Our beautiful beaches, Art Basel, food and wine festivals, and our warm weather are a few reasons why people are attracted to Miami.
As the year-end approaches, Miami-Dade County is on pace to break its all-time annual single family home sales record for the 5th consecutive year.1 Single family home transactions are expected to reach 14,600 transactions for 2015 (the record is 13,521 set last year).1 Also, June 2015 was a record month at 1,390 transactions (previous record was June 2005 at 1,317).1
Miami, as an international hub, experiences a huge demand for real estate. We continue to be in one of the top markets in the United States for international buyers. Most of those foreign buyers bring cash offers, making it more challenging for others in competitive purchasing situations.
Miami cash transactions are double the national average at 48.7% of total closed sales in September 2015. Condos comprise an even more significant percentage of cash purchases at 62.4% compared to 33.8% of single family home sales.1
A market like this can present many challenges to a buyer. I personally have a unique perspective from a home buying standpoint.
While I lived in Colombia, my family owned a condo in Sunny Isles Beach as an investment property that was used for family vacations. Now, I am a proud citizen and U.S taxpayer with a salary (Uncle Sam is happy about that). While I have W-2 income, my spouse is self-employed, generating a significant portion of his income from his business. I work with many members of the legal community and their clients to help them with their residential financing needs.
Based on my experience as a private banker, there are four key items when looking to obtain real estate financing.
1. Non-U.S. taxpayer loans.
It’s hard to believe that although Miami is an international hub and a major driver of commerce in Miami-Dade, real estate financing for non-resident aliens (NRAs) is not readily available. Some lenders provide this type of financing at a higher interest rate with a lower loan to value ratio. Most importantly, be sure you or your client has the proper guidance on the titling of the property to limit U.S. tax exposure on death, which could be as high as 40% of the fair market value of any personally held real property interest.
2. Which type of loan is best for you?
Traditional, 30-year fixed-rate loans are most commonly available at large regional and national banks looking to provide financing for loans under $1 million. The guidelines are more rigid with less flexibility and they do not deviate from their requirements. A non-W2 individual will most likely not fit the profile for this type of financing. Buyers tend to assume that the longer the term (even if they are paying a higher interest rate) the better the loan. But in fact that might not be the best option. A statistic to bear in mind: long term mortgages are refinanced every 7.5 years (in the last five years this has declined to 6.2 years).1
3. Do you have a complex financial picture?
If the answer is yes, as it is in my case due to filing jointly, a portfolio lender will be your best alternative, especially if you are looking to obtain financing for loans over $1 million. There are several options available for portfolio loans. The most common programs are what lenders refer to as adjustable-rate mortgages (ARMs). These programs offer rates fixed for a determined amount of time such as 3, 5, 7 or 10 years all amortized over 30 years, Additionally the lender will have some options such as 15, 20 or 30 year fixed available. The longer the fixed rate, the higher it will tend to be. Most of these loans are offered through local banks that know their clients, have local decision making, and usually do not sell the loans in the secondary market. This is a perfect option for individuals who (1) own several real estate properties, (2) have tax returns more complicated than a 1040, (3) need primary residential construction loans, or (4) for those individuals looking to obtain financing for “out of the box” deals.
4. Find the right lender.
When looking to obtain financing, it is important to ask the lender various questions to determine if they are the right fit for you. What is the average size loan? Are decisions made locally? Are there any additional benefits for having a full banking relationship with that lender? Depending on your profession, there are several financial institutions that have professional programs available for attorneys, doctors and CPAs. In some cases, those programs provide the borrower with loan to value or rate incentives.
Find a lender who will be helpful and available to you post-closing. You or your clients might want to recast your loan by making a significant pay down to principal or simply have an escrow situation that needs to be addressed.
I worked with a professional a few years ago who insisted on doing a jumbo loan at a bank that focused primarily on 30-year fixed loans. The lender sold them to a captive mortgage company out of state. A few years into the loan, the owner had a pipe leak that damaged his wood floors and had to get them replaced. After weeks of dealing with the insurance company, he received a check for $10,000 payable to him and the lender. Although he knew several employees of the bank, they advised him that his loan was sold and he needed to call an 800 number and deal with the new mortgage company out of state. After several weeks of dealing with aggravation, finally someone agreed to endorse the check, only on the condition that he open an escrow account for the $10,000 check and agree to “floor inspections.”
It is important to find the right lender for you — one that will be able to understand your finances and provide you with the right program that fits your financing needs. Find a lender who will facilitate and make the process of buying a new home a pleasant experience. Most importantly find the lender who will be as eager to help you once your loan closes.
1 www.globalpropertyguide.com, Southeast Florida Regional MLS
By Ana M. Olarte Senior
Vice President Private Banker
100 SE 2nd St., Suite 150
Miami, FL 33131
South Florida Legal Guide 2016 Edition