The homebuying process is a wake up call to many consumers about the importance of a good credit history and credit score

Future home buyers are concerned about their credit and its impact on obtaining a loan, according to a national survey by Experian

A national survey by Experian about homebuying and credit found that many future home buyers, especially first time buyers, do not feel confident about their credit score status. In fact, 34 percent of future buyers say their credit score might hurt their ability to purchase a home and 45 percent have delayed a purchase to improve their credit score.

"Your credit profile is one of the factors that can have a substantial impact on securing a home loan because it is used by lenders as an indicator of your financial health," said Rod Griffin, director of Public Education at Experian. "Consumers planning to purchase a home should check their credit scores and reports to see where they stand. From there they can develop a financial plan so they are in the best place to try to secure the loan they desire."


Many future homebuyers are taking action to improve their credit profile. Almost 70 percent of survey respondents are paying their bills on time and 60 percent are paying off debt. In addition, 28 percent of future homebuyers surveyed are keeping balances low on credit cards and 15 percent are taking steps to protect their credit information from identity theft and fraud.

"It is important to take steps early in the homebuying process to allow time to make changes and have those changes be reflected on your credit score," Griffin explained. "This requires ongoing tracking so it's recommended that consumers utilize a product such as Experian Credit TrackerSM, which not only offers access to an Experian credit report and FICO® Score but many educational resources."

Unfortunately, low credit scores have led some homebuyers to delay or completely forego a home purchase, with one in five reporting that they were likely to opt out of the loan process or purchasing a home all together for the next five to 10 years. Of those deciding to simply delay a home purchase, 45 percent reported the delay was made in order to secure better interest rates.

Other key findings:

• Thirty-five percent of future buyers said they do not know what steps to take to qualify for a larger loan
• Twenty-nine percent of consumers surveyed would purchase a more expensive home if they had better credit and could qualify for a larger loan 
• Three out of four future buyers are not pre-approved for a home loan

Equifax: First Mortgage Origination Balances in 2015 Increased 42.9 Percent over Previous Year

Underwriting practices remain consistent, with median credit score remaining relatively unchanged for last three years

According to data from the March 2016 Equifax National Consumer Credit Trends Report, the total balance of new first mortgages originated in 2015 was $1.82 trillion, a year-over-year increase of 42.9 percent, while the total number of new first mortgages originated in that same time was 7.71 million, an increase of 31.6 percent.

The data also shows that first mortgage lending to borrowers with subprime credit (consumers with an Equifax Risk Score™ of 620 or below) also showed strong growth. Year-over-year changes in 2015 include:

• Balances: $59.7 billion, an increase of 41.3 percent; and
• Number of Loans: more than 366,900, an increase of 25.2 percent.

"We saw a nice jump in mortgage lending in 2015 that was driven by both rising home-purchase activity and solid refinancing volumes," said Amy Crews Cutts, Senior Vice President and Chief Economist at Equifax. "While low interest rates are helping, continued gains in employment and consumer confidence are key. What we are not seeing is any meaningful loosening of underwriting, at least with respect to credit scores. The median credit score on new first mortgages in the fourth quarter of 2015 was 750 and 90 percent of first mortgage borrowers had a score in excess of 646 – these values are essentially unchanged for the past three years."

Additional data from the March 2016 Equifax National Consumer Credit Trends Report includes:

Home Equity Installment Loans

• The total number of new home equity installment loans originated in 2015 more than 791,900, an increase of 26.7 percent from the previous year. The total balance of new loans in that same time was $26.5 billion, an increase of 20.8 percent;
• The total number of new loans originated 2015 was the highest level in more than seven years, while in that same time, 2014-2015 showed the third-highest percentage increase, for a calendar year since 2008.
• There were more than 83,000 new loans originated for borrowers with subprime credit in 2015, a year-over-year increase of 31.2 percent. In that same time, the total balance of new loans was $1.73 billion, an increase of 6.5 percent.
• In 2015, 10.5 percent of all loans were issued to subprime-credit borrowers, a slight increase from the previous year's share (10.1 percent).

Home Equity Lines of Credit (HELOC)

• The total credit limits of new loans originated in 2015 was $146.1 billion, a 19.7 percent increase from the previous year. In 2015, the total number of new loans originated was just under 1.39 million, an increase of 11.7 percent over 2014;
• There were 20,100 loans originated for borrowers with subprime-credit in 2015, an increase of 15.2 percent and the highest total since 2008 (35,660 loans);
• The total credit limits on new subprime HELOCs in 2015 was $745.2 million, an 8.5 percent increase and the highest total since 2008 when they totalled more than $1.78 billion.

Why Renters Should Get Ready for Homeownership While Leasing

Borrowers with Low Credit Scores Found it Easier to Get a Home Loan in 2014

Mortgage lending standards loosened in 2014, making it easier for borrowers with low credit scores to get a mortgage, but borrowers with low down payments saw financing options begin to tighten in the fourth quarter, according to the quarterly Zillow® Mortgage Access Index (ZMAI). Overall, it was still easier for home buyers to access credit in 2014 compared with the prior year.

The Index, which currently stands at 69.4, dropped 2.1 points from the third to the fourth quarter, but is up more than 18 points from the fourth quarter of 2013. An Index reading of 100 would indicate that credit has returned to pre-housing bubble levels.

In 2014, lenders lowered their credit score requirements for conventional loans, opening the door to a new subset of borrowers - those with scores of less than 680. Borrowers who were previously only eligible for an FHA loan due to their low credit scores are now more likely to get a less expensive conventional loan with private mortgage insurance.  At the end of 2014, it was easier for borrowers with low credit scores to get conventional loans than it had been since 2008.

However, in the fourth quarter of 2014 lenders began to offer fewer financing options to borrowers with low down payments. This move forced borrowers who may have previously been able to get a conventional mortgage with a low down payment back to FHA loans. Additionally, the rate of creative financing like second mortgages or piggyback loans, which are typically used to avoid paying mortgage insurance, fell in the quarter.

"After several years of rapidly increasing access to home loans, lenders are taking a pause," said Dr. Stan Humphries, Zillow chief economist. "With the mini-boomlet in refinance activity late last year, perhaps there was less business imperative for banks to attract new customers with looser lending. Don't expect this trend to continue though. Instead, credit access should continue its slow normalization, although it's doubtful it will ever return fully to where it was pre-bubble. The new normal likely lies somewhere between current conditions and those of the early 2000s."

Variables Used to Calculate the ZMAI	Q4 2013	Q3 2014	Q4 2014
Private Mortgage Insurance (PMI) Percentage i	43.9%	47.3%	45.7%
Second Mortgage Prevalenceii	8.6%	12.4%	12.0%
Debt-to-income ratioiii	44%	44%	44%
Credit Scoreiv	682	673	674
Non-conforming Loansv	8.6%	9.8%	9.6%
Mortgage Rate Spread (percentage points)vi	1.42	1.64	1.69
Zillow Mortgage Quotesvii	35%	53%	53%
Zillow Mortgage Access Indexviii	51.1	71.5	69.4

Experian's latest analysis uncovers how the addition of rental payment data to credit files can help financially excluded consumers gain access to traditional financial services

COSTA MESA, Calif.-- Experian®, the leading global information services company, today announced itsrecent report on the impact of positive rent reporting on subsidized housing residents. Experian was the first credit reporting agency to incorporate on-time rental payments to its database. To show the value of adding alternative data to credit files, Experian conducted an analysis to examine how rental tradelines impact credit file thickness, risk segment migration, credit scores and the ability to score previously unscoreable residents.

"'Financial exclusion' is a term that describes the lack of access to basic financial services. Being denied the opportunity to have low-cost loans or even a bank account is a reality for many Americans, and they are forced into using alternative services to conduct simple transactions," said Brannan Johnston, vice president and managing director, Experian RentBureau®. "Adding on-time rental payments to credit files may help those who operate primarily on a cash basis to integrate into the banking system and establish a credit history that they can leverage to receive more affordable credit and improve their economic well-being."

Additional findings from the Credit for Renting whitepaper confirm:

• The average VantageScore® 3.0 score change for previously scoreable participants in the study was an increase of 29 points
• 95 percent of study participants experienced a score increase or no score change with subprime and nonprime residents receiving the greatest positive score impact
• 19 percent of study participants previously considered subprime migrated to at least one higher (less risky) risk segment, typically yielding more affordable credit and additional credit opportunities 
• 23 percent of thin-file residents migrated to the thick-file category, potentially signaling to a lender the ability to manage multiple credit obligations
• 97 percent of the previously no-hit (and credit unscoreable) residents fell in one of the two least risky risk segments with the addition of the paid-as-agreed rental tradelines

"Consumer financing rapidly changed during the economic upheaval, and regulatory changes forced lenders to tighten the standards for the underwriting process. This excluded many Americans from the opportunity to attain credit due to a limited or no credit history," said Genevieve Juillard, president of Experian Consumer Information Services. "For the last decade, Experian has advocated for full-file reporting and invested in new sources of data outside the traditional sets, such as Experian RentBureau, to help expand credit files. Residents who pay their rent on time month after month should be rewarded and not overlooked simply because they rent instead of own the place they call home."

To conduct the analysis, Experian RentBureau gathered rental payment data from the Experian RentBureau database which is comprised of both positive and negative rental payment data.  Experian incorporates the on-time rental payment data reported to Experian RentBureau into Experian credit reports. Nearly 20,000 leases, as reported by property management companies to Experian RentBureau, were found that met the desired criteria, including the receipt of housing subsidies on the lease and positive lease payment behavior. Subsidized leases with negative rental payment history specifically were excluded from the analysis. The addition of these leases to the Experian credit database then was simulated.

A complimentary download of the full report is available here: http://ex.pn/1uET659

Experian consumer education resources For more than 20 years, Experian has been committed to helping consumers build a positive credit history by providing products and services that help consumers manage their credit reports and credit scores better, so they can get the credit they need when they need it.

Consumers can connect with Experian and learn more about credit in other ways, including by:

• Joining the #CreditChat, hosted by @Experian_US on Twitter with financial experts and consumers every Wednesday at 3 p.m. Eastern time
• Visiting Experian's help site for answers to common questions, advice and education about consumer credit
• Asking credit questions on Experian's Facebook page at https://Facebook.com/ExperianUS

For renters interested in building credit history through rental payments, 
please visit www.experian.com/buildcredithistory.

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