Friday, August 29, 2014

Good debt vs. 'bad' debt

Chart courtesy of the Fair Isaac Corporation, aka FICO

If you have ever looked into getting a home mortgage, you're aware that your credit score is a critical part of the lending equation. A less than excellent credit score can cost you extra money on your payments each month or even prevent you from taking out a new loan altogether.

The main distinction between different types of debt is whether there is any type of collateral associated with it. Think stuff that is tangible - a car or a house. Debt taken out for these types of purchases is called "secure," since the lender could repossess the items if a borrower can no longer make payments.

On the other hand, debt that is associated with student loans or credit cards is considered "unsecure," because a lender cannot immediately recoup money lent. However, this isn't necessarily bad for credit: As long as you are making minimum payments on time every single month, these liens can gradually strengthen your credit, regardless of being secure or unsecure. A borrower who faithfully makes payments each month demonstrates to a lender he or she can handle the responsibility of taking on a new loan.

The only real "bad" debt is debt that you cannot afford to pay off in a timely manner. If your minimum monthly lien payments owed are more than 43 percent of your monthly income, your chances of obtaining a new mortgage will be slim to none - you will need to work on paying off existing debt first.

If you have any questions regarding liens on your credit report or things you can do to improve your credit score, don't hesitate to contact a licensed loan advisor, whose goal it is to help you make prudent financial decisions. As always, call us toll-free at 877-939-0339 for more information.

Friday, August 22, 2014

Rates hit lowest point of 2014; new home construction rises

Interest rates this week reached an all-year low for 2014, dropping to 4.1 percent, the lowest level since June 2013. Despite the very attractive rates, new mortgage applications have stayed relatively flat. Chalk it up to a late summer August malaise?

On the other hand, new home construction soared in July, climbing nearly 16 percent. This was good news after a few straight months of sluggish growth for home permits. Home construction also correlates to a boost in sales for home improvement stores such as Lowe's and Home Depot, another sign of a healthy economy.

In other encouraging news, median incomes have finally grown this year - one of the sticking points of the recovery thus far. Income gains are crucial for home sales and home improvement projects, which can raise your home's value over the long term.

Despite these gains, consumers are still proving to be cautious in where they spend their dollars. Retail sales were stagnant from June to July, suggesting consumers are still too wary to spend freely. August spending reports will be an important indicator with back-to-school sales critical to easing into a strong fall economy.

Friday, August 8, 2014

Change is a coming: Good news for credit, uncertainty for home sales

Strap in for the market ride

Just like the IRS tax man chasing after you, constant market fluctuation is a natural part of life. For every down period there will follow a corresponding up, and so on and so forth.

For about three decades, homeowners enjoyed a roller coaster drop on mortgage rates that seemed like it would never stop falling. Peaking at a whopping 18 percent in the early 1980s, interest rates plummeted to less than 3.5 percent in 2013 before finally hitting rock bottom. Next came the inevitable (but scary) transition into rates moving the other direction.

Fortunately, so far the climb has been minimal, more like hiking up the block rather than hiking a Colorado 14'er. Rates are currently rivaling levels in the low 4 percent range similar to this time last year - still a steal from a historical perspective. However, the change has caused broader implications on the market in terms of housing turnover. Homeowners locked into ultra-low mortgage rates have less incentive to sell, creating a tight market and even higher prices.

As long as various economic factors prevent new buyers from being able to bid into the market, though, interest rates will have to stay low to maintain balance. Along those lines, potential borrowers suffering from the tightened lending standards of the past few years may get some relief with changes to how credit scores are calculated.

FICO to lessen impact of medical bills on credit

According to reports this week, the Consumer Financial Protection Bureau - which dictates rules the mortgage industry must follow - has decided to lessen the hit medical debt takes on credit scores. This is welcome news for anyone who has dealt with unexpected medical expenses not covered by insurance, improving your ability to get the best rates available.

The market is eternally responding to and compensating for changes, and if you can expect anything, it's for a different story each month. Stay tuned to see how the industry keeps evolving in the months ahead.

Friday, August 1, 2014

More jobs, but higher unemployment?

Companies added more than 200,000 jobs to U.S. payrolls last month, yet the overall unemployment rate also ticked upward from 6.1 percent to 6.2 percent. If you look at the numbers more closely, however, the higher unemployed figures could signify more people actively job searching this month as opposed to previous months.

While job growth remains steady, wage growth seems to have stalled in the past year. With inflation rising about 2 percent in the past year, wages should be outpacing that at somewhere between 3.5 to 4 percent raises. Wage growth is a key driver in homeowners seeking out new properties and building up assets for down payments.

Another key component in the housing market, as has been mentioned previously in this blog, are the job and financial concerns facing young adults. Burdened with student loan debt and competing against a more educated applicant pool for jobs, adults ages 25 to 34 continue to struggle at maintaining steady, well-paying jobs. Until the landscape improves for this demographic, it might be a while until we see strong movement carried into the housing market.