MONEY Credit Scores

The One Graph That Explains Why a Good FICO Score Matters for Homebuyers

young couple outside of home
Ann Marie Kurtz—Getty Images

An analysis from an economic policy group estimates that tight credit standards may have prevented 4 million consumers from getting mortgages since 2009.

When it comes to buying a home, there’s a lot more to the process than just finding an affordable home for sale and having enough money for a down payment. Most people need loans to finance such a large purchase, but even as the housing market has rebounded from the foreclosure crisis and low property values of 2010, mortgages remain very difficult to acquire. A report from the Urban Institute, a Washington-based economic-policy research group, concludes that 1.25 million more mortgages could have been made in 2013 on the basis of conservative lending standards practiced in 2001, years before the housing bubble began to inflate.

Whether or not a lender approves a borrower for a mortgage depends on several factors, like income and outstanding debt, but looking at the credit scores of mortgage borrowers during the last several years shows just how tight the market has been post-recession. Here’s how it breaks down.

Urban-Institute-FICO-Score-distribution

The Urban Institute estimates that the stringent credit score standards for mortgage origination resulted in 4 million mortgages that could have been made (but weren’t) between 2009 and 2013. From 2001 to 2013, consumers with a FICO credit score higher than 720 made up an increasingly large portion of borrowers, from 44% of loans in 2001 to 62% in 2013. Consumers with scores lower than 660 made up 11% of borrowers in 2013, but they represented 28% of home loans in 2001.

The study authors note that their calculations do not account for a potential decline in sales because consumers may not see homeownership as attractive as it had been before the crisis.

“Even so, it is inconceivable that a decline in demand could explain a 76% drop in borrowers with FICO scores below 660, but only a 9% drop in borrowers with scores above 720,” the report says.

On top of that, the authors found that tightened credit standards disproportionately affected Hispanic and African-American consumers. In comparison to loan originations made in 2001, new mortgages among white borrowers declined 31% by the 2009-2013 period, 38% for Hispanic borrowers and 50% for African-American borrowers. Loans to Asian families increased by 8%.

Millions of Americans are still feeling the impact of the economic downturn on their credit scores, because negative information like foreclosure, bankruptcy and collection accounts remain on credit reports for several years. Rebuilding the credit and assets necessary to buy a home takes time, particularly in such a tight lending climate, but by regularly checking your credit — which you can do for free on Credit.com — and focusing on things like keeping debt levels low and making loan payments on time, you can start making your way toward a better credit standing.

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This article originally appeared on Credit.com.

TIME Innovation

Five Best Ideas of the Day: March 30

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. Blue-collar jobs are coming back, and pay well. But women are missing out.

By Mitchell Hartman in Marketplace

2. Ikea is known for affordable, flat-pack furniture. Now they’re selling the U.N. flat-pack refugee housing.

By Amar Toor in the Verge

3. With an eye on the White House, politicians won’t admit it, but the ethanol mandate is terrible policy.

By Josiah Neeley in the American Conservative

4. With billions in profits, tech giants must lead the charge against inequality in Silicon Valley.

By John D. Sutter in CNN

5. Can better customer service make primary medical care affordable and sustainable?

By Margot Sanger-Katz in the Upshot

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME cities

Salt Lake City and Austin Ranked Best for Job Creation in U.S.

New York City is dead last among the top 50 metro areas

Salt Lake City, Utah, and Austin, Texas, topped the rankings for job creation across all U.S. cities in 2014, according to a poll by research-based consulting company Gallup. They are followed by San Francisco, whose Bay Area is home to tech giants like Apple, Google and Facebook, while another Texas city, Houston, and Orlando, Fla., round off the top five.

The nation’s financial powerhouse New York City, meanwhile, ranked dead last among the top 50 metro areas, joined by San Diego, Calif., and Hartford, Conn., in the bottom three.

The poll was done through a telephone survey of over 200,000 randomly selected participants across the country, who were divided into Metropolitan Statistical Areas that were then assigned a “Job Creation Index” score. Among the top 50, these scores ranged from 37 for Utah and Austin to 20 for Hartford, San Diego and New York.

While U.S. job creation on the whole has been improving since the 2009 recession, the trend among the cities with high job creation appears to be an increasing demand in the technology sector. Housing and construction jobs are also growing in the top two cities to meet the increasing demands placed on them by the work force, Gallup said.

MONEY Debt

The Hidden Threat to Your Retirement

More older Americans are approaching their golden years with heavy debt loads.

When Wanda Simpson reached retirement a couple of years ago, the Cleveland mom had an unwelcome companion: Around $25,000 in debt.

Despite a longtime job as a municipal administrator, Simpson wrestled with a combination of a second mortgage and credit-card bills that she racked up thanks to health problems and a generous tendency to help out family members.

“I was very worried, and there were a lot of sleepless nights,” remembers Simpson, 68. “I didn’t want to be a burden on my children, or pass away and leave a lot of debt behind.”

New data reveal that Wanda Simpson has company—and plenty of it.

Indeed, the percentage of older Americans carrying debt has increased markedly in the past couple of decades. Among families headed by those 55 or older, 65.4% are still carrying debt loads, according to the Washington, D.C.-based Employee Benefit Research Institute (EBRI). That is up more than 10 percentage points from 1992, when only 53.8% of such families grappled with debt.

“It’s a two-fold story of higher prevalence of debt, and an uptick in those with a very high level of debt,” says Craig Copeland, EBRI’s senior research associate. “Some people are in real trouble.”

To wit, 9.2% of families headed by older Americans are forking over at least 40% of their income to debt payments. That, too, is up, from 8.5% three years earlier.

The only bright spot in the data? The average debt balance of families headed by those over 55 has actually decreased since 2010, according to EBRI, from $80,564 to $73,211 in 2013.

Still sound high? It is especially so for those heading into reduced earning years, or retiring completely.

The primary culprit, according to Copeland: rising home prices and the longer-term mortgages that result, often leaving seniors with a monthly nut well into their golden years.

Seniors are even dealing with lingering student debt: 706,000 senior households grappled with a record $18.2 billion in student loans in 2013, according to the U.S. Government Accountability Office.

It’s not an easy subject to discuss, since older Americans may be ashamed that they are still dealing with debt after so many years in the workforce. They do not want to feel like a burden on their kids or grandkids, and so keep their financial struggles to themselves.

But financial experts stress that not all debt is automatically bad. A reasonable mortgage locked in at current low rates, in a home where you plan to stay for a long period, can be a very intelligent inflation hedge.

“I always suggest clients consolidate it in the form of good debt, like a mortgage on your primary residence,” says Stephen Doucette, a planner with Proctor Financial in Sherborn, Massachusetts. “You are borrowing against an appreciating asset, you don’t have to worry about inflation increasing the payment, and the interest is deductible.

As long as this debt is a small portion of your net worth, it is okay to play a little arbitrage, especially considering stock market risk, where a sudden decline could leave older investors very vulnerable.

“A retiree who has debt and a retirement account with equity exposure may not have the staying power he or she thinks. The debt is a fixed amount; the retirement account is variable,” says David Haraway, a planner with LPL Financial in Colorado Springs, Colo.

It is important not to halt 401(k) contributions, or drain all other sources of funds, just because you desire to be totally debt-free. Planner Scot Hansen of Shoreview, Minn. has witnessed clients do this, and ironically their good intentions end up damaging years of careful planning.

“But this distribution only created more income to be reported, and more taxes to be paid. Plus it depleted their retirement funding source.” he says.

Instead, take a measured approach. That’s what Wanda Simpson did, slowly chipping away at her debt with the help of the firm Consolidated Credit, while living off her Social Security and pension checks.

The result: She just sent off her final payment.

MONEY housing

Boomers’ Homes Are Once Again Their Castles

House in Colorado
Getty Images

A new study looks at the relationship older Americans have with their homes and finds some surprises.

Aging Baby Boomers apparently missed the memo about how badly they’ve prepared for retirement. While study after study highlights inadequate retirement savings and planning, a new survey and report sponsored by Merrill Lynch finds that a broad cross-section of older Americans are eagerly looking forward to new adventures and, especially, freedoms, in their later years.

“Home in Retirement: More Freedom, New Choices,” prepared for Merrill Lynch by the Age Wave consulting firm, focuses on the age-related transitions that people are making in the way they live and how they regard their homes. According to the study, nearly two-thirds of retirees say they are now living in the “best home of their lives” and making active efforts to create living spaces that match their new retirement lifestyles. Nearly as many say they are likely to move during their retirement years, and most of this group has already relocated once.

“When I look out at the future of our aging population, I have concerns, too,” said Ken Dychtwald, head of Age Wave and a longtime leader in aging research. “I am not a beginner at this. But I think a lot of our worries are not a fait accompli,” he said. “I think we have, to a fair extent, overemphasized the misery of aging.”

After lives largely determined by work and family responsibilities, boomer retirees find they are experiencing a new sense of freedom about where and how they live. An estimated 4.2 million retirees moved into new homes last year alone, the report found. And while downsizing is often recommended as a new lifestyle for retirees, nearly a third of retirees who relocated actually moved into larger homes. (One reason: One out of every six retirees has a “boomerang” child who moved back in with them.)

Only one in six retirees who moved last year wound up in a different state, emphasizing the strong attachments that boomers have to their existing communities. Among future retirees, 60% say they expect to stay in their current state while 40% want to explore other parts of the country.

From their 60s to their late 70’s, people “think of this as a great time and a time of great freedom,” Dychtwald said. “That word—freedom—came up over and over again.”

Reaching age 60 seems to represent a “threshold event” for people, added Cyndi Hutchins, director of financial gerontology for Bank of America Merrill Lynch. With careers winding down and children out of the house, people take a new look at their futures. Another transition occurs in the early to middle 70s, when many begin to slow down and become less active. “We see a spike in that freedom threshold again at that age,” she said. “We see retirement as a succession of different time periods.”

Whether people move or not, or downsize or not, their homes assume added significance, the study found. “Prior to age 55, more homeowners say the financial value of their home outweighs its emotional value,” the report said. “As people age, however, they are far more likely to say their home’s emotional value is more important than its financial value.” More than 80% of people aged 65 and older own their own homes, and more than 70% of them have paid off their mortgages.

If boomers do reinvest in their homes, it would provide a major boost to the housing and home furnishings business. In the next decade, the study notes, the number of U.S. households will increase by nearly 13 million, with nearly all of this growth—nearly 11 million—occurring among people aged 65 and older.

“Age 55+ households account for nearly half (47%) of all spending on home renovations—about $90 billion annually,” the report noted. “While younger households slowed or reduced spending on home renovations between 2003 and 2013, spending among those age 65+ increased by 26%.”

Common renovations among retired homeowners include: home office (35%), improved curb appeal (34%), a kitchen upgrade (32%), improved bathroom (29%), adding age-friendly safety features in a bathroom (28%), and modifying their home so they can live on a single level if needed (15%).

The report found the South Atlantic states were the favorite place for people to live and to relocate, followed by Mountain and Pacific states.

It also echoed other research that finds people overwhelmingly prefer to “age in place” in their own homes, with 85% of people preferring this option as opposed to moving to a senior or assisted living community.

Leading age-ready home features include a no-step entry; single-floor living; extra-wide hallways and doors; accessible electrical controls; lever-style handles on doors and faucets; bathroom safety features, and, accessible countertops and cabinets.

The Merrill Lynch study is the fifth in its series of seven planned reports dealing with people’s life priorities for their health, home, family, finance, giving, work, and leisure. Its findings are based on a survey of more than 3,600 adults representative of the broader U.S. population in terms of age, income, gender and place of residence.

Philip Moeller is an expert on retirement, aging, and health, and co-author of “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

TIME Race

Minorities Face Significant Barriers to Home Ownership in the U.S., Report Says

'It's clear that the housing playing field remains strikingly unequal in this country'

Minorities continue to face significant barriers to home ownership in the U.S., according to a new report.

The report, released by online real estate database Zillow, shows a significant disparity in home ownership, property values and home loan approval rates between white and minority communities.

Read More: The Long, Tangled Roots of the Michael Brown Shooting

More than 25% of loan applications by black applicants in the U.S. are denied, compared with 10% of their white counterparts, the report found. Additionally, nearly three in four white Americans own their homes, compared to less than half of black and Hispanic Americans.

The value of homes owned by minorities also tended to be less stable. While prices in white neighborhoods have largely recovered from the economic downturn of 2008, home prices in predominantly black and Hispanic neighborhoods remain well below peak levels.

“It’s clear that the housing playing field remains strikingly unequal in this country,” Zillow Chief Economist Stan Humphries said in a statement.

TIME Innovation

Five Best Ideas of the Day: February 6

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. To salvage democracy in Afghanistan, leaders must make the next election really work.

By Tabish Forugh in Foreign Policy

2. In a U.S. first, New Orleans finds homes for all its homeless veterans.

By Noelle Swan in the Christian Science Monitor

3. As rich nations plan the next decade’s agenda for global development, they must bring human rights and accountability to the fore.

By the United Nations News Centre

4. Science and the media need each other. They just don’t know it yet.

By Louise Lief in the Wilson Quarterly

5. This simple Lego contraption allows scientists to safely handle insects.

By Emily Conover in Science

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

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