Whether you’re looking to buy or rent a home, your credit score is more than just a number—it’s a gateway to your future residence. A recent survey by LendingTree has shed light on the significant role credit scores play in Americans’ access to financial products, including those crucial for securing a home. Here’s a recap of the findings and their implications for the St. Louis real estate market.
Key Findings:
High Denial Rates: 42% of Americans reported their credit scores prevented them from obtaining a financial product in the past year, with this figure soaring to 74% among those with poor credit. For St. Louis residents, this could mean increased challenges in securing mortgages or rental agreements.
Credit Cards and Personal Loans: The top products consumers were denied due to their credit scores were credit cards (25%) and personal loans (12%). While not directly related to real estate, these denials can impact one’s ability to consolidate debt or cover moving expenses, indirectly affecting home buying or renting capabilities.
Perception of Financial Responsibility: 40% of Americans believe their credit scores do not accurately reflect their financial responsibility. This sentiment is even higher among those with poor credit (60%), millennials (47%), and women (44%). For potential homebuyers or renters in St. Louis, this discrepancy could lead to frustration and barriers in the housing market.
Payment History’s Importance: Despite being the most crucial factor in credit score calculations, 50% of Americans are unaware that payment history holds the most weight. This lack of knowledge can lead to missed opportunities for improving credit scores and, by extension, securing better terms for mortgages or leases.
Improving Credit Scores: The survey revealed that paying off debt was the primary method for improving credit scores over the past year. For St. Louis residents, understanding and applying this knowledge can be a strategic move towards enhancing eligibility for home buying or renting.
Implications for St. Louis Real Estate:
The survey’s insights highlight a critical barrier to homeownership and renting: the impact of credit scores on financial product accessibility. For St. Louis real estate professionals and potential homebuyers or renters, this underscores the importance of credit education and management as foundational steps towards achieving housing goals.
Educational Opportunities: Real estate professionals, such as the Masters of Real Estate at MORE, REALTORS®, can provide valuable guidance to clients on improving credit scores, emphasizing the role of payment history and debt management.
Strategic Planning: Understanding the weight of credit scores in financial decisions can help potential buyers or renters in St. Louis develop strategies to improve their scores before applying for mortgages or leases.
Market Accessibility: For those with poor credit, exploring alternative financing options or seeking professional credit counseling could open doors to the real estate market that might otherwise remain closed.
In St. Louis, as in the rest of the country, a strong credit score is more than just a number—it’s a key that unlocks the door to future housing opportunities. The recent LendingTree survey provides a basis for understanding the challenges and strategies related to credit scores in the real estate market. By focusing on credit education and management, St. Louis residents can navigate these challenges more effectively, making the dream of buying or renting a home more attainable.
The headline of this article is not clickbait nor sensationalism. In fact, it’s based on something that’s about to happen. Fannie Mae, which, along with Freddie-Mac, is involved in almost two-thirds of the home loans in the United States, is set to release a new Loan Level Price Adjustment Matrix (LLPA) on May 1, 2023. The LLPA is used by lenders to determine the cost (interest rate) of a loan for a borrower, and it’s not entirely new, as there’s an existing one already in effect. The new LLPA is similar to the current one, as it also charges varying amounts based on the loan to value (LTV) and credit score.
What’s different in the new LLPA is that the cost is going up for borrowers with better credit and going down for borrowers with a lower credit score. To explain briefly how LLPA works, the higher the percentage of the purchase price a borrower is borrowing, the higher the fee. This percentage is known as the “LTV.” It makes sense that a loan where the borrower made a smaller down payment (e.g., 3%) has more risk associated with it than a loan where the borrower made a 20% down payment. Furthermore, the higher the credit score a borrower has, the lower the fee will be. This is because credit scores are based on past payment performance, and it’s logical that there’s less risk to a lender for a mortgage where the borrower has a higher credit score.
Borrowers with a higher credit score will still get better rates:
It’s essential to point out that Fannie Mae hasn’t entirely lost its mind by charging higher-risk borrowers less than it’s charging lower risk borrowers. For instance, a borrower with a 740 credit score borrowing 95% or more of the purchase price will be charged a 0.125% LLPA fee come May 1st, while a borrower with a 630 credit score borrowing the same amount will pay a cost of 1.75%. So, the borrower with the worst credit score will pay an LLPA fee approximately 14 times higher than a borrower with the best credit score.
So what’s the big deal then, what’s different?
The headlines surrounding this change relate to how Fannie Mae has adjusted its current pricing. The change appears to punish better credit risk borrowers and reward higher risk borrowers. For example, a borrower making a 20% down payment with a high credit score will be charged higher rates come May 1st. In contrast, a borrower with the same down-payment but a lower credit score will get charged a lower rate than the current one. Currently, a borrower with a 740 credit score is charged a 0.50% LLPA fee, but beginning May 1st, that charge will go up to 0.875%. However, a borrower with a credit score of 639 currently is charged 3.0%, and on May 1st, that will drop to 2.75%.
Some high credit, strong borrowers will benefit, but overall the winners are borrowers with the worst credit scores…
Today, thanks to many apps and access to information, all consumers have ready and easy access to their FICO (credit) score. Anyone thinking of buying a home no doubt knows their credit score will come into play in terms of qualifying for a mortgage but just how significant is your credit score? Is there really that much difference between a 670 and 700 credit score, or between a 700 and 741 score? Well, when it comes to mortgage rates, it does make a difference!
A 670 FICO vs a 741 FICO will run up the typical cost of St Louis home over $17,000 over the life of your loan!
For example, as the table below illustrates, the median interest rate for a mortgage for a person in St Louis (borrowing over 80% of purchase price) with a FICO score of less than 680 is 3.962% versus an interest rate of 3.611% for someone with a FICO score above 740. The median price of homes sold in St Louis during the past 30 days was $245,055. So, to make it simple, if we assume that for the loan amount a person with a 679 score would be looking at a house payment of $1,153 per month (principal and interest) while someone with a 741 credit score would be looking at a payment of $1,104 or $49 per month less. That may not sound like much, but over the 30-year life of the mortgage that means the person with the lower credit score will pay $17,640 more in interest than the borrower with the higher score. Or, to look at it a different way, for the same payment of $1,153 that the lower score borrower will pay for a $245,055 home, the borrower with the higher score can buy a home that costs $255,823.
Not that anyone that reads my articles on a regular basis needs any more proof of this, but there was yet another example today of just how “local” real estate is, and why it is so important to make sure you have good, accurate, up to date information before making real estate decisions. Today, the St Louis Business Journal published an article titled “St Louis among worst cities for buying a home” in which they cited a report from WalletHub that put St Louis at number 55 of 63 large cities on their list of best cities to buy a home in. The problem isn’t the ranking, as based upon the criteria used, it may very well be accurate, the problem is it really doesn’t paint a true picture of the real estate market in the St Louis area.
St Louis isn’t the “St Louis” most people are referring to…
The report was based upon data from the city of St Louis which I think most everyone knows has been on the decline population-wise for a long time now and has more challenges with the unemployment rate, median income, average credit scores as well as some of the other areas used in the report to rank the city. However, when locals, as well as many outsiders, talk about “St Louis” they are really referring to the whole, St Louis City and County area, not just the city.
Given that the city of St Louis has a population of just 311,404 people, and that is less than a quarter (23.7%) of the overall St Louis City and County combined population of 1,314,404 people, the St Louis portion of our real estate market is a very small, not so significant part of the market. Contrast this with Kansas City, Missouri where the city has 70% of the population of the county it is located in. Therefore, when Kansas City is ranked based upon the city of Kansas City’s real estate market, it is a much truer representation of the overall market there.
The housing bubble that led to the housing bubble burst in 2008 started a decline in the value of homes, including those in St Louis, for the following 3 to 4 years. This resulted in a much larger number of homeowners facing financial struggles including late payments, foreclosures, short sales, bankruptcy and the like, than was the historic norm. As a result, while maybe not a new concept but certainly one that had been more obscure in the past, credit repair, became a lucrative and growing business as consumers sought to repair the damage done and position themselves to buy a home.
In St Louis, there are many companies offering credit repair services, with many making some pretty enticing sounding claims with regard to removal of negative items from your credit, improving your credit score in a short time period and so on. While there are reputable companies out there doing a good job for St Louis homebuyers looking to improve their credit no doubt, there are also some that are probably not doing much more for the consumer than they could easily do on their own or, worse yet, perhaps very little at all for the fee paid.
How do you find a good credit repair company in St Louis?
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The percentage of people in St Louis with a sub-prime credit score (below 660) has continued to improve since peaking in most St Louis area counties around 2008, according to the latest data released by Equifax. As the interactive map below shows, 30.63% of the people in the city of St Louis had sub-prime credit in the 4th quarter of 2016. This is a decline from the 4th quarter of 2008 when it was 38.42% and even down from 2006, the year of the peak of the St Louis housing market, when 34.21% of people in the city of St Louis had sub-prime credit.
As the map shows, from the 5-county core St Louis market, St Charles County has the lowest percentage of sub-prime borrowers at 21.07%. From the entire St Louis metro area, Monroe County in Illinois has the lowest percentage of sub-prime borrowers at 16.11%. At the other end of the spectrum, the city of St Louis has the highest percentage of sub-prime borrowers from within the 5-county core St Louis market and Washington County, at 35.09%, has the highest percentage of people with sub-prime credit in the St Louis MSA.
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Up to 17 million first-time homebuyers may buy a home during the next five years according to a new study just released by TransUnion. Of these 17 million homebuyers, almost three million are expected to buy next year throughout the U.S. The study reveled some interesting facts about the first-time homebuyer market, as well as the impact of the millennial generation on the market, such as:
4th Quarter 2010 (during the “bubble burst” period for housing market) – 493,000
4th Quarter 2015 – 550,000
Millennial Generation Market-Share of First-Time Homebuyer Market:
4th Quarter 2000 – <1%
4th Quarter 2005 – 13%
4th Quarter 2010 – 32%
4th Quarter 2015 – 49%
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The Federal Reserve Bank of New York just released it’s Quarterly Report on Household Debt and Credit for the 2nd quarter of 2015 in which some encouraging facts were revealed with regard to the home mortgage market, including:
New home loan originations during the quarter increased to $466 billion…this marks the fourth consecutive quarterly increase since originations hit a 14-year low a year ago
As the chart below illustrates, roughly 95,000 individuals had a new foreclosure add to their credit report during the quarter, marking the lowest number of new foreclosures since the data was first tracked 16 years ago.
Mortgage delinquencies improved with the share of seriously delinquent mortgages (90+ days) dropping to 2.5% from 3.0% during the prior quarter.
Mortgage delinquencies improved again, with the share of mortgage balances 90 or more days delinquent decreasing slightly;
The median credit score for borrowers obtaining a home mortgage during the 2nd quarter, as the chart below shows, rose to above 750, while the bottom 10th percentile of borrowers, also known as “sub-prime”, rose to 650. As the chart illustrates, back in 2000 the median was around 700 and the lowest percentile was barely above the 550 mark.
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Traditionally the only Rental history that gets reported to the credit bureaus is negative! If you fail to make your payment to your landlord…look for a collection account or even a judgment to show up on your credit profile and potentially drop your credit score like a rock!But what about tenants that pay their rent on time? Remember rent is often an individual’s single largest monthly bill, and the impact of that reporting to the credit bureaus could be huge!There are over a 100-million renters in the U.S. and less than 1% of them have had any positive rental payment history reported to the credit bureaus…but that is all about to change!
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In 2010, in an effort to “help responsible homeowners who owe more on their mortgage than the value of their property”, the U.S. Department of Housing and Urban Development (HUD) began a program that allowed lenders to offer refinancing options to underwater borrowers that included a reduction in the principal amount of their mortgage to get it more in line with the current value.
This program, called the “FHA Refinance of Borrowers in Negative Equity Positions (Short Refi) Program”, has helped only about 4,000 people or so reduce their loan balances, in spite of the fact that when announced in 2010 David Stevens, the FHA Commissioner at the time, testified before the Committee on Financial Services that this program was designed to help some of the “1.5 million borrowers who owe more not their mortgages than their homes are worth..”.
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Albert Einstein once said, “Nothing happens until something moves.” Well if you are looking to buy a home, lease a car, apply for credit cards or even look for a job…nothing happens until your credit score moves and moves up!
If you are have had credit issues in the past….simply ignoring what happened does not help. Ignoring a tooth-ache will not improve over time without treatment neither will your credit score!
If you have had credit issues in the past, it’s time you start establishing new (good) credit and start working on deleting old derogatory credit history like late payments, collections, judgments even bankruptcy or foreclosures from your credit report. Remember, with a low credit score Banks and Lenders will be reluctant to lend you money to buy a home, car or even offer you a credit card.
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We hear lots of advice these days about how to improve a credit score. However, not all advice is good advice. Here are nine credit score myths that could actually do more harm than good:
Myth #1 – Closing out old, inactive accounts will help your score.
Thirty percent of your credit score is based on your utilization rate – your total balances versus the total amount of credit available to you. Canceling old accounts reduces the total amount of your available credit, changing that ratio. Any balance will utilize a higher percentage of your credit, which will hurt your score.
Myth #2 – Opening (but not using) accounts will help your score.
To improve their utilization rate and, theoretically, their credit scores, some people open as many accounts as they can. According to Rod Griffin, director of public education for the credit bureau Experian, “Your score is affected by how well you manage the credit you do have over a period of time, not by how many credit cards you have or the available balances.”
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On January 10, 2014 the mortgage world is going to go through some changes. These changes will affect consumers and their ability to qualify for a home loan. Is it doom and gloom? Not really.
A “Qualified Mortgage” or QM, is something we at Paramount Mortgage have been doing for a while. It is all about the consumer having the ability to repay the loan and verifying, to the best of our ability, through paperwork, all the facets of a loan approval. It is very possible additional paperwork may be requested from the borrower to accomplish verification going forward. Is it the end of the world? No. We as a team, agent and loan officer, need to relay that information to the client.
We, for the most part, have already been doing that.
The biggest change will be the stringent enforcement of the debt-to-income ratio at 43%. This will be Continue reading “What is QM?“
Three of every 10 Americans don’t qualify for a home loan, according to the Zillow Mortgage Market Place Analysis. The analysis also showed that only borrowers with a credit score of at least 740 should expect to get the best mortgage rates offered due to tougher mortgage lending standards.
In doing their analysis, Zillow analyzed a total of 13 million loan quotes and over 225,000 purchase loan requests from September 2013. What was revealed was that borrowers with a credit score under 620 who requested a home mortgage for a 30-year fixed-rate loan, were unlikely to receive a loan. According to recent data from myFico.com, almost 3 of every 10 Americans (28.4 percent) have a credit score of 620 or lower, thereby putting a home mortgage out of reach for nearly one-third of Americans. Continue reading “Tough Lending Standards Mean Nearly One-Third of Americans Don’t Qualify For A Home Loan“
Lending Tree just released a list ranking the credit quality of perspective homebuyers by State based upon home loan applications during the 2nd quarter of 2013 and the report gives Missouri a score of 75.69 out of a possible 100, bringing our state in at 41st in the nation. In determining the credit quality of the borrower or “borrower health” in Lending Tree terms, they take into consideration three things on perspective homebuyer loan applications: weighted average of credit score, loan-to-value ratio [LTV] and overall lendability of mortgage-seekers to arrive at a score.
At the top of the list, with a score of 96.53 was Washington D.C. (hmm…) followed by New Jersey with a 93.67. At the bottom of the list is the state of Mississippi with a buyers health score of 67.83 – See the map below for rankings by state, or see the entire list by clicking here.
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St Louis mortgage interest rates are on the rise and hitting levels we have not seen in the past year and a half and the 3.x percent rates we have become somewhat accustomed to are gone. However, before you panic or think the housing market is headed toward another crash as a result, you should keep in mind that todays rates (see below for current rates) of about 4.5 percent for a 30 year fixed rate mortgage is still lower than the average monthly mortgage interest was for more than 40 yearsproceeding 2012. Granted, looking back, 2012 was the year to buy a house with an average interest rate of 3.66 percent and lower home prices, but hindsight is always 20-20. The bottom line is, instead of worrying about the recent increases in mortgage rates home buyers should be thankful that rates remain at historic lows.
Free Credit Scores are Not Part of the Free Annual Credit Report Consumers Currently Receive
Consumers currently have the right to request their free credit report once a year, but a credit report does not include free credit scores. These two items are often confused to be the same, which they are not.
You generally must pay to see your credit score. It’s a three-digit grade that predicts how risky you are to a lender.
Earlier this month, bills were introduced in the House and Senate to allow all consumers free access to credit scores once a year. The Free Access to Credit Scores Act was authored by U.S. Sen. Bernie Sanders of Vermont and U.S. Rep. Steve Cohen of Tennessee.
“Nobody ‘wants’ to pay PMI, it’s just that we have no choice, especially if you want to buy a house and don’t have say an extra $50k to $80k lying around for a down payment, which most first-time buyers don’t.” Chris Durst, a first-time homebuyer and commenter on Investopedia.com.
The credit experts at MGIC, the nation’s largest private mortgage insurer, wants Realtors® and Lenders alike to know that financing with MI creates opportunities for borrowers: Continue reading “Nobody ‘wants’ to pay PMI; St. Louis Mortgage Interest Rate Update“
Federal Housing Administration Commissioner Carol Galante recently announced a series of changes to be issued that will allow the agency to better manage risk and further strengthen the health of the Mutual Mortgage Insurance Fund (MMI).
FHA will increase its annual mortgage insurance premium for most new mortgages by 10 basis points, or 0.10%. The FHA will also require most borrowers to continue paying annual premiums for the life of their mortgage loan.
“Every single thing about housing is flashing green,” stated James Dimon, chief executive of J.P. Morgan Chase, in an interview with CNBC last month. “Household formation is rising, inventory is falling, and affordability is near a record high.” This should mean many potential homebuyers will be assessing their finances in 2013 to get ready to buy a home. Checking your credit score is at the top of the list, and in turn credit myths and credit misconceptions are plentiful.
Things You Should Know Before You Repair Your Credit:
After the problems we have seen over the past few years in the real estate, mortgage and banking industries, it is not surprising we have seen significant changes in the loan process making it more challenging for a home-buyer to obtain a mortgage. Some of the changes borrowers see when they attempt to obtain a mortgage to buy or refinance a home include:
During the third quarter of 2012, 3.71 percent of St Louis homeowners with a mortgage were 60+ days delinquent on their mortgage, a slight decline from the prior quarter when the rate was 3.88 percent and a decline of over 10 percent from a year ago when the St Louis mortgage delinquency rate was 4.13 percent, according to TransUnion. This marks the third consecutive quarter the St Louis mortgage delinquency rate has declined.
St. Louis mortgage delinquency rates are significantly below the national delinquency rate which was 5.41 percent in the third quarter of this year. Additionally, the St Louis mortgage delinquency rates are falling faster than the national average as the national mortgage delinquency rate was down just shy of 8 percent in the past year, well behind St Louis’ ten percent decline.
I continue to hear in the news about incredible low interest rates, but the catch is getting approved for a mortgage loan, either for a purchase or refinance. The process is getting harder and harder. In this tighter credit environment, FHA remains to be a great alternative for buyers with limited resources for a down payment and closing costs or past credit problems. Underwriting guidelines are more lenient than conventional guidelines.
Most banks and lenders use scores calculated by FICO (also known as Fair Isaac) and derived from your reports with the major national credit bureaus Equifax, Experian, and TransUnion. Be careful, the credit scores sold at popular credit report monitoring websites are NOT the same scores that lenders use!
Lately the $64 question for many people is whether to rent or buy a home. I think by now everyone knows that, as a result of the collapse in home prices and dirt-cheap interest rates, buying a home is now more affordable than ever, but for a lot of people there are still doubts or concerns that need to be addressed before making the decision whether or not to buy. Many of these issues stem around financing including; how much down payment will be necessary, what can I afford, etc. The American’s Banker Association (ABA)came out with five questions every potential buyer should ask when deciding to buy or rent a home that, along with the helpful online calculators they offer, I think may be very helpful: Continue reading “Should I Rent or Buy a Home?“
When applying for a mortgage, a borrower’s “Occupancy Type” is a major factor in determining maximum loan-to-value (equity), loan program available and mortgage interest rate. An Owner Occupied property will have better terms (less down payment, better rates) than a Non-Owner Occupied property.
More good news on the housing market! The national mortgage delinquency rate (borrowers that are 60 or more days past due) declined for the first 3 months of 2012, coming in at 5.78 percent according to a report issued by TransUnion. This is after increases in the delinquency rate in the prior 2 quarters and is the lowest rate since the 1st quarter of 2009. Continue reading “Mortgage loan delinquencies drop to lowest rate since 2009“
Simply stated, credit scores are a statistically-based tool to assess the future performance of a borrower. Scores are derived from the history of a borrower as it is reported to the credit repositories from any creditor. Credit scores are a proven indicator of the likelihood to repay a loan or credit obligation. The lower the score; the more risk from a borrower to repay a loan, on time and in full. Scores range from 400 to 850. This process was started by Fair, Isaac and Co., which is why credit scores are also called FICO scores. Scoring factors are “blind” and do not consider anything about an individual other than their creditworthiness.Continue reading “St. Louis Mortgage Rate Update; The Significance to Credit Scores“
For many military members, there is no greater joy than completely service and finally being able to lay some roots, and the first order of business for many is to purchase a home. However, in recent years, purchasing a home hasn’t been as easy as it once was. Conventional lenders have increased their lending requirements sometimes making it nearly impossible for the average borrower to secure financing.
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“Nobody ‘wants’ to pay PMI, it’s just that we have no choice, especially if you want to buy a house and don’t have say an extra $50k to $80k lying around for a down payment, which most first-time buyers don’t.” Chris Durst, a first-time homebuyer and commenter on Investopedia.com.
During the third quarter of 2012, 3.71 percent of St Louis homeowners with a mortgage were 60+ days delinquent on their mortgage, a slight decline from the prior quarter when the rate was 3.88 percent and a decline of over 10 percent from a year ago when the St Louis mortgage delinquency rate was 4.13 percent, according to TransUnion. This marks the third consecutive quarter the St Louis mortgage delinquency rate has declined.
More good news on the housing market! The national mortgage delinquency rate (borrowers that are 60 or more days past due) declined for the first 3 months of 2012, coming in at 5.78 percent according to a report issued by TransUnion. This is after increases in the delinquency rate in the prior 2 quarters and is the lowest rate since the 1st quarter of 2009. 
For many military members, there is no greater joy than completely service and finally being able to lay some roots, and the first order of business for many is to purchase a home. However, in recent years, purchasing a home hasn’t been as easy as it once was. Conventional lenders have increased their lending requirements sometimes making it nearly impossible for the average borrower to secure financing.
