I’m being contacted regularly by buyers in the $400,000-$500,000 price range, who are exploring real estate purchase possibilities. Many such individuals have been renting for a while, and are starting to feel that owning their first home is within reach.
Though condo prices are declining, the bulk of the units in this range currently on the market are tenancy-in-common (TIC) units in 3+ unit buildings. (This is an ownership scenario wherein you own an interest in a building, not the unit itself.
TIC units in this price range will typically involve “fractional” financing—all owners obtain individual loans. (This is in contrast to the traditional TIC loan of the past, wherein all owners were on one group loan.)
The TIC interests themselves are priced within first-time home buyer range, but how many buyers can actually qualify for these fractional loans?
A quick check with Henry Jeanes over at Sterling Bank reveals that TIC buyers for fractional loans will have to meet the following requirements:
- Minimum of 20% down (rates are at 7.25% with 20% down; they get lower as your down payment increases)
- Credit score of 700 (for W2 employees)
- Proof of at least six months of reserves on hand, post closing.
Of course, sellers are working within the confines of these requirements, and it is possible for buyers to negotiate rate buydowns and other financial incentives in order to complete a sale. And some sellers are able to offer slightly lower interest rates on renovated buildings in which a lender like Sterling is already providing the underlying commercial financing. (This is the case at 450 Vallejo at Kearny, a five-unit TIC offering.)
But it’s good to for first-time home buyers to know the initial cost of ownership for these types of purchases.