If you live in Las Vegas, you face pretty long odds on qualifying for a home loan.
A new report shows nearly a third of all Americans can’t get a home loan due to bad credit, and local observers say the problem is substantially worse in Southern Nevada.
A new report from Seattle-based Zillow Mortgage Marketplace analyzed 25,000 mortgage quotes from early September and found that 29.3 percent of Americans can’t qualify for home loans because their credit scores run below 620, the threshold under which most banks won’t lend on homes. Worse yet, another 23.8 percent of Americans who do qualify for mortgages have enough credit dings to keep them from the best interest rates, and that’s important because every 20-point gain in a credit score equals savings of $6,400 on the life of the loan on a $300,000 home, Zillow said.
Zillow’s chief economist, Stan Humphries, said mortgage rates rest at historic lows, and homes are more affordable than they’ve been in years.
“The irony here is that so many Americans can’t qualify for these low rates, or can’t qualify for a mortgage at all,” he said.
Zillow didn’t filter its data down to local levels, but area observers say Las Vegas claims an even higher proportion of residents whose credit scores bar them from home loans.
Becki Coleman, a Realtor with Realty Executives of Nevada in Las Vegas, estimated that 37 percent to 40 percent of locals would have trouble qualifying for a mortgage.
Jason Schaaf, a Las Vegas loan officer with Shelter Mortgage, pegs the rate even higher, perhaps in the upper 40 percent range, and maybe even close to 50 percent.
“About two years ago, getting a home loan became like sucking a watermelon through a straw — very difficult,” Schaaf said. “It’s a death march once you’re underneath (a credit score of 620).”
It’s tough to gauge just how Las Vegas’ average credit score compares to that watermark of 620, because FICO, the company that provided Zillow’s scoring statistics, doesn’t offer metropolitan figures. But at least one other recent report backs up the idea that locals own seriously subpar credit scores. Credit bureau Experian said earlier this month that Las Vegas has the seventh-lowest overall credit score in the United States, with an average score of 707 on a scale ranging from 501 points to 990 points.
Blame a woeful housing market for at least some of the city’s worse-than-average financial histories, Coleman said. With a nation-leading foreclosure rate, Las Vegas has an outsized share of residents who’ve defaulted on home loans or reverted to bank short sales, both of which can cut credit scores.
Plus, a record jobless rate near 15 percent means plenty of locals can’t pay their bills on time and end up in credit-killing collections, Schaaf noted. Other locals lived off their charge cards as their work hours got cut, and pushing card balances to their limits ranks as one of the surest ways to hurt your credit. Banks have also lowered limits on revolving debt, so consumers are using a bigger percentage of their available credit, Schaaf said.
Local home-loan travails go well beyond individual pain, and they affect the entire economy.
Las Vegas still has a huge stockpile of homes for sale. It also has a “robust pipeline” of foreclosures and short sales that have yet to hit the market, Humphries noted. What’s more, “sideline sellers” who’ve waited out the market because they didn’t absolutely need to list their homes will continue to trickle into the market, Humphries said.
All that inventory, combined with scarce home lending, could translate into a long wait for the city’s housing recovery. By Zillow’s reckoning, the local housing market has yet to hit bottom — prices here declined another tenth of a percent from June to July — and once the city does find its basement, it could take up to five years for supply and demand to reach a balance, Humphries said.
Locals can help both themselves and the economy by cleaning up credit where possible. On top of basics such as checking credit reports for mistakes and paying bills on time, consumers should put as much extra income as possible toward slashing credit-card balances, Coleman advised, because debt-to-income ratios comprise an important part of credit scores.
Also, consider asking collection agencies to remove their actions from your credit report once you’ve paid them, Schaaf said. It does no good to simply pay the past-due bill, because it’ll still appear on credit reports as a delinquency. Instead, see about erasing it from histories. Many collectors will work out such arrangements with customers who pay, Schaaf said.
But it’s not just consumers who hold the key to easing the local financing crunch, Coleman said. To get the market moving again, banks will need to show leniency. That doesn’t require returning to interest-only balloon loans or other questionable mortgages, but simply making allowances for, say, job losses by reducing the time a borrower needs to have held a job from 18 months to six months in some cases, or by considering someone for a loan two years after a foreclosure instead of four years after.
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