How Bad Credit Will Slow Down The Housing Market Recovery
The latest studies show that 29% of all Americans have credit scores of 580 or below. The FICO score is one of the chief tools used by lenders to determine ones worthiness to borrow. Low credit scores are earned by not making payments; Banks are not willing to lend money to people with a past history of not meeting their financial obligations. Banks no longer lend money for home loans to people with bad credit. Basically, this tells us that almost 1/3 of Americans have credit scores too low to qualify for a home loan.
Many people got bad credit because they bought homes that they couldn’t afford. Many people got their low credit scores as result of missing house payments and going through foreclosure. Many foreclosure victims actually voluntarily stopped making their monthly payments even though they could afford it. For strategic defaulters, sacrificing credit scores was more beneficial than owing thousands more than their homes were worth.
One problem with the increase of people with low credit scores is that this will decrease real estate purchases in the future. It will probably be atleast seven years before anyone who has gone through foreclosure will be able to qualify for a mortgage again. This represents a future decline in the demographics of home ownership. This will decrease the percentage of homeowners and increase the number of renters and people who live with family. Home builders have been building more homes with “mother in law” apartments. The recession has created a higher percentage of multi-generational households.
Having less future buyers, will make it harder for people who need to sell their homes. We will likely see more downward pressure from Kennesaw Georgia Homes for sale to Homes in Visalia California. A slower real estate market will also hinder the overall economic recovery. Home prices may not increase for a long time, in large part thanks to so many Americans with bad credit scores.
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