If you are planning to buy a house in Miami, it might be better to look in other parts of South Florida. Median prices in the city have climbed to around $337,000 as of January.
Home values are expected to increase further this year, although at a slower pace. Homebuyers should also be aware of higher mortgage rates, which could make a purchase seem more unattractive. Fortunately, PRMI South Florida and other experts noted that some options such as a Federal Housing Administration (FHA) loan in South Florida exist as an alternative financing method.
Rising Trend on Home Prices
Home prices not only increased in Miami over the last 12 months, but also in Fort Lauderdale and West Palm Beach metro areas. The average home price by January 2020 could rise by another 4.4%, which means buying a home now may still be cheaper.
An upward price trend, however, is not all that bad considering that the city has enough supply. In fact, Miami’s inventory is much better than in other cities where there is a shortfall of available homes. Hence, prices are even more expensive elsewhere. If you still want to buy a home in South Florida, it is important to consult a mortgage lender about the right kind of financing for a home purchase.
Pros and Cons
Each type of home loan has its own pros and cons. If you wish to pay a smaller interest rate, an FHA loan is generally better than a conventional mortgage. Another good thing about FHA loans involves having the FHA as the guarantor. The agency covers delinquent homeowners for any remaining losses arising from a foreclosure sale, if the latter is not enough to repay the loan.
However, FHA imposes a cap on the loanable amount based on the average price in an area. You would also need to pay private mortgage insurance (PMI), which are unavoidable regardless of the down payment amount. Those who plan to pay a 20% down payment to avoid a PMI should consider a conventional loan instead.
Other Types of Home Loans
A conventional loan may originate from a bank or a mortgage lending organization. It’s no secret that many encounter a difficult time when applying for this type of loan, due to the higher risk of default. Unlike FHA loans, conventional mortgages have no government insurance. Hence, applicants are subjected to stricter credit and financial screening.
VA loans are another option. This is only applicable for those who are currently serving in the armed forces, veterans, reserve or national guard members, and surviving spouses of former members. There is no PMI or down payment requirements, but eligible borrowers need to pay a funding fee up to 3.3% of the loan’s amount.
A home purchase in Florida would not come cheap, especially in coastal areas, but competition from other buyers and potential price appreciation by next year will only make it more difficult. While it is a good time to buy homes when prices are cheaper, sellers are more likely to lower their offer even if median values are high yet sales are sluggish.