In a previous blog, I discussed the importance of financial literacy education as a crucial tool for helping young adults become future homeowners and increase their economic well-being over time. In this blog, I will discuss how one’s credit score can affect the ability to obtain loans, and the cost of those loans.
A credit score significantly determines the terms of your loans and whether you can afford these loans or not. Credit scores are used in evaluating a range of loans such as personal loans, car loans, and home mortgages, so credit scores are equally important for both renters and homeowners.
Your credit score will determine how much you can borrow and the length of your repayment. The higher the credit score, the better the rate on your loan, and the lower the monthly payment.
Because a credit score is a critical determinant of your ability to secure a loan at a low rate, it is important to understand what factors determine your credit score. Knowing what determines your credit score will then help you plan for and work towards improving your credit score. This is all part gaining financial literacy.
Factors Affecting FICO Credit Score
FICO scores range from 300 to 850 with the higher number being the better score and the lower figure representing a higher risk for the loan. When you take a loan, the bank has to assess the possibility of repayment and determine the risk for the loan. Factors that affect the scores are credit card debt, student loan debt, payment history, bankruptcy and foreclosures. Personal or demographic information such as age, race, address, marital status, income and employment do not affect credit scores. Typically, Equifax, Experian, and Transunion run your score and of the three scores, the middle score is what consumers go by.
Data from your credit report goes into five major categories that make up a FICO score. The scoring model evaluates some factors more heavily, such as debt owed and payment history.
Payment history: (35 percent) — Your account payment information, including any delinquencies and public records. Your ability to make payments on time.
Amounts owed: (30 percent) — How much you owe on your accounts. The amount of available credit you are using on revolving accounts is heavily weighted.
Length of credit history: (15 percent) — How long ago you opened accounts and time since account opened.
Types of credit used: (10 percent) — The mix of accounts you have, such as revolving and installment. This would include credit card debt as well as student loans or mortgage payments.
New credit: (10 percent) — Your pursuit of new credit, including credit inquiries and number of recently opened accounts. This includes secured and unsecured credit cards.
The Urban Institute provides a monthly chart book on housing finance. This chart shows Fannie Mae’s loan level price adjustments LLPAs, which are, expressed as upfront charges. The higher the credit score the lower percentage of the charge assessed. A higher loan-to-value will increase the percentage of payment but we can see the impact of the lower credit score pushing up the charges assessed. “Simply put, LLPAs are added charges for certain risk factors on a mortgage. They are high loan-to-value (LTV), low credit scores, cash out, investment property, etc. They are calculated and assessed as a percentage of the loan amount. For example, if the loan amount is $100,000 and the total LLPAs equals 0.25%, the charge would equal $250.” Posted by the mortgage calculator.
Improvements in the Credit Score Models
It would be significant to consumers if monthly rent payments and utilities were included in their FICO scores. Many renters may be paying these bills in a timely fashion but they would not appear on your credit report. While some credit agencies may have rent payments as a part of their credit scores, there is no guarantee they are included in the scoring figure because rent data is not standardized. However adding that to the credit reports seems to be the trend moving forward.
The Vantage score 3.0 is a newer model used to run credit reports. This newer system is supposed to have a more consistent credit-scoring model. The Vantage system is helpful to those who do not have much, or have very little credit history. The most recent Vantage system is the 4.0 system, which is supposed to give lenders a deeper look into a consumer’s credit history. It also does not hold consumers to the usual standard of FICO scores giving them some leniency on medical accounts and tax liens for example. For mortgage, underwriting lenders Fannie and Freddie are more likely to use traditional FICO scores.
How to Improve Your Credit Score
Paying off credit cards in a timely fashion as well as paying more than the monthly minimum is helpful. Some consumers apply for 0% annual percentage yield (APR) balance transfers to save money on interest paid over that period. Those who have credit card debt not only want to maintain their monthly payments on time but they also want to make sure they are not using more than 20-30% of the credit line limit. Some financial consultants recommend using even less between 10-20%, which would benefit your credit score and reduce your monthly payments based on your APR.
Keeping track of your debt is paramount. One can pay down the debt as well. Some consumers are using tax returns to pay down debt.
Paying your school loans on time will also be beneficial for your credit scores. Most consumers who have student loans also are likely to have new lines of credit and still trying to establish credit. School loans make up a large portion of debt held by many Americans. Based on NAR 2017 Student Loan Debt and Housing survey data, in some instances, debt levels can reach over $100,000, which would take decades to pay back. Based also on NAR survey data, 32 percent of respondents from a national sample indicated that they defaulted or forbore on their student loans. This would not help to increase and improve your credit score.
Look at this article also on how to improve your credit score
You can also check your credit scores free annually so knowing your score is helpful for how you plan your future moves. While some states may have higher credit scores than others, credit scores are driven by individuals and depend on several factors. Some of those factors are income, where you live, poverty levels, and financial literacy. Being on top of your credit will keep you prepared for future financial decisions. Some consumers turn to credit repair resources such as LAJ Financial Solutions, Credit Saint, or Lexington Law, that can help remove blemishes from your credit report. Also learning how to leverage your credit will expand consumer’s options on future investments and strategies. Some homeowners can leverage their credit to obtain a FHA or VA loan to get a secondary mortgage.
As the cost of energy continues to rise, many home buyers today are looking for homes that are going to be easier and less expensive to run long term. I’ts important to know the trends to look for, whether you’re helping a seller update their home prior to selling or you want to keep an eye out for the perfect property for a buyer. Not only would following these trends allow you to better advise sellers, it also can help you ecuate buyers on to what to look for.
Each year, the home remodeling site Fixr polls industry experts and leaders in their field to help determine some of the top trends in the home improvement industry through their Energy Efficient Home Design Trends report.
Here are some of the most relevant findings to help you maximize your clients’ potential when buying or selling a home.
Energy Star Dryers
One key trend to watch for in properties is an Energy Star rated dryer. Of all the various appliances with the Energy Star label, experts felt that the dryer made the biggest change in energy usage when switching to a more efficient model. This is due in part to the fact that dryers use nearly as much electricity as central air conditioning.
Home shoppers today are focusing more on the laundry room, as well as where it’s located and what it contains more so than they ever have before. An energy efficient dryer can have a big impact on monthly energy budgets.
When it comes to heating a home, the heat pump is the most recommended method of heating for providing consistent heat and energy savings. Heat pumps work by exchanging outside air for inside air. It extracts the heat energy from the air outside–even in cold weather–and transfers it indoors.
An electric heat pump is 50 percent more efficient that other forms of heating. It’s also the most frequently installed energy efficient heating system in homes today.
Day Lighting for the Kitchen and Living Room
While experts agree that the best way to save money on electric bills without reducing the amount of usage is to use LED lights, there are still important things to consider when looking at a home for sale.
Day lighting is an important component of reducing electricity. This has to do with how much natural light a room gets. The kitchen and living room are two spaces that use the most electricity. As such, it makes sense that home buyers may want to opt for homes that have sufficient natural light in these areas either through windows or skylights.
Tankless Water Heaters
While the heat pump is the most popular way to heat a home, a tankless water heater is the most popular method of heating water. Tankless heaters are installed inside the walls of a home, and heat the water as it’s being used. This is in contrast to a heater that is constantly maintaining the temperature of any gallons of water at a time. Households that use this method of heating water can expect to save $100 a year on their energy bills.
Heat pumps and tankless heaters are both popular, but hybrid heat pump hot water heaters tend not to perform as well universally. Tankless heaters can be installed in more places, and perform better in cold-weather climates in general.
Low Flow Fixtures in Full Bathrooms
Households use a lot of water each day when they aren’t using low flow fixtures to try to restrict this usage. Experts felt the place that made the biggest difference when installing these items is in full bathrooms.
This makes sense, as the full bathroom will include a tub and shower, as well as a sink and toilet. Installing low flow fixtures in full bathrooms can help reduce the load on the water supply.
If home buyers are looking at homes with renewable energy sources, experts say that solar panels are by far the most popular method. Renewable energy is increasing everywhere, with millennial homeowners leading the biggest push into this sector. Experts also reported that millennials were the most likely to invest in cleaner energy sources, with Gen X taking second place.
Saving Energy Means Saving Money and the Environment
Homeowners and home buyers that want to maximize their potential in both these areas should seriously consider paying attention to these and other important trends in energy savings. While individually each of these factors may not save much, added together, they can have a significant impact on both the homeowner’s wallet, and their overall comfort inside the home.
Help your clients by pointing out these trends ,and how they can make them work to get better results for everyone involved.
To learn about the cost of household remodeling projects, visit the Cost Guides.
Based on the headlines, home prices outpace wage growth. Indeed, in the last six years home prices increased 47 percent while wages rose 16 percent. What do these percentage changes actually mean for a typical homebuyer? How much did the typical salary increase in dollars? How much more do buyers need to pay for their monthly payment because of the price increase?
NAR calculated the monthly earnings for a typical employee in both 2018 and 2012. Respectively, using the median home prices in 2018 and 2012, we also computed the monthly payment for a typical home for both years. Then, we compared the change of the average monthly wages in dollars with the change of the monthly payment in the last 6 years.
Nationwide, the monthly earnings of a typical employee rose by $530 to $3,784 in the fourth quarter of 2018 from $3,256 six years earlier. In the meantime, the monthly payment increased by $354 to $1,114 in 2018 from $760 in 2012. Thus, although home prices increased nearly three times more than wages (in percentage points), homebuyers needed to spend less than their salary increase for the higher mortgage payment. Noticeably, homebuyers needed to spend nearly two thirds of their salary increase (above the 30% rule) for the higher mortgage payment.
Since all real estate is local, we calculated how much both the monthly wage and mortgage payment changed during 2012 and 2018 for the 100 largest metro areas.
In the last six years, the Seattle, WA and San Francisco, CA metro areas experienced the highest gains in wages. In both metro areas, the average monthly salary increased by $1,150 between 2012 and 2018. In the Seattle, WA metro area, the average monthly salary increased to $5,632 in the last quarter of 2018 from $4,479 six years earlier. However, in some metro areas, wages dropped. In the Tucson, AZ metro area, the average monthly earnings declined by $189. Similarly, in the Palm Bay, FL metro area the average monthly wages dropped by $172. Overall, the average monthly wages increased by $433 in the 100 largest metro areas.
In the meantime, home prices increased in all of the 100 largest metro areas except for the Bridgeport, CT metro area. As a result, current homebuyers need to pay a higher monthly mortgage payment for the same home compared to 2012. Among the 100 largest metro areas, San Jose, CA and San Francisco, CA metro areas experienced the highest increase in the monthly mortgage payment because of price appreciation. Specifically, in the San Jose, CA metro area, current homebuyers need to pay $2,428 per month more than in 2012 for the same home. However, overall, the monthly mortgage payment increased by $340 on average in the 100 largest metro areas.
Comparing the amount of the wage increase with the higher monthly mortgage payment, in 70 percent of the 100 largest metro areas, wages in dollars increased more than the mortgage payment. Moreover, in most of these metro areas, the increase of the mortgage payment accounted for less than 30 percent of the wage increase. For instance, in the Chicago, IL metro area the average monthly wage increased by $572 while the monthly mortgage payment rose by $326. Another example is the Dallas, TX metro area. In this area, homebuyers in 2018 earned $558 more every month than homebuyers in 2012 while the monthly mortgage payment increased $420 since 2012 because of the price appreciation.
See below the top 5 metro areas with the highest monthly income gains compared to the extra housing cost:
Nevertheless, the extra monthly housing cost exceeds the income gains in 30 percent of the 100 largest metro areas. For instance, in the San Jose, CA metro area, homebuyers in 2018 earned $549 more every month compared to the homebuyers in 2012. However, the monthly mortgage payment increased $2,428 since 2012 because of the price appreciation. This means that homebuyers will need to attribute a higher percentage of their monthly earnings to housing cost since their income gains are not enough to cover the extra housing cost.
Here are the top 5 metro areas where the extra housing cost exceeds income gains:
See below how much both the monthly wage and mortgage payment changed during 2012 and 2018 for each of the 100 largest metro areas.
NAR released a summary of existing-home sales data showing that housing market activity this February, bounced back and was up 11.8 percent from January 2019. Despite the month over month gains, sales of existing-homes dropped 1.8 percent from February 2018. February’s existing home sales reached a 5.51 million seasonally adjusted annual rate, the highest since March 2018.
The national median existing-home price for all housing types was $249,500 in February, up 3.6 percent from a year ago. This marks the 84th consecutive month of year-over-year gains.
Regionally, all four regions showed growth in prices from a year ago. The Midwest had largest gain of 5.4 percent followed by the Northeast with a gain of 3.8 percent. The West had an increase of 3.0 percent followed by the South with an incline of 2.5 from February 2018.
February’s inventory figures are up from last month 2.5 percent to 1.63 million homes for sale. Compared with February of 2018, there was a 3.2 percent increase in inventory levels. It will take 3.5 months to move the current level of inventory at the current sales pace. It takes approximately 44 days for a home to go from listing to a contract in the current housing market, up from 37 days a year ago.
From January 2019, three of the four regions showed inclines in sales while the Northeast was unchanged. The West had the biggest gain of 16.0 percent followed by the South with an incline of 214.9 percent. The Midwest had the smallest increase of 9.5 percent.
Two of the four regions showed declines in sales from a year ago and the Midwest was flat. The Northeast had the only gain in sales of 1.5 percent. The West had the biggest decline of 7.9 percent followed by the South with the smallest drop of 0.4 percent. The South led all regions in percentage of national sales, accounting for 43.4 percent of the total, while the Northeast had the smallest share at 12.5 percent.
In February, single-family sales were up 13.3 percent and condominiums sales were unchanged to last month. Single-family home sales fell 1.4 percent and condominium sales were down 5.0 compared to a year ago. Single-family homes had an increase in price up 3.6 percent at $251,400 and condominiums modestly rose 3.1 percent at $233,300 from February 2018.
The master suite is a place where relaxation should be paramount. A calming color scheme and carefully staged space can do exactly that. Staging and real estate professionals submitted some of their favorite staging photos and tips for our new slideshow, How I Staged It: The Makings of a Master Retreat.
Staging not only results in a quicker sale but also tends to increase the home’s value too, according to the newly released 2019 Profile of Home Staging report conducted by the National Association of REALTORS®. One quarter of buyers’ agents say that staging a home increased the dollar value of a home between 1 to 5 percent compared to similar homes on the market that weren’t staged. Seventeen percent of agents said that staging increased the home’s dollar value between six to 10 percent.
Which rooms are the most important to focus on in the house?
Staging the living room was found to be the most important for buyers (47 percent), followed by staging the master bedroom (42 percent) and staging the kitchen (35 percent). For inspiration on sprucing up the master bedroom, view our slideshow: How I Staged It: The Makings of a Master Retreat
The least important area to stage? The guest bedroom, according to buyer agents. Only 8 percent of buyer agents said it was important to stage a guest bedroom in the home.