Although it is a Great Time to Buy a Home, Financing Has Become a Challenge for Kansas City Home Buyers

In a recent study of RE/MAX real estate agents, agents reported that although this remains a great time to buy a home due to ample housing inventory and mortgage interest rates at a historic low, earning approval for financing a home has become a longer and more difficult task.

Mortgage interest rates in late November hovered near historic lows, with Freddie Mac reporting that the interest rate for a 30-year fixed-rate mortgage stood at 4% while the rate for 15-year fixed-rate mortgages hit 3.31%. At the same time, Kansas City homeowners are willing to negotiate on everything from final sales prices to closing dates and repairs in order to get their home sold. This means that home buyers can expect to pay less for a single-family home today, even those in prime locations throughout Kansas City.

But there’s one challenge that home buyers face today: Earning approval for mortgage financing from their mortgage lender.

“It used to be that if you could breathe and had a pulse you could buy a home,” said Sharon Esslinger, managing broker/owner of RE/MAX Country Crossroads. “That is no longer the case. Things are tighter, more rigid, today. Getting a loan today requires more patience.”

The good news is that the most negative rumors aren’t true: Mortgage lenders are, in fact, continuing to lend money to qualified buyers. And those buyers worried about credit and down payment requirements also have a solid option. Home buyers can use zero to low down mortgage options like the USDA, VA and FHA mortgage loan. These loan options have steadily become a more popular option among home buyers during the shift in mortgage financing. It is true; however, that qualifying for a mortgage loan is more of a challenge today than it was during the height of the housing boom.

RE/MAX agents say that home buyers today must be prepared for this new lending reality. Buyers with good credit, solid debt-to-income ratios and the documents to support their income claims will still be able to find favorable mortgage loans, and they’ll find them at historically low interest rates. Home buyers just have to be patient and expect to provide a lot of paperwork before closing on their home purchases.

“This really isn’t new. Getting a loan was never a slam dunk back in the pre-boom days,” said Mark Zipperer, broker/owner of RE/MAX Edge. “You used to be nervous about taking out a loan. You did whatever you needed to do because you were asking for someone else’s money. You made sure your finances were in order, you paid down your credit-card debt, you socked away some money and were ready to go. During the boom, all that planning went away. During the boom we joked that we could write a mortgage application for your pet and the lenders would close on it.”

Today, home buyers hoping to qualify for mortgage financing at low interest rates must first have solid credit scores. Most conventional lenders today reserve their best rates for borrowers with credit scores of 740 or higher on the popular FICO credit-scoring scale.

Home buyers must also have low credit-card debt and income levels that are not only high enough to cover their monthly mortgage costs comfortably, but that can also be documented with a paper trail. Most conventional lenders today want buyers’ monthly debt — including their estimated mortgage payments — to be no more than 36 percent of their monthly income.

Susan Coveny, broker/owner of RE/MAX Prestige, said that she tells her buyers today that they must be able to document all of their recent significant financial transactions. For example, buyers who received a $2,000 payment into their checking accounts must be able to produce documentation showing that this payment is either an annual bonus check or a gift from their parents. Lenders want everything documented because bonuses are not guaranteed and additional loans effect the home buyers debt to income ratio.  

“Today, we have to prepare our clients to have all of their financial paperwork in order,” Coveny said. “Clients need to make sure that everything is in perfect order. Lenders today want to make sure that buyers are living within their means. They want to make sure that they won’t overextend themselves by taking on a monthly mortgage payment.”

It’s also important for buyers to have financial reserves, Coveny said.

“Lenders want to make sure that if buyers lose their jobs, they’ll be able to make their mortgage payments for several months as they search for new employment,” she said.

Vicki Geiger, broker/owner of RE/MAX Top Properties, relies on the many relationships she has formed with mortgage loan officers during her long real estate career to help her clients navigate the new mortgage reality. When her clients have questions about the mortgage-lending process, Geiger recommends one of the loan officers with whom she’s formed a relationship.

This way, Geiger knows that her buyers will receive the best advice possible when it comes to what documentation,credit scores and debt-to-income ratios they’ll need to qualify for a mortgage loan.

“Resourcing is one of the most important benefits that real estate agents can provide to their clients,” Geiger said. “I know many excellent lenders. If my clients ask me legal questions; I’d refer them to a real estate attorney. If they have lending questions, I refer them to a knowledgeable loan officer.”

Mortgage lenders are more diligent in reviewing a mortgage application today, due to the foreclosure crisis that has hit the real estate market. Although some foreclosures are not preventable, mortgage lenders are trying to eliminate the risky mortgage loans that will develop into a future foreclosure.

Above all, RE/MAX real estate agents advise buyers today to be patient during the lending process. Mortgage loans do not close in two weeks. The underwriting process will take more time than it did 4 years ago.

Buyers should not be insulted when their lenders ask them for additional verification. Just ask Lynn Fairfield, broker associate with RE/MAX Suburban in Libertyville.

She recently worked with buyers who had gotten married in the middle of applying for a mortgage loan. These buyers received a significant amount of money for their wedding, and promptly deposited it into their bank account.

Their lender wanted proof that the money came from the wedding. He asked for a copy of the couple’s wedding invitation.

“I’d never heard about anything like that before,” Fairfield said. “But that’s the way it is today. Borrowers need to be ready to verify everything.”

Need help finding or financing a home, contact the Dowell Taggart Team. With over 30 years of real estate experience, we have the experience and connections to help you be successful in your real estate endeavor.

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Blog post written by the Dowell Taggart Team of RE/MAX Premier Realty 

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