the building and it’s information that fluctuates on a monthly basis. It’s also information that is rarely given out freely. Typically we have to obtain this information by ordering a condo questionnaire and it usually costs money to get it.
Now there is a list provided by Fannie Mae that lists the buildings currently eligible for financing, however since we are currently a heavy cash market, many building are not on the list because there was no recent financing in the building. So just because the building is not on the list, does not mean that you cannot get financing but the list is definitely a good place to start and probably where most lenders will tell you to go.
I know, it’s really confusing, let me see if I can explain it further.
If you are a buyer and you need financing, the first thing you should do is speak to your bank, mortgage broker or whomever you plan to get the financing from for the purchase. Initially they are going to be checking your credit, debt to income ratio, etc. You may even receive a pre-qualification letter or pre-approval letter. That’s great, that’s the first big step.
You are approved, Woo-Hoo!! Guess what? Sorry to say but that’s not the real biggie. The real biggie is the actual building that you want to buy in, it also has to be approved for financing.
So the two big steps for qualification are (1) YOU & (2) THE BUILDING.
So what does a building qualification look like? The underwriter for the loan will send a condo questionnaire to the property manager or to the person who is managing the building, it’s finances and day to day business.
This questionnaire will ask questions like:
- Date control of the HOA transferred from the developer to unit owners?
- Total number of units?
- Number of residential units sold and closed?
- Number of units under contract?
- Number of units owned as second/vacation homes?
- Number of units owned as investment properties (never occupied for personal use)?
- Number of rented units owned by the developer/association?
- Does any one person or entity own more than one unit?
- How many units are over 30 days delinquent?
- Are there any pending special assessments?
and more… on the condo questionnaire that I have on file as an example, there are thirty three questions.
If any of the answers to the questions don’t match up with the lender’s criteria, they will not allow lending in the building.
The real kicker is that some of this information like the monthly finances changes month to month. Or the amount of rentals can change month to month. So this is “live” data that can fluctuate month to month. Some buildings are eligible for financing one month and the next month they are not.
Generally speaking, many buildings in our area do not at this time qualify based on the criteria of these questions. Some don’t qualify because there are too many delinquencies, others because there are too many renters, some don’t carry the correct amount of insurance, etc. Whatever the case, they don’t qualify based on the lenders’ current standards.
This is why currently in the Miami Beach Real Estate market, most buyers are buying with cash.
So clearly if you are working with an agent who is experienced in this market, he/she is generally going to know what buildings are eligible and what buildings are not. The question is, are you going to listen? Unfortunately I find that most buyers just don’t understand this or don’t want to understand this and it ultimately leads the buyers to wasting time looking at properties that they can never buy in the first place.
Last week I had a buyer in from out of town. He was referred to me from another agent who found my blog online and liked how we work. The buyer was awesome. He did all of his due diligence, he spoke to a lender prior to looking at properties, we discussed everything online, set expectations and when he came to town, we were ready to look at properties.
However there was this one building that he was in love with and he kept insisting on looking at units in this building. I explained to him that this particular building was not eligible for financing because it has a lot of foreclosures and short sales. I have never personally been involved with a condo questionnaire on this building but there are just some things that are pretty evident and this building has a bad history of delinquencies and issues. Usually if my clients are still interested, I call up a few of the seller’s agents to double check. They should know and quite frankly when I see “cash only” on most of the listings, that’s a pretty clear statement. So they confirmed what I already knew and I told my buyer. The buyer told me that if it were truly an “all cash building” he would try and find other resources to buy and still was interested in looking at the units. I obliged but I knew in my gut that he wasn’t totally convinced of what I was telling him. He still needed to confirm this himself and that is fine by me. I know that some times buyers need to hear it from the horse’s mouth.
So I took him to preview units in the buildings that are eligible for financing and on the last stop, we went to the building that he loved. We saw the unit, he loved it and wanted to buy it. So before leaving, we stopped by the property manager’s office to ask about the financing situation in the building. The first words out of the property manager’s mouth were, “no financing is allowed in the building at this time, you can only buy with cash.”
“Really,” he said, “I just cannot believe that.”
Believe it or not my friends, it’s true. It’s the reality of the Miami Beach real estate market for condominiums at this time and I have to be honest, if you are not working with an experienced agent who is familiar with this market, you are wasting your time. You are also wasting your time if you can only purchase with financing and you are looking at all cash buildings. You are also going to waste your money if you put in an offer contingent upon financing in an all cash building.
Okay, so you still need financing and you want to buy real estate in Miami Beach, where do you start?
First, you really need to be sure that you are working with a lender/broker (whoever is going to loan you the money) who is familiar with our market. This is key because they know what’s going on and how to best guide you. Second you can start by looking at properties that are eligible for financing. Now keep in mind that because the data that the banks use to qualify the buildings is live data, nothing is set in stone until the deal closes.
However a good first start is to give into the Fannie Mae website and they have a list of buildings that are currently eligible for financing. If there is a building that you like that is not on that list, then we have to do a bit of research.
Also it’s important to know that this is pretty much only for condominium buildings, houses are a little easier because you are not dependent upon the business of a condominium association.
Any questions? Let us know.
Copyright © By Jamey Prezzi 2011* All Rights Reserved*Do I Need Cash To Buy Miami Beach Real Estate?