It's no secret that the majority of condo purchases that are being made in the Miami area are by foreign nationals. Most of these foreign nationals pay cash, but there are many more foreign buyers who would like to obtain a loan to help with their purchase. Unfortunately there are not many loan options available to foreign nationals right now that would enable them to purchase a new or resale condo. If you search the Internet, there are companies offering foreign national loans, but I can tell you from experience that many of them will not deliver a loan by your closing date for a variety of reasons.

If you are seeking a foreign national loan, be prepared to present a down payment equivalent to at least 50% of the purchase price. Also, in most cases, you will need reference letters or documentation from your creditors in your home country.

In my opinion, HSBC offers an excellent loan program for foreign nationals. They require a lower down payment of 30% in exchange for maintaining a $100,000 balance at their bank. They will give you rates that are competitive with what is offered to US Citizens assuming the loan is for $417,000 or less. However, they do require 4 credit reference letters from US based accounts or accounts in your home country.

If you can't secure a loan from a bank in the US, an alternative is to visit the largest bank in your country and see if they will offer a loan. It is possible. However, many foreign nationals are able to obtain a personal line of credit from their bank provided they have steady and documentable income. They then draw on that personal line of credit to close all cash on a condo in the US.

Even though you may have secured a loan, there is a possibility that the particular condo development may not qualify for financing. Reasons for this include a high number of delinquencies, low owner occupant ratio, or a large number of unsold units. Many new condo developments do not qualify for financing until certain sales thresholds are met, which usually means 50% or more of the units must have been sold by the developer. It is important to know the answers to these questions if you are really intent on getting a loan.

I hope you've found this post to be informative. If you have further questions about foreign national loans for Miami condos, do not hesitate to contact us.

Wow, that's all I can say! Fannie Mae just released a bulletin detailing a new Special Approval Designation for Florida Condominium Projects. As a result, you can now get financing in many condo buildings where cheap units were previously only available to all cash buyers.

Many existing condominium projects were previously made ineligible for Fannie Mae loans as a result of increasing delinquencies and foreclosures. As a result, prices fell precipitously in those buildings as the universe of potential buyers was drastically reduced. To illustrate, in a building like the Club at Brickell Bay in Downtown Miami / Brickell you could purchase a 1br unit for between $120,000 and $145,000, but it had to be an all cash transaction. On the flip side, to purchase a similar unit in one of the new buildings by the Related Group, you would have to pay almost double the price, but you would be able to get a loan. The quality of the Related Group's buildings is slightly better, but it doesn't justify paying two times the price. The difference is the financing.

Fannie Mae states in its bulletin that it is "committed to providing liquidity and stability to the condominium market". The Special Approval Designation will improve condo sales in those buildings that have:

• significanly weakened homeowners' association (HOA) budgets - association fees are not being paid by delinquent homeowners
• unpaid common expenses including pest control, property insurance, water, pool service, and garbage collection
• increased vacancies and REO's, exacerbated by the length of time it takes to complete the foreclosure process

Some of the notable buildings in Miami and Miami Beach where Fannie Mae financing is now available via the Special Approval Designation are:

This is unequivocally a good sign for the market. It will be interesting to see how many additional buildings are able to obtain the Special Approval Designation from Fannie Mae.

In today's market, many buyers are using FHA backed mortgages to finance a purchase of a new home or condo. The FHA offers loans with as little as 3.5% down, which is very attractive, especially considering the $8,000 first time home buyer tax credit. According to a recent survey of home builders by John Burns Real Estate Consulting, the FHA has backed a staggering 62% of new home loans given in South Florida.

So, its no surprise that I have been working with many condo buyers lately looking to get FHA backed loans.  This has not been an easy task.  There are not many FHA approved buildings in the greater downtown Miami area. In my opinion, the best FHA approved building is IOS on the Bay located in where 62nd Street meets Biscayne Bay in Miami.

IOS is a brand new bayfront development consisting of only forty three residences in a combination of one, two, and three bedroom floorplans. The two and three bedroom units have a direct view of the bay. The one bedroom units start at $200,000, and the two bedrooms start at around $285,000. Two bedroom direct bayfront units are available from $425,000 and up. Sales have just started and the developer is motivated to make the next couple of sales. Feel free to download the PDF brochure on IOS here, and view the gallery below of some of the model units.

In addition to IOS, there are 10 or so other buildings that I would consider showing to clients.

• The Sail (170 SE 14 St, 33131)
  • New Building Located in the Heart of Brickell. 1 & 2 Bedroom Units Available from the low $200's
• The Platinum Condominium (480 NE 30 St, 33137)
  • New Luxury High Rise Waterfront Condo. 1 & 2 Bedroom Units Available from the low $200's
• The Charter Club (600 NE 36th St, 33137)
  • 1 & 2 Bedroom Units Available from the $150's
• Madison Downtown Condo (800 N Miami Ave, 33136)
  • Centrally located to nearby nightclubs, the design district, Bayside Marketplace, the Performing Arts Center, AAA Arena, eateries and downtown Miami. Developer owned 2 bed, 2 baths start from $129,900.
• Highland Park Lofts (1350 NW 8 Ct, 33136)
  • 1 Bedroom Units Available from the $140's
• Brickell View Condo (126 SW 17 Rd, 33129)
  • 2 Bedroom Units Available in the $120's
• Flagler First Condominium (101 E Flagler St, 33131)
• Milana Condominium (652 NE 63 St, 33138)
• The Bank Condominium (8101 Biscayne Blvd, 33138)
  • Loft Style Building with Studios, 1 & 2 Bedroom Units Available.

If you have questions about obtaining a FHA loan or are interested in more information about these FHA approved buildings, please contact Miami Condo Shop.

I've been working on finding an FHA approved condo for a client of mine and it's taken a little longer than expected because there are several moving pieces to the deal.  Usually when you look for a home and are preapproved for a mortgage, you know exactly how much home you can afford.  If you can afford (and are preapproved for) $150,000,  you would look at condos at or under that price.

However, when your lender thinks about how much home you can afford they think differently, and they look at your total monthly housing expenses relative to your income.  For a condo, monthly housing expenses would include maintenance fees, taxes, as well as your mortgage payment.  For each property, maintenance fees and taxes are fixed,  what the lender figures out is how much of a monthly mortgage payment you can make.  From the mortgage payment, the lender is able to calculate the mortgage amount, and when added to your down payment produces how much house you can afford.  What you need to keep in mind is that the more your maintenance fees and/or taxes are, the less house you can afford.

When your lender's loan officer decides to issue a preapproval letter for your FHA loan, they look at two ratios:

1. Mortgage Payment Expense to Effective Income (Maximum: 29%)
   • Total mortgage payment (principal and interest, escrow deposits for taxes, mortgage insurance premium, homeowners' dues, etc.) divided by your gross monthly income.
2. Total Fixed Payment to Effective Income (Maximum: 41%)
   • Total mortgage payment and all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.) divided by the gross monthly income.

For an FHA loan, these two ratios are higher than a conventional loan that has ratios of 28% and 36%.  However, these ratios are not set in stone, and you may qualify to exceed them if you have:  (1)  A large down payment; (2) A demonstrated ability to pay more towards your housing expenses; (3) Substantial cash reserves; (4) Net worth enough to repay the mortgage regardless of income; (5) Evidence of acceptable credit history or limited credit use; (6) Less-than-maximum mortgage terms; (7) Funds provided by an organization; and/or (8) A decrease in monthly housing expenses.

The big impediment to alot of these FHA deals right now are property taxes.  When your lender calculates your payment ratios, they use the previous year's taxes for their calculations, for this year they are using taxes paid in 2008.  However, in a property market where prices have been rapidly declining, this vastly overstates the owner's tax liability as 2008 taxes are based on an appraised value that was calculated at the beginning of 2008.  Also, the lender does not take into account whether you plan to apply for the homestead exemption, which would lower your taxes.  With all that said, its likely that your 2009 taxes paid will be lower than the amount escrowed by your lender.

I happen to live in a nice area of Miami Beach commonly known as "South of Fifth or SoFi".  It's full of some of the nicest condo towers you can find anywhere in Miami offering wonderful amenities and offering great views of Biscayne Bay, Government Cut, and the Atlantic Ocean. In SoFi, you'll find a high concentration of luxury condos, and when I say luxury, I mean those priced over 1 million dollars.  The following exclusive SoFi properties are available and have been for a while:

• Apogee #2001/2
• Portofino Towers #PH4001
• Continuum South Tower #1804

The market for luxury condos in SoFi, and in the Miami area in general is broken.  As I alluded to in an earlier post, When Buying a Condo in Miami, Cash is King, financing for condo properties is hard to get, and in the luxury market it is virtually non-existent.  With the wheels of securitization on Wall Street having ground to a screeching halt, there are no buyers for mortgages over $423,750 originated in Miami-Dade County.  Its much harder to find buyers for a million dollar condo when the buyer has to commit over $500,000 of their own money instead of $100,000 or $200,000, as was the case previously.

Looking at recent sales data for condos in Miami Beach, the numbers tell the same story.  During the 1 year from 7/1/2008 to 6/30/2009, 1,395 condos were sold in Miami Beach at a median sales price of $283,000.  133 of these (9.5%) were sold for 1 million dollars or more.  Of the 133 $1mm+ condo sales, 92 of them (69%) were all-cash deals. The remainder were completed with conventional loans or seller financing.  However, in a couple of rare instances, buyers were able to get financing from JP Morgan or Bank of America, both whom just started originating "Jumbo" mortgages again.

The table below summarizes the Miami Beach condo sales data from 7/1/08 to 6/30/09.

The 3,437 condos listed for sale on the MLS in Miami Beach as of 7/12 represent 2.46 years worth of inventory at the current sales rate of 1,395 per year.  In the table above, you can see how condos priced under 150k are moving fairly quickly compared with condos costing $1mm+.  Additionally, the more expensive condos are staying on the market much longer.  The dashed line represents the approximate cutoff for traditional financing and it's clear how the market is much worse for properties costing over 500k.

A little known fact in Miami is that it is still possible to buy a condo or home without any money coming out of your pocket.  Incredible, considering this is exactly what caused the current credit crisis.  So, who do we have to thank for making this possible?  Good ol' Uncle Sam.

The Federal Housing Administration (FHA) insures loans made to home buyers with as little as 3.5% down.  The program was designed to make home ownership affordable for those who didn't have enough money for a traditional down payment.  Through the FHA loan program, a local lender originates the loan, the FHA guarantees the payments, and the lender then sells your loan to an investor.  In return for the guarantee and low down payment, FHA-insured loans have a higher interest rate than conventional mortgages.  Currently, the rate for a 30yr FHA-insured loan is 1/2 percentage point higher than that for a conventional 30yr mortgage.  Current mortgage rates can be found here.

In order to ensure no money comes out of your pocket at closing when purchasing a property with an FHA loan, you need to get the seller to agree to what is known as a "sellers concession".  Sellers concessions on a purchase contract for real estate is simply a way for the buyer to roll over some or all of the closing costs into the mortgage.  Sellers concessions are determined by the lender,  and can be up to 6% of the purchase price.

Let's say you purchase a condo for $250,000.  FHA will give you a loan for $241,250 (96.5%), with your down payment being $8,750.  If you get the seller to agree to a 6% concession, they will give you $15,000 at closing.  At closing, you won't have to bring cash for a down payment and will have $6,250 to cover your closing costs.

So what's the catch?

Most condos aren't eligible for FHA financing, but there are still are some "hidden gems" out there that are -- and they are selling quickly.

Condo projects eligible for FHA loans are subject to the following guidelines:

1. There are no special assessments pending.
2. At least 90 percent of the total units in the project have been sold.
3. At least 51 percent of the total units in the project are owner-occupied.
4. No single entity owns more than 10 percent of the total units in the project.
5. General maintenance level of common elements is acceptable and there is no deferred maintenance, based on the comments by the Appraiser and/or the pictures.
6. The owners association has a reserve plan and a reserve fund, separate from the operating account, that is adequate to prevent deferred maintenance.
7. For projects consisting of over 30 units, no more than 10 percent of the total units are encumbered by FHA insured mortgages.
8. For projects consisting of 30 units or less, no more than 20 percent of the total units are encumbered by FHA insured mortgages.

Most of the FHA guidelines are identical to those published by Fannie Mae, except for the last two.  FHA will not insure mortgages on units that are in projects where too many FHA loans have already been made.  This is an important one, as it requires that we must do our due diligence before submitting an offer where the buyer will be applying for FHA financing.

Single-Family Homes are not subject to the FHA guidelines mentioned above, and the majority are eligible for FHA financing and seller concessions.

For more on FHA-insured mortgages visit the FHA homepage.

With real estate prices in the Miami area retreating to levels last seen at the beginning of this decade, we have seen increased demand from clients interested in purchasing a second home or investment property.  There are many great deals to be had, but the potential pool of attractively priced properties is much larger for the all-cash buyer as opposed to someone who wants to finance their purchase.

At the beginning of 2009, Fannie Mae changed its guidelines for mortgages backed by new and established condominium projects.  A condo project is “established” if 90% of the units have been sold, is complete and the HOA has been turned over to the owners.  A condo project is “new” if less than 90% have been sold, is not completed, is subject to phasing or if the HOA has not been turned over to unit owners.

Overview of Fannie Mae Condo Guideline Changes:

1. For new construction and newly converted condo developments, 70% of the units must be pre-sold (closed or under contract). This was increased from 51%.
2. No more than 15% of a condo project units can be more than 30 days delinquent on HOA dues. This is an existing guideline that is now being applied to new condo projects.
3. Fidelity insurance will be required for condos with 20 or more units, ensuring that homeowner association funds are protected. This requirement used to apply to new projects and was extended to include established condos.
4. A requirement that borrowers must now obtain a condo-owners insurance policy unless the master policy provides interior unit coverage; coverage may not be less than 20% of the assessed value. A condo-owners policy, known as an HO-6 policy, covers personal property, personal liability, and the physical unit from the studs and in.
5. No more than 10% of a project can be owned by a single entity.
6. No more than 20% of a project can consist of non-residential space.
7. The homeowners association must have at least 10% of its budgeted income designated for replacement reserves and adequate funds budgeted for the insurance deductible.

Guideline 1 makes many new condo projects in Miami ineligible for financing.  With regards to existing condo projects, Guidelines 2, 5, and 7 are the most common impediments hindering buyers from getting financing for their purchase.

Real estate prices are directly correlated with the availability and cost of financing.  In the boom years, condo prices soared due to the easy availability of financing at high LTV (loan-to-value) ratios (sometimes 100%) and low adjustable interest rate loans.  Currently, financing is not available for many condo purchases, and LTV ratios for Fannie loans are typically capped at 80%.

For example,  let's say an individual who has $50,000 in the bank, a good job, and stable credit who wants to purchase a condo.  If 90% financing were available, the individual would be able to purchase a condo worth $500,000, 80% financing = $250,000, 70% financing = $167,000, etc...  If no financing is available, the individual can only purchase a condo worth $50,000.  The availability of financing and the LTV ratio has a pretty dramatic effect on the price of the condo that he/she can afford.

In a "distressed" condo development, over 15% of the units are in pre-foreclosure or foreclosure.  When a condo unit goes into pre-foreclosure, the unit owner is usually around 90 days delinquent on their mortgage payment and/or HOA dues.  Unit purchases in these developments are ineligible for financing, according to Guideline 2.

Typically, several units are for sale in these developments, putting downward pressure on prices, but the lack of available financing for unit purchases has pushed prices even lower creating an incredible opportunity for the all-cash buyer.  For under $100,000 cash it is possible to purchase 2br units in North Bay Village with beautiful views of Biscayne Bay and for around $200,000 cash you can get a 1 or 2br unit in the heart of Miami Beach.

Coming to the negotiating table with an all-cash offer greatly increases your chances of having your price accepted by the seller, as he/she does not have to worry about your financing falling through, as is the case on many purchases today.  Due to the presence of foreign buyers, there are many all-cash deals happening in and around Miami Beach, and the best opportunities do not last long.