Condos in Florida
As we see property values increasing and interest rates starting to creep up, it's getting increasingly difficult for first time buyers to purchase their first home. In South Florida, it's virtually impossible to find even a small, 50 year old single family home under $300k. So many buyers turn to condos. If you're a cash buyer, that's wonderful - you'll have many condos to choose from! But if you plan to get financing, it might not be quite as easy as you thought.
Back in 1998 when I started in Real Estate, condos were a great option for first time buyers. You could purchase a condo using FHA financing, which only required 3% at the time. If you had 5%, 10% or more, that was just icing on the cake! A nice 2 bedroom condo could be purchased under $100k, so you only needed $3000 + closing costs. It was easier to buy a condo than to rent!
Fast forward to 2003, 2004 when many rental communities decided to "convert" to condos. Investors were in a frenzy to buy up 5, 10, even 20 of these units, expecting to flip them and make thousands on each of them. But then BAM! The market crashed in 2006 and all those investors found they couldn't flip the units and they couldn't afford to pay the monthly maintenance fees on multiple condos. So they let them go... let the banks take them back, or let the condo associations foreclose on them.
This caused great problems for many condo associations. Here they were with as many as 25 to 50% of their units empty, not paying their maintenance fees. Condo associations struggled to pay their insurance, roof repairs and other obligations. Some even went bankrupt.
Fast forward again to present day 2018. The market is great, most condos have recovered and are 100% occupied. Owners are paying their monthly fees. Things are good! Except all those condos lost their FHA approvals, making condo purchases with FHA almost unheard of today. Here's what page after page of the FHA list looks like. This snippet is from Fort Lauderdale, but it's the same throughout Plantation, Sunrise, Tamarac and all the cities in South Florida. In case it's too small to read, the red lettering for each condo says EXPIRED.
In Broward County, there are 427 condos listed on HUD's condominium list. There are 5 that have HUD's approval for FHA financing.
- Hallmark of Hollywood - 2 bedroom condos start in the $300's and go up to the high $400's. This isn't real helpful for most first time buyers. Hallmark's FHA approval expires October 2018, so we'll see if they apply to renew their approval.
- Parc Village in Plantation - this is a nice community, with condos that are designed like townhouses & villas. With prices in the $200's, this is a great option for first time buyers, but units tend to sell in the blink of an eye here! FHA approval at Parc Village is good until April 2020.
- The Preserve at Walnut Creek Condo in Hollywood - another great option, with condos under $200k, but currently there are no listings here and their FHA approval expires August 2018. Hopefully they will renew.
- The Venetian Condo on Las Olas - this condo is located near the beach on Fort Lauderdale's upscale Las Olas Blvd. With intracoastal waterway views, this is a great condo, but probably not feasible for the average first time buyer, with prices starting in the $400's. FHA approval at the Venetian is good until June 2019.
- Lastly, there's Yardley Condominium C, which is a 55+ community in Tamarac. With prices in the mid $100's, this is a great option for buyers who are 55+. Yardley's FHA approval is good until May 2019.
With these being the only options for FHA buyers wanting to purchase a condo, buyers need to explore conventional financing. There are now 3% and 5% down payment conventional loans available, but with these, we have to look at Fannie Mae requirements. In order to get a conventional loan with less than a 25% down payment, condo associations must be able to successfully answer the lenders "condo questionnaire". Some of the questions in this questionnaire pertain to how much the condo collects for "reserves". Reserves are meant to cover expenses such as roof repairs, elevator repairs, repaving of the parking lot and many other maintenance issues that crop up over time.
In order to pass Fannie Mae requirements, the association’s budget must show that they collect at least 10% of their yearly income to put toward reserves. It's unfortunate, but very few condos collect 10%. Many don't have any reserves at all. Some might have 5%. But without that magic 10%, no buyer will be able to purchase unless they have a 25% down payment. There are other questions on the questionnaire that can cause a condo to be turned down, such as the number of rental units in the complex , the number of investor owned units, whether there's any pending or ongoing litigation against the association and so on.
Fannie Mae has a list of approved condos that they publish on their website. I check it often, but on their current 14 page list, there are approved condos in Orlando, Naples, Fort Myers and other cities, but only one single condo in Broward County, which is a 55+ community in Margate. They have a conditional approval which expires July 2018. There are a handful in Miami.
With so few condos in South Florida on HUD's list or Fannie Mae's list, and so few that are able to successfully pass the condo questionnaire, it has become rare to find a condo that can be purchased with less than 25% down. But now and then a condo will pass this scrutiny. Yippee! How exciting! You have a situation where the bank will approve a loan with 5% down, but guess what? In many cases, the condo association has their own rules and requires 20% down!
I've personally found the current condo situation to be extremely frustrating. Not only for myself, but for so many buyers who REALLY want to buy!
At this time, there is a loan program available that allows buyers to purchase with 10% down. Of course all buyers don't have 10% saved up, but it's easier to save 10% than 25%. This 10% program consists of a 1st mortgage of 75% and a 2nd mortgage (HELOC or Home Equity Loan) of 15%. Structuring the purchase in this manner allows buyers to be putting down 25% in the eyes of Fannie Mae. Buyers must have excellent credit - 700 credit score or higher and a low debt to income ratio. But at least it's helping some buyers achieve their dream of buying a condo in Florida.
If you’d like me to put you in touch with a lender who offers this program or if you have questions about condos or anything Real Estate related, you can contact me at 954-557-7036 or debbie@SouthFLHomes.com. There are a few FHA approved condos in Miami and Palm Beach, so if you’re interested in those areas, please contact me and we can explore those options too.