Property Profiles
Not All Bad News
Area experts take a closer look at what’s happening in Kansas City’s mortgage market.

Good credit goes a long way in a slow housing market. According to local lenders, an individual’s FICO score should be around 680 or higher to qualify for the best loans possible.

Here are a couple of ways (other than paying bills on time) to maintain or even raise your credit score:

- Know where you stand. Get a copy of your credit report to find out what your score is and make sure all the information is up-to-date.

- Pay down balances that are close to your total credit limit. It is one of the best ways to improve  your score.
 
- Close accounts you don’t use.
 
- Don’t open up a lot of new accounts and don’t let just anyone pull your credit report — these will both lower your score.

Anyone with access to a newspaper, radio, television or the Internet can’t avoid negative news reports about the mortgage industry, but as many things occur in the Midwest in a more muted fashion than in other parts of the country, so goes home lending, according to local lenders.

“We are not without our challenges — things are pretty flat and some areas have depreciated — but Kansas City is in better shape than most markets,” says Todd Geiman, executive vice president and director of mortgage lending for National Bank of Kansas City.

There have been some changes in the market in general since the subprime fallout: Higher credit scores and down payments are requisite, and 110 percent loan-to-value financing is a thing of the past.

But not all is gloomy. Following is a look at four different areas of mortgage lending to gauge the temperature of the local market.

REFINANCE
This area might be one of the brightest lights currently shining in the industry, with the Fed continuing to drop interest rates. Jack Huey, executive vice president and chief lending officer at Capitol Federal Savings, says refinance has accounted for 40 percent of his business  of late.

“This has been a good market for us this calendar year,” he says. “Rates are very good and it is a good time to refinance.”

Keep in mind that many lenders are skittish and require at least some equity to refinance. Jack says Capitol Federal can’t provide a loan of more than 90 percent if it is not insured; Todd says most of what National Bank of Kansas City provides are mortgage-to-mortgage loans (i.e. no large cash pullouts added to the top of the loan).

Home values also have been on a decline in the area and appraisals are low, which means low loan-to-value ratios. Before applying for a refinance loan, Jack recommends asking neighbors to find out what their homes are worth or speaking with a good real estate agent who can tell you the value of comparable homes in your area.

HOME IMPROVEMENT
How stable is the market for home improvements? That depends upon whom you ask.

At Capitol Federal, the volume of  home improvement loans has increased “substantially.”

“When the purchase side slows down … that’s when that type of market picks up,” Jack says. “When it’s harder to buy, people want to remodel.”

Credit scores need to be 680 or higher, but he says borrowers can get up to 100 percent of the financing needed for improvements.

At National Bank, loans are available, but Todd says the home improvement market isn’t nearly as strong as it was just a few years ago. He says banks have tightened the guidelines for borrowers and it is now difficult to get a loan for more than 80  percent loan-to-value.

“They have lowered the ability to tap into equity,” Todd says. “This market has changed the most as far as belt-tightening.”

SECOND HOMES
According to Todd, the average age of second-home buyers is around 50, a population that has potentially not been quite as affected by the economic slowdown as younger families.

“Nationally, this is a very good market,” he says. “As baby boomers age and as  people retire, we do a lot of second-home financing and purchase. As the baby boom generation gets poised for retirement, this is a viable area.”

But again, there is a catch, says Kelly Kirsch, vice president of real estate lending at Valley View Bank. In order to get a  good rate on a second-home loan, she   says the buyer needs to have 30 percent down and a 700 FICO score, adding that someone with those stats can get a 6.5  percent interest rate; a 20-percent down payment raises it to 6.75 percent; and 20 percent down with a 680 credit score would put it over 7 percent.

“The rate is going to be driven by the loan-to-value and credit score, but that is across the board on all of these loans right now,” Kelly says.

JUMBO LOANS
First the good news: According to Jack, the jumbo loan market is viable and one that is coming back. But appraisals are low and everyone must pay for the sins of other cities.

“Jumbo has been hit the hardest because it is a nonconforming product, and areas like Florida, Arizona and California were hit hard in that larger-bracket type of property,” Kelly says. “That has made it more difficult to obtain jumbo financing here.”

The appraisal value of bigger properties was declining in the few weeks before print. “We’ve lost a number of deals because the properties didn’t appraise out,” Jack says.
To combat the problem of low appraisals wrecking a deal, he notes that a potential homeowner should have the property compared to four or five other homes rather than the standard three to make sure the appraisal is as detailed as possible and the value will hold up.

Kelly says the interest rate on jumbos   is about one percent higher than on  conforming loans. While the market is tighter and good credit is a must, she says Valley View has found ways to help people get into the homes of their dreams.

First, loan officers try to get homebuyers below $417,000 and into the conforming range by either increasing their down payment or providing a second loan for any amount that exceeds $417,000. They also often keep loans above $1 million in-house and fix the rate for five years, until the market has time to turn around.

More difficult markets should not discourage individuals looking for funds to buy or renovate a home, Kelly says. Loans are available — lenders and consumers are just being forced to look at the market differently than they were during the housing boom.

“It’s not about not making loans,” she explains. “We might not be able to do every loan, but we are certainly going to find a place for it if we can … we just  have to be more creative and think outside the box.”