Are you in the market to buy a home and want to use financing? If so, there are probably a few things your lender isn’t telling you. It’s not because your mortgage lender isn’t honest, but most do not see the houses you are looking at. And therefore, cannot tell you which ones are going to be trouble. If you are not prepared and don’t have the right mortgage, you might miss out on the home or condo you really want. Or you may enter into a contract to purchase only to have your loan denied, causing you to lose time and money.
Buying a home with a mortgage post-real estate crash isn’t as easy as it used to be. Although within the past few years the industry has lightened up a bit on qualifications, most loan products still require quite a lot of financial documentation. And more, and more, etc. The whole experience of home buying is almost like being lead through a room blindfolded. You’re just are not sure what’s around the corner. You just hope that the person leading you knows what they are doing. It’s totally understandable too. Most people buy just a handful of homes in their lifetime.
I have sold real estate in the good times as well as the bad. After thousands of home sales, there are a few trade secrets I would like to share with before you start shopping for a property in Florida. The 5 points below are where I see the majority of real estate transactions fall apart. Knowing this information will hopefully, help in your property search and eliminate appraisal problems which may prevent you from buying the home that you want.
Condo Purchases: If you are thinking about buying a condo in Florida, there are certain requirements that the condo building must meet if you are putting less than 25% down (Conventional Mortgage).
Your lender wants to see what is called the condo questionnaire. Why? Because more than likely your mortgage is going to be sold on the secondary market to Fannie Mae or Freddie Mac. These two entities have a set of criteria for the condo associations. Fannie Mae took a big hit in the Florida condo market in the last real estate crisis. As a result, a set of criteria was established in an effort to evaluate the financial stability and assess the risk of a condo building.
Most condo buildings in Florida cannot pass the questionnaire. The two most common reasons for failing involves the lack of reserves and too many rentals in the building. If the condo association fails the questionnaire for any reason, your mortgage can be denied, unless you are putting 25% down.
Unfortunately, the condo questionnaires are reviewed in the underwriting phase of your loan. Which means you may be halfway through the loan process when you find out that you may be required to put more money down or that you cannot complete the purchase. That is a terrible situation to be in not only for you (the buyer) but the seller as well. As the buyer, you probably have spent money on a home inspection and appraisal. Which means you just lost close to a thousand dollars or more.
There are a few lenders that can originate a mortgage with less than 25% down and do what is called a limited review of the condo questionnaire, but you have to ask them if they carry the loan product. You can also ask for a list of the approved buildings where loans were approved by that lender. Having the approved list will make finding a condo easier and you know that issue of failing the questionnaire shouldn’t come up.
FHA/VA: Buying a condo in Florida with an FHA or VA loan is next to impossible. I hate to be the bearer of bad news, but it is like finding a needle in a haystack. The entire building must be FHA approved in order to qualify. HUD also changed the requirements for condo approval after the downturn. Due to the lengthy application process, most condo buildings elected not to renew their FHA certificate. Your lender can give you a list of FHA approved buildings. There is probably a handful of FHA approved buildings in the entire south Florida area.
FHA/VA and Fixer Uppers: FHA and VA mortgages are great products for buyers who have limited funds for a down payment. However, these two mortgages have a set of standards for the condition of the home. The list is long, and the appraiser must look to ensure the home meets the criteria. Here are some of the common items found that would cause the house to fail the appraisal. The home has a broken A/C, the appliances are missing, there are electrical issues, the roof is past its life, the garage was converted into a family room without permits or the house has chipped and peeling paint and was built prior to 1978. That is just a few items. Basically, if the house needs a lot of work, you will not be able to use FHA or VA traditional financing. FHA does have a loan product that will allow you to finance repairs, but you must ask for it, in the beginning, to make sure you will financially qualify.
Flood Insurance: Flood insurance is an additional policy. If the property you want to purchase is in a flood zone and you are getting a mortgage, you must carry flood insurance. If you are on a tight budget, flood insurance may be a deal breaker. Do not wait until the seller has accepted your offer and your inspections are completed to get quotes for flood insurance. If this happens, you may be too late in the process to withdraw from the purchase without a financial consequence (you could lose your escrow deposit). If you qualify for the mortgage with the cost of the flood insurance figured into the equation, just because the house payment may be out of your comfort zone, is not a good enough reason to be released from the sale of the home. Flood insurance premiums are based on the flood zone and the price of the property. Don’t wait.
Inspections: The 4 Point Inspection: If the home you want to purchase is 40 years or older, your homeowner’s insurance will more than likely require this inspection. The four items inspected include the roof, plumbing, electrical and heating/cooling. If the home has a fuse box or certain brand of the electrical panel it will not pass the four-point. Either will a home with plumbing leaks, a roof over 18 years (or damaged) or a water heater that is more than 19 years old.
What happens if the house fails this inspection? The items must be repaired and re-inspected. If the current owner does not want to repair the issues, then you may be able to get conditional insurance with a time frame for getting the repairs done after closing. Although, I haven’t seen insurance companies granting that often. Most of the time, when a home fails the four-point inspection, insurance will be denied and so will your mortgage.
The four-point inspection should be done during your inspection period which was negotiated on the purchase agreement. If you wait and do this inspection after that time frame, you may find yourself in an escrow dispute. Some sellers may try and take your escrow money claiming you were in default of your contract for failure to meet your inspection period.
Buying a home in Florida doesn’t have to be stressful. Being prepared and asking questions will help you find the right mortgage for your perfect home.
Sandy Williams is a licensed Broker Associate with EXP Realty and sells in the Sarasota area. With over 22 years of experience, Sandy and her team have sold over 2,100 homes. Nationally recognized. Sandy is originally from the Midwest but calls Lakewood Ranch her home.
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