Credit Score To Buy Home 2016
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Both your FICO and Vantage 3.0 scores can range from 300 to 850 and are based on credit reports complied by the three US credit bureaus: Equifax, Experian, and Transunion. Though both your FICO and Vantage scores are based on similar aspects of your credit history, they give different weight to those different aspects.
Experian reports that the nation average credit score is 669 while the average for Louisiana is only 636; but what causes that 30+ point gap Louisiana residents have an average of 1.87 bank cards or checking accounts, which is lower than the national average of 2.24 cards/accounts. This lower level of credit diversity can, and often does, also results in a weak credit history because individuals have fewer connections with banks or other lines of credit. In addition to having slim credit diversity, Louisiana residents use an average of 33% of the credit available to them in comparison to the national average of 30%. Having fewer lines of credit and utilizing a higher percentage of the credit available to you lowers your credit score and can make it more difficult to find lenders when you need them.
This article examines the current financial health of individuals who experienced a home mortgage foreclosure during the Great Recession and assesses the degree to which they have recovered relative to those who lost their homes before the downturn.
As a result of the severe decline in the housing market and the financial crisis during the last economic downturn, many Americans were unable to make mortgage payments and subsequently lost their homes to foreclosure. We estimate that between 2007 and 2010, there were approximately 3.8 million foreclosures.1 Now, nine years after the onset of the housing bust, we think it is worthwhile to assess the financial health of the individuals whose homes were foreclosed on during this period. Have they regained their financial footing, or are they permanently scarred How different were their experiences compared with those of borrowers whose homes were lost to foreclosure in the years before the Great Recession Did their experiences differ by their financial success (as reflected in their credit scores) before the Great Recession And how likely are they to have undertaken a new mortgage
In this Chicago Fed Letter, we address these questions by using data on a large sample of individuals who experienced a home foreclosure after 2000, with a focus on those who entered foreclosure between 2007 and 2010. We use credit bureau data through 2016 from the Federal Reserve Bank of New York Consumer Credit Panel/Equifax (CCP) database. We build on prior work by Brevoort and Cooper,2 who also used the CCP database but whose analysis ended with 2010 data. Their study showed that prime borrowers (i.e., borrowers with credit scores 660 and above3) who had experienced a home foreclosure during the Great Recession were especially hard hit and that their rate of recovery was significantly slower relative to such borrowers who had experienced a home foreclosure earlier in the decade. We extend Brevoort and Cooper's analysis through the second quarter of 2016 in order to examine how these patterns evolved over the subsequent years of the economic expansion. Specifically, we examine the entire trajectories of credit scores and credit delinquencies starting from the years before a foreclosure event and also extending many years after foreclosure. We also examine whether borrowers obtained a new mortgage in the years after foreclosure.
Before the Great Recession, the majority of foreclosure starts were among subprime borrowers (i.e., those whose credit scores were below 660 before they entered foreclosure).4 Figure 1 shows that the Great Recession led to a striking change in the composition of foreclosures between prime and subprime borrowers. According to our analysis, from 2007 through 2010, foreclosures rose approximately 800% among prime borrowers, but only 115% among subprime borrowers. Over the same period, 40% of all foreclosure starts were among prime borrowers and 26% were among borrowers whose pre-delinquency credit score (see note 4) was over 700. This is one defining characteristic of the Great Recession: A much broader range of individuals, including those who had very high credit scores, were swept up in the collapse of housing markets. Indeed, while the overall level of foreclosure starts has come back down to pre-recessionary levels, the fraction of prime borrowers in foreclosure remains relatively higher than it did before the downturn.
As might be expected, once borrowers enter foreclosure, their credit scores plummet. Figure 2 shows that the declines were very large for both prime and subprime borrowers during the Great Recession (solid lines). The decline in the average score for prime borrowers was about 175 points, and subprime borrowers experienced a decline of about 140 points in their average score.5 Immediately after foreclosure, nearly all borrowers became subprime, with average scores of around 550 for previously prime borrowers and 475 for already subprime borrowers. These declines were a bit larger than those experienced by borrowers who foreclosed between 2000 and 2006 (dashed lines).
What is immediately evident is that subprime borrowers tend to recover their pre-delinquency credit scores relatively more quickly than prime borrowers. First, let's examine the patterns of recovery for those who foreclosed on a home before the Great Recession. Among subprime borrowers who experienced a foreclosure between 2000 and 2006, roughly 60% reattained their pre-delinquency credit scores at some point within two years of foreclosure and roughly 85% within five years of foreclosure. In stark contrast, only about 10% of prime borrowers who foreclosed on a home in the same period recovered within two years and only about 33% within five years. After seven years, when delinquency flags are removed from their credit reports (as indicated by the black vertical line), about 90% of these subprime borrowers have reattained their pre-delinquency credit scores, compared with only about 50% of prime borrowers. After 15 years, nearly all subprime borrowers have reattained their pre-delinquency credit scores, whereas about 15% of prime borrowers have still not fully recovered. (Of course, subprime borrowers have a much lower pre-delinquency credit score to return to.)
A possible explanation for the slower pace of recovery among those who entered foreclosure between 2007 and 2010 relative to predecessor cohorts is that these individuals encountered difficulties paying their credit obligations on time because of the severity of the Great Recession. Since payment history is a critical component of credit scores, this could explain the especially slow rates of recovery. To address this possibility, we examine delinquency rates on any credit obligations for home mortgage borrowers before and after a foreclosure.
In figure 4, we plot the share of individuals who were 90 days or more past due on one or more sources of credit, including first mortgages, credit cards, and auto loans. Among both prime and subprime home mortgage borrowers, the share with credit delinquencies spikes to roughly 100% at the time of foreclosure and then drops sharply thereafter. Among those who entered foreclosure between 2000 and 2006, the share of prime home mortgage borrowers who are delinquent on their credit obligations tends to decline quite quickly, but never gets back down to the pre-foreclosure levels. Among subprime borrowers, the fraction of those who are delinquent takes much longer to fall, but does eventually get much closer to pre-foreclosure levels.
A question of interest is how the experience of foreclosure has affected housing markets. In figure 5, we show the cumulative fraction of individuals who experienced a home foreclosure but who then managed to take out a new mortgage afterward. When looking at the historical experience of prime home mortgage borrowers who entered foreclosure between 2000 and 2006, we find that just shy of 40% took out a new mortgage in the seven years following. The comparable value for subprime borrowers is notably lower, at around 30%. Among those who foreclosed on a home between 2007 and 2010, the shares with new mortgages seven years after foreclosure are dramatically lower at just over 25% for prime borrowers and just under 17% for subprime borrowers.
4 We categorize prime and subprime foreclosures based on the credit score of the borrower (prime, 660 and above; subprime, below 660) in the nearest quarter in which there is no major mortgage delinquency (i.e., less than 30 days past due) before the foreclosure start. In the text, we refer to this particular measure of the credit score as the \"pre-delinquency credit score.\"
The stricter lending standards also impact current homeowners who want to move to a new home. Under the current lending regulations, it may be more difficult for a homeowner to purchase a bigger home unless they have a high FICO score. As potential home buyers are denied mortgages, the number of people who want to purchase a home may decrease as would-be buyers become discouraged.
Speaking of taxes, under certain scenarios, a tax of 3.8 percent that applies to some investment income, including real estate transactions, kicked in earlier this year. If you plan to sell your current home, you may be subject to this tax rate as it currently stands. You might want to wait until 2016 to sell your home to see if the tax will be repealed.
Campaigning in California last week she complained that Trump \"actually said he was hoping for the crash that caused hard working families in California and across America to lose their homes, all because he thought he could take advantage of it to make some money for himself.\"
Under Clinton's Housing and Urban Development (HUD) secretary, Andrew Cuomo, Community Reinvestment Act regulators gave banks higher ratings for home loans made in \"credit-deprived\" areas. Banks were effectively rewarded for throwing out sound underwriting standards and writing loans to those who were at high risk of defaulting. If banks didn't comply with these rules, regulators reined in their ability to expand lending and deposits. 59ce067264