The Florida real estate market is beginning to cool down, making properties more affordable for many buyers. But when it comes to financing a single-family, multi-family, or commercial property, what options do you have? What factors should you consider when choosing among these options?
Below, Paul Turovsky explains more about the ins and outs of financing your next Florida property.
Financing Options
“The right financing choice will depend on a number of different factors—the type of property you’re buying; whether you intend to occupy, flip, or rent the property; your timeline; your budget and the amount and type of assets you have available as collateral or a down payment”, states Paul Turovsky.
Conventional Financing
Conventional financing is any type of mortgage loan that isn’t insured (or guaranteed) by the U.S. government. (Non-conventional financing can include government-backed loans like USDA, VA, and FHA loans). Conventional loans can be either conforming or non-conforming:
- Conforming loans meet the guidelines to be sold to either Fannie Mae or Freddie Mac.
- Non-conforming loans may not meet Fannie/Freddie guidelines, so they can be held by the original lender or sold to another private lender.
With a conventional loan, your personal credit score and credit history determine your ability to get approved and what kind of interest rate applies to the mortgage. Conventional loans can generally be used to purchase single-family or multifamily housing.
Government-backed Financing
Government-backed loans like FHA, VA, and USDA loans offer lower down payments and more expansive lending requirements than conventional loans and some other types of loans.
- FHA loans are insured by the Federal Housing Administration. FHA loans allow families to put as little as 3.5% down payment instead of the 20% down payment common for conventional loans.
- VA loans are insured by the Veterans Administration. VA loans have a 0% down payment option but are available only for veterans, active military personnel, and surviving military spouses. VA loans provide the opportunity to not have private mortgage insurance, offer limited closing costs and lower interest rates.
- USDA loans are insured by the United States Department of Agriculture. USDA loans have a 0% down payment option but are only provided to individuals purchasing in eligible towns and rural areas. In addition to having no down payment requirements, USDA loans offer lower rates than conventional mortgages.
Any of these government-backed loans can be used to purchase either a single-family or multifamily property—however, some have strict guidelines on owner occupancy (meaning that if you purchase a multifamily property, you may be required to live in one of the units and there may be a maximum of how many units a property can have).
Land Loans
“If you are looking to buy raw land, unimproved land or improved land, you more than likely will not get approved for a regular conventional or government backed mortgage. As land loans are not as common in the world of financing often they have higher interest rates and higher down payment requirements.” Says Paul Turovsky.
Most land loans last between two and five years, and the borrower will then make a balloon payment to pay off the loan. (This balloon payment can come in the form of another type of loan, like a conventional loan).
Owner Financing
Owner financing is a type of private mortgage where a property seller finances the purchase directly with the person or entity buying the property. The buyer will make the mortgage payment directly to the seller every month (or as often as the agreement provides)—the other terms are entirely up to the buyer and seller. For example, some owner financing will offer an adjustable interest rate or a balloon payment; others are structured much like conventional mortgages, with a down payment and moderate interest rate.
There are several pros and cons for getting owner financing.
Pros:
- Terms can be flexible
- Down Payments are negotiable
- There are fewer closing costs
- The closing process moves along more quickly
- Qualifying can be much easier
Cons:
- Seller can demand higher interest rates in exchange for financing
- The term of the loan can be short, culminating in a balloon
Construction Loans
Construction loans are similar to land loans; but while land loans provide only the money to purchase the land, construction loans provide enough money to purchase the land and build a home on that land. However, construction loans often have shorter terms than land loans, which can put you on a tight timeline if the property you’re building is extensive. Once the construction loan term has ended, you’ll need to refinance the loan into another type of mortgage.
Other Loans
In Florida, there are a half-dozen or more state-specific loans, cash assistance programs, and other programs designed to help state residents afford a property. These include:
- The Florida Assist Second Mortgage Program offers eligible borrowers up to $7,500 at 0% percent interest on a deferred second mortgage to use toward a down payment on a conventional loan.
- HFA Preferred Grants offer individuals with 3, 4, 5 percent of the home’s purchase price to use toward the down payment and closing costs. This second mortgage is forgiven after five years.
- The Florida Homeownership Loan Program gives buyers up to $10,000.00 in assistance as a second mortgage. The mortgage must be paid off over 15 years unless you move, refinance, sell or transfer ownership of the property.
In Closing
Your Florida lending options are broader than you might realize. From conventional, FHA, VA, and USDA loans to owner financing, land loans, and construction loans, there are lending options to fit all needs and budgets. Talk to a real estate professional who can refer you to a mortgage professional to help determine what loan options are right for you.
About Paul Turovsky
Over the last 15 years, respected real estate professional, Paul Turovsky has established a proven track record of excellence. He represents clients and investors in commercial and residential real estate acquisitions as well as lease obligations and asset reposition & disposition. Mr. Turovsky graduated from Baruch College with his B.A. in Finance and Investments, and he received his Juris Doctorate from Ave Maria School of Law in 2013.
