Financing a Home?

It’s a new world for the mortgage loan and real estate industries, and the second-home market at the Lake of the Ozarks is no exception.

The most significant changes have occurred in the amount of documentation required by the lender, new legislation concerning boat docks and property appraisal, and stricter requirements for condo purchases.

Ample Documentation, Good Credit and Money Down
Two years ago, a new homebuyer could walk into the bank with a paycheck stub and a W-2 and have a good chance of scoring a loan. Today’s mortgage loan scenario is vastly different, according to Russ Clay, vice president/mortgage loan manager at Central Bank of Lake of the Ozarks.

“Go back to the way it was 20 years ago,” Clay says, advising mortgage loan customers on what to expect. “Don’t be surprised or overwhelmed by the amount of documentation that we will ask for. We still can make the loans but need documentation.”

Mortgage loan applicants likely will have to produce two years worth of tax returns, W-2s, recent pay stubs, complete bank statements and stock portfolios. In addition, money down has become nonnegotiable in recent months.

“Most lenders will loan only 80 percent of the price or the appraised value (the lower of the two),” says Carol Carlos, senior vice president at First National Bank.

A strong credit score is also a must — at least 620 or higher. Carlos says that credit scores have become an automatic qualifier or disqualifier through Freddie Mac and Fannie Mae, but in years past were evaluated at the banks’ discretion.

“Credit scores have to be better and debt ratios lower,” Clay says. “The secondary market is requiring consumers to have more reserves.”

Boat Docks and Property Appraisals
In early 2009, the Missouri Real Estate Appraisers Commission decided that boat docks would be considered personal property and no longer be included in appraisals. As a result, homeowners had to produce cash to cover the purchase of a dock with a lakefront home. But the Missouri Board of Realtors immediately proposed legislation to reverse the decision, according to Karie Jacobs, 2010 President of the Bagnell Dam Association of Realtors and an agent with Prudential Lake Ozark Realty.

House Bill 842, signed into law in August 2009, directs lenders and appraisers on how to include boat docks in the appraisal of individual homes. Condos, however, were not included in the bill: Community boat slips may not be included in the appraisal and, therefore, not included in the financing. Lobbyists continue to challenge the issue, but that piece of legislation has not been worked out yet. Buyers either must secure a separate loan for a community boat slip or pay for it upfront.

Restrictions for Condo Financing
Boat slips are only part of the challenge for condo sales. Overall, securing a mortgage for a condo is more difficult than a residential home. “Condos are considered a higher-risk entity,” Clay says. 

Second-home financing for condos is currently restricted to developments in which 70 percent of the units have been built and sold, and lenders look closely at the strength of the condo development before approving loans.

Carlos says that an on-site nightly rental office also will keep financing from being made, and that no more than 15 percent of the condo owners may be delinquent on their association fees.

For newer projects, the 70-percent built-and-sold requirement often forces buyers to pursue alternative financing as opposed to traditional home loans. The bank may secure the loan, instead of Freddie Mac and Fannie Mae, with a three- to five-year adjustable rate mortgage (ARM), but such loans come with a higher interest price tag. Secondary market loans through Freddie Mac and Fannie Mae were at 5.125 percent in May, compared to 6 to 7 percent for ARM deals, according to Clay.

Loan Shopping Locally
Shopping locally has its advantages, particularly when it comes to mortgage loans. “The Lake is a unique second-home product,” Jacobs says.

A number of situations can apply to the sale of property at the Lake that underwriters outside of the area may not  be familiar with, including the transfer of personal property with real estate (homes or condos sold with their possessions); easements with Ameren (homeowners may have to grant lake access); and national flood insurance (all lake property is in a flood plain, so individuals have to do an amendment with an elevation survey to prove their property should be exempt).

Jacobs says that underwriters at the Lake are generally more knowledgeable about these issues and can head off potential problems that may arise at closing. Most loans are sold to Freddie Mac and Fannie Mae and all have to meet the same qualifications, but underwriters must understand the specifics of lake property.

Despite these changes and challenges, real estate sales at the Lake are on an upswing, according to Jacobs. “It’s a great time to be buying a home,” Clay says.