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Homeownership

Rental history can soon help folks qualify for a mortgage

(REAL ESTATE) Historically, rental history has not been reported to credit bureaus which doesn’t help anyone with obtaining a mortgage. Soon, that all changes.

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Mortgage papers held in hands with a pen, being handed to the other hands.

Effective September 18, more renters may qualify for a mortgage under Fannie Mae’s updated underwriting process. The rules have changed to incorporate consumers’ rent payments to better serve the “credit invisible” of America who are historically under-served by traditional lending products.

Fannie Mae’s Desktop Underwriter® will automatically identify recurring rent payments based on banking data to improve mortgage eligibility.

It’s estimated that about 17% of previously rejected applicants could now be approved for a mortgage, simply due to their rental history.

Hugh R. Frater, Chief Executive Officer of Fannie Mae said that this is “but one important step in correcting the housing inequities of the past, creating a more inclusive mortgage credit evaluation process going forward, and encouraging the housing system to develop new ways of safely assessing and determining mortgage eligibility in order to fairly serve all potential homeowners.”

Rent payments will only positively impact eligibility.

Although Fannie Mae does not handle loans simply backs them, applicants can be pre-approved through their process to private lenders. Credit history is one of the most important factors in getting approved for a mortgage, but less than 5% of renters have their rent history on their credit report.

Fannie Mae is changing this to expand opportunities for under-served consumers. Even more importantly, the rent payment history will only be used to improve eligibility. Missed payments or inconsistent history will not negatively affect a person’s ability to qualify for a loan.

However, consumers will need to have a digital history of making payments, whether to the property management company through their payment portal or by check or another digital solution.

Rental history directly relates to paying your mortgage on time.

Lenders want their mortgage payments to be on time. That’s the simplified bottom line.

Rent is one of the biggest expenses in any renter’s budget, but it rarely gets reported to the credit bureau without a third party reporting tool like CoreLogic’s RentTrack. This move by Fannie Mae will help level the playing field for renters who are responsible borrowers.

Welcome to the 21st century, Fannie Mae (and America).

Dawn Brotherton is a Staff Writer at The American Genius, and has an MFA in Creative Writing from the University of Central Oklahoma. Before earning her degree, she spent over 20 years homeschooling her two daughters, who are now out changing the world. She lives in Oklahoma and loves to golf. She hopes to publish a novel in the future.

Homeownership

Remodeling projects like these increase a home’s value the most

(HOMEOWNERSHIP) Knowing which remodeling projects to tackle when a home is being put on the market can save a lot of wasted effort and money.

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remodeling

If you’re looking to help your clients to identify which projects to tackle before putting their home on the market, look no further: the National Association of Realtors surveyed thousands of real estate agents, industry professionals, and consumers on interior and exterior house remodeling projects, and these are the best projects for upping a home’s value before listing it on the market, ranked on the most value and cost recovery a homeowner can get.

  • Refinishing hardwood floors. Start from the bottom to earn top dollar. Refinishing floors transform a home from worn-out and aging to vibrant and inviting, and only costs about $2500 according to the National Association of the Remodeling Industry (NARI). The project also increases a home’s value by that same amount, meaning a homeowner can recover 100 percent of the costs. Pretty sweet deal.
  • Upgrading insulation. Because it’s what’s inside that counts. This project costs about $2100 based on NARI Remodeler’s estimate and increases a home’s value by $2000 according to Realtors surveyed. That’s a 95% cost recovery.
  • Adding new wood floors. If you don’t have wood floors to refinish, add them in! This costs about $5,500 according to NARI Remodelers, and the increased sales value is $5000. A homeowner can recover 91% of costs from a new wood floor addition.
  • Replacing HVAC system. A new HVAC system adds energy efficiency and refreshes the entire home, and NARI Remodelers estimate doing so costs $7000. The increased value for sellers is $5000 according to NAR REALTORS, meaning an easy breezy 71% cost recovery for homeowners.
  • Converting a basement into a living area. Not only is this cost and space-efficient, it’s also undeniably trendy. A basement makeover costs about $36,000 according to NARI Remodelers estimate and increases value for sellers by $25,000 according to Realtors surveyed. That comes out to a cost recovery of 69%.

Which projects are the most costly?

In case you’re curious, these are some of the most expensive remodeling projects:

  • New master suite. More like master $uite – this costs about $112,500 with a cost recovery of 53%. 
  • Converting an attic into a living area. Cute idea, but also a $65,000 one with a 61% cost recovery. One might say the price is through the roof.
  • Complete kitchen renovation. This project costs an estimated $60,000 with a 67% cost recovery. Even more if you want to throw in a brick oven, and you probably do.
  • New bathroom. With an estimated cost of $50,000 and a 52% cost recovery, make sure you aren’t flushing money down the drain with your bathroom addition!

These trends change over the years, so make sure your knowledge is up to date locally since we all know local trends trump national. Hopefully today you’ve garnered some ammo to help clients better understand how to improve their home’s value!

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Homeownership

Marriage is happening later in the US and the reason is not what you think

(HOMEOWNERSHIP) It’s seemingly later and later that Americans are getting married. You may have ideas as to why, but the reasoning is not what you think.

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marriage move in

As we know, homeownership is a cornerstone of American family life. Homes provide long-term financial stability as a major investment for homeowners. Furthermore, they also provide a strong environment in which to raise a family; so many of us have fond memories of running around our backyards or cozying up in the family room. So, it stands to reason that homeownership and marriage are tied together; many couples will buy a home soon before or soon after marriage.

With all that said, some of the following statistics may be alarming, as it points to a trend that may play into the delay of homeownership.

Lots of data gathered over the past few years shows Americans are marrying later and later, if at all, according to a report from The Guardian. Today, Half of American adults are married, compared to 75% in 1960. The disparities are mostly consistent with class divisions.

Per the Guardian article, “26% of poor adults are married, compared with 51% in 1990.” That same study found 39% of the modern working class of adults are married, but that number was 57% in the 90s.

Education is closely tied with financial status, so an education disparity is also present. Today, 50% of adults with a high school are married; that rate was over 60% 25 years ago.

As the Guardian puts it, “Young people are increasingly seeing marriage as a “capstone” rather than a “cornerstone” event, a crowning achievement once other goals have been reached, rather than a launchpad for adulthood.”

That achievement is financial stability, and many more Americans are feeling a financial crunch.

There’s data to back this up, too. For example, a poll found “nearly half of never-married adults with incomes under 30k say being financially insecure is a major reason” behind their lack of marital commitment to a partner.

Part of a steady income is a steady job, and past Pew Research found 78 of never-married women wanted a future partner to have a steady job.

A decline in manufacturing jobs is contributing to this as well, per some economic research on the subject, which may help to explain how the steepest drops in marriage rates come from the lower and middle class.

It’s not unreasonable to speculate that major living costs factor into that decision as well. For example, with real estate prices going up around the country, especially in major cities with strong job markets, the capstone that is owning a home is pushed farther away from the average American.

If marriage and homeownership are so closely tied together, the delay of one may also contribute to a delay in the other.

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Homeownership

How buyers are competing in a tight housing market

(HOMEOWNERSHIP) It’s a seller’s market with housing supply at an all-time low. Here’s what buyers are doing to increase their chances of buying a home.

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family in their living room with moving boxes during the competitive housing market

Home inventory is at an all-time low in most places around the country. Most people believe that the COVID-19 pandemic is responsible. Families are staying put in their homes, rather than looking for a new place to live. Sellers and realtors are winning in this highly competitive market, making us wonder how buyers are faring.

Cash is king

According to the NAR, cash sales are up by an average of 21%. Buyers are hoping that cash makes their offer more attractive. Closing without a loan has a lot of benefits to the seller. The sale is more likely to close, as it isn’t dependent on a loan. Plus, there are fewer costs involved in the closing. Since 2013, cash sales haven’t been trending upward, so this is an interesting turn for sellers. Buyers who make cash offers reduce the risk of getting rejected by the seller.

Buyers making larger down payments

Sellers also benefit when buyers make a 20% down payment or more. A higher down payment increases the chance of getting a loan. According to the NAR, almost 50% of buyers are making a down payment of at least 20%, which is up from 40% of buyers in 2011. Buyers avoid mortgage insurance premiums, which makes it a win-win for everyone.

Buyers aren’t even offering or negotiating

The third way buyers are coping in this market is to back off and not even make an offer when they know a home already has competition. Why get your hopes up, only to have them dashed when you can’t negotiate?

Will supply return?

The good news is that the housing supply outlook is on the increase. As vaccinations roll out and people feel safer to show their home, more homes should come on the market. Housing permits are up, too. This should help even out the market and give buyers a better chance to find a home.

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