Although some buyers lost the opportunity for the $8,000 tax credit, they are negotiating into better deals with creative financing. Citing a nearly 20% increase, Wells Fargo has produced more than $3 billion in mortgages this year in Florida. Private loans and FHA loans are growing in popularity. At the same time, owners of non-distressed properties are making more efforts to correct problems and pay for closing cost. Creative mortgage refinance options are becoming more popular as the market begins to re-bound.
When Efrain Hernandez couldn’t seal a deal before the first-time homebuyer tax credit expired earlier this year, he lost faith that he would ever own a house in a market where investors and all-cash buyers are snapping up bargains and mortgages seem hard to come by.
But waiting – even though it wasn’t by choice – got him more than the $8,000 federal tax credit.
In a single day last month, Hernandez negotiated a contract on a five-bedroom, three-bath home in a development near Homestead, Fla. By the end of October, he closed, talking homebuilder Lennar into a $40,000 discount off the list price, getting it to pay $18,000 in closing costs and scoring a $7,500 no-interest loan from Miami-Dade County to lighten his downpayment.
“I was finally able to buy the house of my dreams,” Hernandez said. “Even though the tax credit was over, it ended up being a better deal.”
While cash is king when it comes to buying properties in a battered housing market, new homeowners like Hernandez are finding ways to finance their homes using hard-nosed negotiation tactics and unusual financing options they never needed during the boom.
And they are scoring deals on homes – not bedraggled or cut-rate foreclosure properties and time-consuming short sales, but well-kept homes with current mortgages.
After a long drought, more money is becoming available to buy homes. Take Wells Fargo Home Mortgage, for instance. Andre Brooks, vice president and regional sales manager for the bank’s Florida operation, said his company has made more than $3 billion in mortgages so far this year in Florida, nearly 20 percent more than last year.
But lending guidelines remain restrictive, said Terry H. Francisco, spokesman with Bank of America. Unlike the loose-money days of the real estate boom, people must painstakingly document their creditworthiness.
Making purchases happen now often requires creativity and calculation.
“Creative financing is about to become the primary means of financing,” said Joe Manausa, a broker and owner of a Century 21 First Realty in Tallahassee, Fla., who has blogged about the topic.
One fruitful financing option is a loan backed by the Federal Housing Administration. FHA loans can require a downpayment of just 3.5 percent compared with the much larger upfront investments many banks require.
FHA loans do have their limitations. For one, like other loans with a downpayment below 20 percent, these require the buyer to get mortgage insurance.
Another limiting factor: FHA loans have a maximum limit. They are available to people who don’t already have an FHA loan and plan to make the property their primary residence.
A private loan – made by a noninstitutionalinvestor who does not advertise himself or herself as a mortgage lender – is another alternative, but requires some networking and using personal relationships to make a connection.
Grant S. Stern, president of Morningside Mortgage Corp. in Bay Harbor Islands, brokered a loan this summer for a condo buyer, financing half the purchase price.
The borrower had made a preconstruction downpayment of $90,000 on a two-bedroom, two-bath $300,000 condo in Sunrise, Fla. He had another $65,000 cash to close, but during the lending process, Fannie Mae’s approval for the project expired.
Stern said he learned that the developer was on the verge of default, and that his client’s money was in jeopardy if he didn’t close the deal quickly. There wasn’t enough time to get a conventional bank loan, so Stern arranged for a real estate investor to fund a five-year, fixed-rate loan in a hurry.
“They said, ‘Close in one week.’ We closed in one week,” he said.
The borrower, a 35-year-old wholesale electronics distributor with good credit, could conceivably arrange a more conventional refinance in the future.
“If this is the only way you are going to close, then it’s a really good option,” Stern said.
Part of real estate agent Gene Mastro’s strategy for buyers is avoiding foreclosures and short sales – especially for those buyers who intend to live in the properties they purchase.
Owners of nondistressed properties are “more ready to correct problems, any minor deficiencies,” said Mastro, who works for Coldwell Banker in Miami-Dade.
Another advantage: Sellers may be willing to pay all or part of closing costs, which can range from 2 percent to 7 percent of the purchase price.
Dilihara Martin said Mastro negotiated a seller’s contribution for closing costs on a home she bought near Kendall this month. The 1,700-square-foot home sits on nearly a quarter-acre.
Martin, 25, said the new place will be a nice change for her, her husband Julio and 6-month-old daughter Isabella, who have been living with her parents.
“He managed to negotiate down to $200,000 and we got a 3 percent seller’s contribution on top of that,” said Martin, an accountant. “He fights for you.”
Another client, Daniel Diaz, closes later this month on a three-bedroom, two-bath home in Kendall, Fla. The price is $150,000. Though Diaz, 28, said he’s a saver, he doesn’t have enough put away for a 20 percent downpayment, so he opted for an FHA-backed loan.
The sellers will contribute 4 percent of the home’s purchase price toward closing costs, said Diaz, who manages a Sports Grill.
“I had no idea about this,” he said. “Gene’s been educating me along the way.”
Another way to cover closing costs is a fast, short-term loan that doesn’t show up on credit reports.
Todd Hills noticed that some of the recent users of his company, Boomerang Lending, wanted fast cash to pay closing costs. His Colorado-based business works like a pawn shop for those with pricier assets, including paintings and fine jewelry. A recent borrower offered a 1955 Picasso sketch.
“It’s not something we’ve experienced before the last six months,” said Hills, the company CEO, but “it makes absolutely perfect sense. This is a way this consumer can get the cash that they need.”
A Texas woman who recently needed an additional $3,500 to pay closing costs sent the company several pieces of jewelry. They gave her the money, and she was able to close.
“They get their house deal done, then they have six months to make the determination about whether they want to come back and retrieve their asset,” Hills said.
Yet another possibility for buyers is a lease-to-own option, Manausa said. “It’s a purchase agreement with a very delayed closing – three months or three years.”
Tom Nisbet and fiancée Greta Leber have just such a contract on their condo. They are living in the 1,600-square-foot unit they hope to buy. It comes with two parking spaces, a pool and a gym, and it’s close enough to the University of Miami, where Leber is working on her Ph.D.
After watching others’ experiences with short sales and foreclosures, they steered clear. “This is by far the best place we saw on the market,” Nisbet said.