Improving home buyer credit scores

home buyer credit scores
Credit scores (infographic from visual.ly)

There’s been a lot of anticipation about the new credit scoring model by VantageScore (vantagescore.com).  It’s supposed to increase the availability of credit to many consumers.  Launching this fall, VantageScore 4.0 is touted to be a more accurate scoring system that uses trending data instead of “snapshots.”  This credit scoring system is also supposed to help those with limited credit, and incorporates the improved credit reporting standards included in the National Consumer Assistance Plan.  This and other new scoring systems have a lot of promise, but will improving home buyer credit scores help the mortgage process?

Let’s take a step back to see how home buyer credit scores reporting has evolved in recent years.  The National Consumer Assistance Plan (nationalconsumerassistanceplan.com) was launched in 2015 as a result of an agreement between the credit reporting agencies (Equifax, Experian, and TransUnion) and New York Attorney General Eric Schneiderman.  The agreement stemmed from Schneiderman’s investigation into the credit reporting agencies’ practices including (but not limited to) the accuracy of collected data, the practices in handling consumer disputes, and the reporting of medical debt.

The National Consumer Assistance Plan’s focus is to improve the consumer’s experience as well as increase data quality and accuracy.  Consumers will have increased information related to credit report disputes, including instructions on what to do if they’re dissatisfied with the result of their dispute.   Additionally, there is an “enhanced dispute resolution process” for fraud victims.

Among the many changes made by the National Consumer Assistance Plan to increase accuracy and quality of data includes: issuing consistent standards for those who report data to the credit agencies; medical debt won’t be reported during a 180-day waiting period so as to allow for insurance payments to catch up with billing; and the elimination of reporting of debts that were not contractual (such as parking tickets).

From The National Consumer Assistance Plan:

Consumers visiting www.annualcreditreport.com, the website that allows consumers to obtain a free credit report once a year will see expanded educational material.

Consumers who obtain their free annual credit report and dispute information resulting in modification of the disputed item will be able to obtain another free annual report without waiting a year.

Consumers who dispute items on their credit reports will receive additional information from the credit reporting agencies along with the results of their dispute, including a description of what they can do if they are not satisfied with the outcome of their dispute.

The credit reporting agencies (CRAs) are focusing on an enhanced dispute resolution process for victims of identity theft and fraud, as well as those who may have credit information belonging to another consumer on their file, commonly called a “mixed file.”

Medical debts won’t be reported until after a 180-day “waiting period” to allow insurance payments to be applied. The CRAs will also remove from credit reports previously reported medical collections that have been or are being paid by insurance.

Consistent standards will be reinforced by the credit bureaus to lenders and others that submit data for inclusion in a credit report (data furnishers).

Data furnishers will be prohibited from reporting authorized users without a date of birth and the CRAs will reject data that does not comply with this requirement.

The CRAs will eliminate the reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as traffic tickets or fines.

A multi-company working group of the nationwide consumer credit reporting companies has been formed to regularly review and help ensure consistency and uniformity in the data submitted by data furnishers for inclusion in a consumer’s credit report.

Recent credit reporting changes are sure to make an impact for home buyer credit scores.  But, you may still have impaired credit that would make it difficult for you to buy a home.  So how can you improve your home buying process?  Be proactive!

A credit report contains a lot of information about you.  It reveals your personal information, including where you’ve lived and worked.  It indicates the credit cards and other loans you have, and how you pay on them.  It may also include any collection activity against you, as well as bankruptcies, liens or judgements.  Know what’s being reported about you by obtaining your free annual credit report (annualcreditreport.com) and dispute discrepancies.  Successful disputes should improve your credit score.

However, if your home buyer credit scores are impaired as the result of poor habits, don’t despair.  You can improve your credit report and score on your own by creating “good” credit habits.  First: make sure you pay your bills on time.  Planning specific times each month to pay bills will make it hard to miss a payment.  Second: reducing credit card balances may improve your credit score.  And third: be mindful of how many credit cards you maintain.  Having too many credit cards could lower your credit score.  Also, be careful to not apply for too much credit at any given time, as these “inquiries” could lower your score as well.

To learn more how a credit report functions, affects you, and how improve your home buyer credit scores, visit the Consumer Financial Protection Bureau (consumerfinance.gov), the Federal Trade Commission (ftc.gov), and the Federal Deposit Insurance Corporation (FDIC.gov).

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

How to find your affordable home

affordable home
The affordable home (infographic from nvaha.org)

The latest headline for the Case-Shiller Home Price Index boasts, “hits all-time high for sixth consecutive month” (us.spindices.com). The data for May’s S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index revealed a 5.6 percent year-over-year increase for the US Census divisions.  However, the month-over-month Case Shiller composite indices decreased about 0.1 percent.  Seattle, Portland, and Denver continue to lead in home price growth with double digit gains.  The Washington DC region posted a 1.0 percent gain in May and a modest annual increase of 3.6 percent year-over-year.  The bottom line is that homes are becoming more expensive. And as a home buyer, you want to know how to buy an affordable home.

David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, provided analysis of this week’s release suggesting that the continued climb of home prices is a manifestation of the housing market, and not necessarily reflective of the economy.  He stated:

“Home prices continue to climb and outpace both inflation and wages…Housing is not repeating the bubble period of 2000-2006: price increases vary across the country unlike the earlier period when rising prices were almost universal; the number of homes sold annually is 20% less today than in the earlier period and the months’ supply is declining, not surging. The small supply of homes for sale, at only about four months’ worth, is one cause of rising prices. New home construction, higher than during the recession but still low, is another factor in rising prices.”

Rising home prices are impacting the housing market and making it difficult to find an affordable home. The latest National Association of Realtors Housing Affordability Index (nar.realtor) indicates that buying a home is less affordable compared to the same time last year, which decreased from 161.2 to 158.8.  Additionally, the median sales price for a single family home jumped 4.6 percent.

Even though home prices continue to climb, the good news for home buyers is that mortgage rates are still relatively low.  According to last week’s Freddie Mac Mortgage Rate Survey (freddiemac.com), the 30-year fixed rate mortgage dropped from 4.03 percent to 3.96 percent.  Although slightly higher from the same time last year (3.45 percent), historically low interest rates help make a home purchase affordable.

Although wages are not increasing on the same pace as home prices, home buyers are benefiting from low mortgage rates.  However, a concern that is echoed throughout the industry is the continued low inventory of homes for sale.  The low inventory of homes, specifically turn-key homes, is a factor in increasing home prices and making it harder to find an affordable home.

If you’re a home buyer and are frustrated with the competition, think outside of the box.  It’s true the best looking and well priced homes are receiving multiple offers and sell quickly.  The competitive atmosphere is pushing home prices higher.  However, keeping an open mind could help you to not only cope with the current market, but also help you find your next home.

One way home buyers are finding their affordable home is by renovating a distressed home.  Homes that languish on the market and are in need of repair or renovation may be a “diamond in the rough.”  Renovation loans, such as the FHA 203k or Fannie Mae’s HomeSyle loan can make the process easier and affordable. Renovation loans are designed to help buy and renovate a home. There are a various renovation loan programs, so having a long conversation with a qualified renovation loan specialist can help you decide which program is best for you.

Be prepared and line up your licensed contractors. Renovation loans require documentation and plans from your licensed contractor. Most of these programs will provide funding in stages. However, there are a few renovation loan programs that are “streamlined” and designed for less expensive renovations. Check with your lender for qualifications, loan limits and requirements.

Additionally, you don;t have to look in the MLS to find your affordable home. Work with an experienced agent who has the savvy to find homes for sale that are not currently listed for sale. These may include (but not limited to) for sale by owners, expired listings, and auctions.

Home owners who did not have luck selling their homes earlier in the year may be open to selling to you. Your agent can find and contact home owners who have recently taken their homes off of the MLS.

Look for homes that are “For Sale by Owner.” It used to be hard to find the FSBO, and you would have to drive through neighborhoods to look for the “For Sale by Owner” signs. But of course the internet has made it easier to find the FSBO. They are listed in the MLS by listing placement services.  They are also posted online on “for-sale-by-owner” sites, as well as Zillow, Trulia, or Craigslist.

Neighborhood listservs and internet groups are a great way to fnon-MLS homes for find FSBO’s.  But you have to be a resident of the neighborhood, or know someone who is a resident to get access to the listserv.

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Vacation homes declining

vacation homes
Vacation homes sales decline (infographic from nar.realtor)

According to the National Association of Realtors 2017 Investment and Vacation Home Buyers Survey (nar.realtor), last year’s vacation home purchases plunged 21.6 percent!  Last year’s decline in vacation homes sales comes at the heels of a huge drop in 2015, and has tumbled about 36 percent since the post-recession high marked in 2014.  Are the statistics telling us it’s a good time to buy that vacation home you have been thinking about?  Or is it that Americans are rethinking their view about vacations and retirement?

Of course, Lawrence Yun, NAR chief economist, feels that the decline is due a very tight vacation homes market that may likely make a comeback in the ensuing years. In an April 11th NAR press release he stated that “In several markets in the South and West – the two most popular destinations for vacation buyers – home prices have soared in recent years because substantial buyer demand from strong job growth continues to outstrip the supply of homes for sale. With fewer bargain-priced properties to choose from and a growing number of traditional buyers, finding a home for vacation purposes became more difficult and less affordable last year.”  He added, “The volatility seen in the financial markets in late 2015 through the early part of last year also put a dent in sales as some affluent households with money in stocks likely refrained from buying or delayed plans until after the [2016] election.”

However, another explanation given by the NAR is short term rentals, including airbnb.  Short term rentals allow people to visit vacation and resort towns without committing to buy a home.

To give perspective about the tight vacation homes market, NAR stated that vacation home sales were only 12 percent of all transactions in 2016, a decrease from 16 percent in 2015 (and close to the recent low of 11 percent in 2012).  Additionally, low vacation home inventory pushed sale prices higher.  The 2016 median vacation home price increased 4.2 percent, which is a decade high of vacation home price growth.

A lack of inventory and rising home prices are sure to put a damper on the vacation homes market.  But the slump could be a manifestation of something else.

Bloggers and columnists have reported a shift in the younger generation’s home buying habits for about a decade.  The trend seems to be a rejection of the accepted industry standard home buying cycle set by older generations.  For decades, the Baby-Boom generation has set the bar for home sales.  Their views on home ownership and vacation homes have guided the experts.  However, millennials have a different perspective, having a more conservative take on home buying and exhibiting a strong sense of value.

The NAR’s 2017 Investment and Vacation Home Buyers Survey pointed out that that the top two reasons to purchase a vacation home are for a family retreat and for retirement.  However, just like the trend in home buying, millennials are redefining their retirement and vacation needs.

Expecting to work longer, Millennials’ idea of retirement is not perceived the same as the Baby-Boomer’s vision of retirement.  Staying relevant and engaged is now more important than leisure.

Having a regular spot for the family to congregate and vacation is no longer highly desired.  Millennials want the option to travel rather than visiting the same vacation spot every year.  Millennials are also savers. They may view vacation homes as exorbitant and expensive.  Even though the vacation is only a small portion of the year, there are regular expenses that may include a mortgage, property taxes, HOA fees, and maintenance.

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Self-driving cars and home buying

self-driving cars
Self-driving cars (infographic from crowdcompanies.com)

Technology has made homes more efficient and environmentally friendly, while also making them more comfortable.  Technology has made the business of real estate become increasingly easier through electronic communications and electronic signatures.  Technology has also made finding a home much easier too.  It’s obvious that the real estate industry has been greatly impacted by technology, but will the self-driving cars technology impact real estate?

A curious article that appeared in a recent issue of Appraisal Journal suggests that self-driving cars will eventually influence real estate (A Largely Unnoticed Impact on Real Estate-Self-Driven Vehicles; Appraisal Journal; Winter2017, Vol. 85, No.1, p51-59).  The authors, Levine, Segev, and Thode, discuss how self-driving cars will likely become a standard on our roads, as well as likely changing the way we think about where we live.  There is a suggestion that the wide spread adoption of self-driving cars could bring about a suburban renewal.  As self-driving cars become more abundant, some suggest that would influence some home buyers and their decisions on where they choose to live.  The concept of owning a self-driving car could make the choice a little easier to opt for the less expensive suburban home with more land.

However, you should consider that owning a self-driving car might not make your suburban commute more convenient.  For many home buyers, a reason to move closer to an urban area is to reduce the commute time to their jobs.  For some, the thought of increasing their commute time even by ten to fifteen minutes (by virtue of an extra metro stop) is unacceptable.  Sitting in your self-driving car is not much different than sitting in a metro car or bus.  So the notion that owning a self-driving car could spawn suburban growth may not hold water.

Owning a self-driving car won’t make the suburban commute less expensive.  Many home buyers decide to live closer to their jobs to save money and energy.  The self-driving car is like any other car, such that there are operating costs.  Regardless whether your self-driving car is electric, gas or hybrid, there are fuel costs.  There will be maintenance costs too.  And of course, you need to a place to park it like any other car.

Even the value of commercial real estate may not necessarily be affected by self-driving cars.  These vehicles won’t reduce travel time to the store, nor would they make any business more convenient than another.

Let’s face it, self-driving cars isn’t the internet.  These vehicles are a convenient way to travel for sure, but they won’t change how we communicate.  Nor will they change the basic requirements we seek from our homes.

However, a government policy shift, much like the policies favoring designated car-pool vehicles and mass transit, could tip the scales in making the self-driving car the vehicle (no pun intended) to changing the real estate landscape.  Creating special lanes for self-driving vehicles could reduce commute times, thus reducing fuel costs.  Requiring dedicated parking for self-driving vehicles could also influence commercial real estate.  However, like the impact of designated car-pool vehicles, a major impact to our lifestyle is unlikely from self-driving cars.

Choosing where you live is a personal decision that is impacted by many external factors, including quality of life.  Of course the self-driving car is a technological advance that is surely to affect how you travel.  However, it is doubtful that owning a self-driving car will largely impact your quality of life and how you decide where to live.  In fact, the authors of the above mentioned article point to a 2016 Kelly Blue Book survey that indicates that a majority of Americans prefer “cars that are not fully autonomous and retain some ability for individual control.”

Copyright© Dan Krell
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Homeownership crisis?

homeownership crisis
Homeownership Crisis? (infographic from keepingcurrentmatters.com)

The housing market made significant strides last year with regard to home sales and home prices.  However, even with housing’s good news, the homeownership rate continues to be at generational lows.  Economists and real estate professionals are stumped. Is there a homeownership crisis?

The homeownership rate for the first quarter of 2017, reported by the U.S. Census Bureau (census.gov), was 63.6 percent.  This is a slight improvement from homeownership rate recorded in 2016.  However, in their analysis, the Census Bureau stated that when the rate is adjusted for “seasonal variation,” there was no statistical difference from the 63.5 percent rate recorded in the last quarter of 2016.

homeownership
Homeownership Rate (historical data from census.gov)

The homeownership rate peaked at 69.2 percent in 2005, but has steadily declined since the Great Recession. Industry experts have been flummoxed as to why there have not been more home buyers taking advantage of historically low interest rates in an upward economy. (Freddie Mac reported last week that the national average interest rate for a 30 year fixed rate mortgage was 3.94 percent; freddiemac.com). Even mortgage lending has become looser, as some mortgage companies have rolled out low and no-down payment programs in recent months.

A homeownership crisis in the making, why is there lack of interest in homeownership?  A recent study co-sponsored by the Fisher Center for Real Estate and Urban Economics, UC Berkley and the Rosen consulting Group (Hurdles to Homeownership: Understanding the Barriers; June 2017) asserted to have the answer to this question.  According to a NAR press release (realtor.org), the study was announced this month in honor of National Homeownership Month, and presented at the National Association of Realtors Sustainable Homeownership Conference.

The authors discussed regulatory issues that has hindered housing and mortgage lending.  They also identified issues affecting would-be home buyers, which include: student debt; availability of mortgages; housing affordability; low home sale inventory; and “post-foreclosure stress disorder.”

You may already have heard much about regulatory issues, consumer debt, mortgages, affordability, and low housing inventory.  But, what is “post-foreclosure stress disorder?”  The Rosen Consulting Group coined the phrase to give a name to the concept of perceived home buying risks derived from a financial crisis.

Even though a number of consumer surveys continue to indicate a strong positive sentiment towards homeownership, the authors point to post-foreclosure stress disorder as a major influence on home buying decisions.  They believe that many individuals have been directly and indirectly affected by the Great Recession, and therefore have changed their behaviors based on perceived financial risks.  And the greater the financial risk, the greater the caution exercised.  They claim this is confirmed by a Federal Reserve survey where 80 percent of respondents indicated they would like to own a home someday, but only one in six who were financially able to purchase a home felt that renting was the best choice for now.  The authors stated that although the trauma of the Great Recession will fade over time, they assert the need to rebuild confidence in homeownership benefits.

Post-foreclosure stress disorder may account for a decline in the homeownership rate, but this is not a homeownership crisis.  It is shift in values and a major shift in lifestyles. Surveys have indicated that millennials are expected to be the largest group of homebuyers, but many millennials don’t want to be anchored by owning a home. They want to be able to take advantage of global opportunities without the burden of having to sell a home.  There is a shift away from the old standard of being house-centric to mobility.

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