Experts say roof hasn't fallen on home loans: Money available to buyers in central Kansas as long as financial house is in order

Nov 01, 2008 (The Hutchinson News - McClatchy-Tribune Information Services via COMTEX) -- FNM | Quote | Chart | News | PowerRating -- Money is still available for home loans in central Kansas, local mortgage specialists say, despite reports of a nationwide credit crunch.

The only change in the area market is most buyers can no longer obtain 100 percent financing on a conventional home loan.

"You have to have some money to put down," said Randall Haltom, of Hutchinson's Executive Home Mortgage, "but it certainly isn't 20 percent like the national media is portraying."

Responding to the sub-prime mortgage debacle, lenders have tightened their borrowing requirements, asking most buyers to have a higher credit score, a lower debt-to-income ratio and some money down.

"Back to the old-school days," Haltom said, "as opposed to giving a loan to anyone who was alive and willing to sign a paper. Those days are over."

A different type of loan

While national reports say buyers must have at least 20 percent down to get a mortgage, that doesn't seem to be the case in this area.

Professionals in the credit and financial fields say they are writing conventional loans to those with good credit -- usually with a score of 680 or above -- with as little as 3 percent down. With an average credit score, buyers typically now are required to have at least 5 percent down, said Anita Biel, with Hutchinson's SCC Mortgage.

This is a change to the once-offered no-money-down, 100 percent conventional loan that was popular before the adjustable-rate crisis.

While conventional loans are still available, mortgage specialists say they are mostly writing Federal Home Administration loans.

FHA loans are backed by the government and are less stringent on requirements.

"Basically, when Fannie Mae tightened the credit criteria, an FHA loan became more attractive because credit scores don't have to be excellent," Biel said. "A buyer can have average credit and still only have to put 3 percent down."

Biel said FHA loans were popular in the early 1990s after the savings and loan crisis that led to the failure of more than 2,000 banks in the United States.

"That (FHA) was primarily what we wrote if you had a minimum down payment until Fannie Mae came out with 100 percent and 97 percent conventional loans," Biel said. "FHA comes back into the picture when the government tightens credit criteria."

The drawback to FHA loans -- and a reason many real estate agents and financial professionals move away from them when other loans are available -- is that a home must meet minimum standards established by the government, often requiring a new roof or fresh paint before it can be sold.

Both Haltom and Biel expect regulations to loosen again on conventional loans once the credit crisis has passed.

"I think we will see the 3 percent down with less credit requirements come back with conventional loans," Biel said. "It will just take a little bit of time."

Rural development loans still offer 100 percent financing, but the house must be in an area that qualifies for the program, which includes many of the smaller towns outside Hutchinson, Biel said.

"There are programs out there," Biel said. "I don't believe we will ever be at a point where you have to have 20 percent down to qualify for a mortgage."

Effects on the market

"I just wanted to yell at the TV when I heard them saying you have to have 20 percent of the price to buy a house," said longtime real estate agent Shannon Shea, of Coldwell Banker. "That is simply not true.

"My fear is potential buyers are watching this and thinking, 'Why should I even try?'"

Realtors and mortgage specialists say the market in this area has slowed a bit, but it is nothing compared to the huge fluctuation seen in states like Arizona and California.

"I would call it a dip, not a plunge," Shea said, noting the market around Hutchinson has been steadily increasing since the recovery of the savings and loan crisis, so a small decrease seems natural.

Home sales have dropped slightly in Reno County, according to the county appraiser's office. From July to September 2007, 386 residential properties sold in Reno County. This year, only 348 were reported in the same three-month span.

"The market is a little slower than what we had in the last few years, but it is still steady," said Judy McCool, with Plaza Astle Realty and the president of the Hutchinson Board of Realtors. "Homes are selling if they are priced correctly and they are clean, neat, painted and well-maintained. They always will."

Shea said she is seeing fewer people at open houses, and there is less response to the classified ads that run in Sunday's Hutchinson News.

But part of that is attributed to an expected slowdown that comes with colder weather. The other part, she said, might be the misconception of a lack of financing available.

How to know

The bottom line, real estate agents and mortgage specialists say, is if someone is thinking about purchasing a home, they should get pre-approved for the loan.

It gives the buyer an idea of a price range and it lets them know how much money they can expect to put down.

"In many cases, we can find a loan that works for them," Haltom said. "If not, we can show them what they can do to become buyers in six months or a year.

"It also lets us reassure them there is money available in this area. There is no reason to be scared by what they are hearing from the national market."

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