There are an endless array of reasons why fewer Americans own their homes. Some are saying it’s the Dodd Frank financial reform that was passed in 2010 that brought to the forefront words like ‘qualified mortgage’ and ‘qualified residential mortgage’, complete with a host of rules that aren’t yet finalized, but are already wreaking havoc. Others say the banks are just too gun shy and are still holding back. But there might be another reason that these advocates and experts aren’t giving enough thought to – the consumer.
Fewer Own Homes
While the rules and guidelines and leery lenders certainly play a role, there’s a school of thought that it just might have as much to do with the consumer not trusting the lending process as it does the lenders unsure of the consumer. Then there are the credit scores of many who lost their homes, their jobs, their credit cards, bank accounts and everything else during the recession and they’ve yet to strengthen their credit scores enough to qualify for a mortgage. So while the experts say rule makers say it’s their doing and their abundance of caution that’s keeping borrowers at bay, we’re thinking those borrowers have more power than they’re being told.
The new rules do play a role, though – even if they haven’t been finalized all these years later. Now that CFPB has a hand in it, there’s a better chance that we’ll see those new compliance guidelines in place sooner rather than later. With that probability, it’s important to keep in mind what role they play. Here’s how it plays out.
Basically, these guidelines put into place percentages that borrowers must have in place before being considered for approval:
- 20% down
- Debt-to-income (DTI) ratio of no more than 43%
- Strong credit scores (though there’s some uncertainty in how “strong” is being defined)
Of course, there are always exceptions to the rules – but as one might expect, those exceptions are going to cost consumers and it might not be the best solution.
Loan officers made massive loans to borrowers who didn’t qualify but whose applications weren’t checked. These “stated” loans meant that potential homeowners simply stated facts like how long they’d been on their job, their salaries and their bank balances. It’s incredible, but it’s absolutely true. That meant the subprime market grew by leaps and bounds and as we know, that didn’t last and played a big role in the foreclosure crisis. At any rate, these new requirements are in place and the banks and other lenders are now going to be required to adhere to them.
Not surprisingly, the collective mortgage industry doesn’t like these rules because no one likes restrictions on how they go about the business of closing mortgage loans. There are also concerns that lower income households will be closed out once again and won’t have the opportunity to buy a home. Here’s where it becomes twisted with too much “entitled thinking”. There are those who say that’s not a bad thing. If you’re not pulling in considerable salaries, you shouldn’t own a home. Then there are big buyers who are gobbling up cheap real estate to the extent of outbidding those lower income buyers. And, as one brilliant “rulemaker” said,
That’s the whole point of having mortgage standards in the first place: Some people aren’t going to be able to get mortgages.
Consumer groups, on the other hand, say these restrictions aren’t good and that the fact there are people who think some people don’t “deserve” to own a home is exactly the reason why it’s wrong.
The fact is, homeownership has fallen to twenty year lows. Think about where this country was twenty years ago: the early 80s, before Reagan had a chance to pick up the pieces. We were coming out of a massive recession, Iran was the fear and we were only on the verge of living the high life, which would come within a few years.
Now, though, it’s just the way it is and these rules are also on the verge of evolving. They’re going to be passed. For those who are working towards homeownership, there are a few things they can do to get those dynamics in place, especially if their credit scores have taken hits during the recession. Many have foreclosures on their credit reports, others have bankruptcies and late payments. We all know there’s just one way to get past it: solid choices in their financial products and time. Credit cards, despite the interest and annual fees, are still the best way to get those wheels turning again.
Picking Up the Pieces
Many consumers’ credit scores won’t support a traditional credit card. For those, the way to bridge that gap is through a secured credit card. These products will allow you to use a savings account as collateral. Many banks will issue their cards for customers who have accounts with them, especially savings accounts. They monitor the payment histories, ensure that the customer stays within his credit limit and with time, will allow the credit card to drop the security aspect and transition into a traditional card.
Matrix Secured Credit Card
Not a prepaid card, which doesn’t report to credit bureaus, the Matrix Secured card allows consumers to pay a security deposit and then the credit card is issued with that as collateral. Your payment habits are reported to the three credit bureaus each month, allowing you to strengthen your scores.
It’s an affordable option with no application fees and the minimum payments each month are low, although ideally, you’ll be able to pay the balance in full every month. It’s issued by Discover, so you’ll have the same protections that Discover is known for. You’ll enjoy online account management and you can have all of your transactions texted to you so that you can stay on top of your spending. There is a $75 annual fee, but considering some of the other fees with secured credit cards, this is slightly lower and reasonable. It’s really one of the highest ranked secured credit cards on the market – and it can be exactly what’s needed for those ready to fast track their improvement efforts.
Platinum Zero Secured Card
Platinum Zero Secured Card is great product, too. It’s simple with no APR, no application fees and it reports to all the credit bureaus. Your credit line can be as high as $5,000, but again, it’s determined by your deposit. Cash advances incur a 9.99% APR and you’re afforded all of the benefits of a traditional credit card, including fraud protection. If there’s any downside to this offer, it’s that you must have at least a $500 deposit. That’s reasonable, though, since it give plenty of leeway for consumers to make the most of their efforts of rebuilding their credit.
Ultimately, and despite the new rules, many say that it will be possible to get a mortgage, it’s just going to cost significantly more. Remember, though, the two big considerations aside from your credit history: DTI and downpayments. You can get past both sometimes, but it’s not going to be the most wisest thing to do. Better to prepare and plan and then make your move. Think long term, avoid the naysayers and remember the end goal is securing a home for you and your family that will allow you to live your life and store your memories. That’s really the American Dream.
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