APRIL 2015

In This Issue
It's Almost Impossible to Buy a House in Dallas            
by Bloomberg Business


Last year, Rick Smith put his family's house in suburban Dallas on the market, hoping to find a new home close to better schools and the city's downtown. Selling the old house was a snap; buying a new one wasn't. In January, the family moved to a town home in a rental community, and quickly found they weren't the only family forced into renting. "If you drive around our community, you'll see moving boxes stacked up in the garages," he said. "No one wants to unpack, because they think they'll be moving again soon."

Welcome to Dallas in 2015, a city whose bustling economy is attracting

new residents at a rapid pace-and making it increasingly difficult to buy a house.  New listings get multiple offers in mere days, said Steve Habgood,

president of the MetroTex Association of Realtors. Homeowners are

increasingly reluctant to sell lest they wind up in Smith's situation.

"People are saying, 'Great, I can get a premium on the price I paid, but

where am I going to live once I sell?'" said Habgood. "The options are

pretty limited."

The metropolitan area of Dallas, Fort Worth, and Arlington added 131,000

people in the year ended July 1, 2014, according to Census estimates

released this week-the second-largest influx in the country. Homebuilders

have been unable to keep up. There were 8,850 for-sale listings in Dallas

last month, down 17 percent from February 2014, according to the Real

Estate Center at Texas A&M University. That's only enough inventory to

cover demand for the next 1.8 months.

The short supply isn't a new situation. When Bloomberg checked on the

local market in late 2013, it found prospective buyers offering cash

payments to take over purchase contracts, and homebuilders struggling to meet demand. What's remarkable is that supply is still lagging a

year-and-a-half later.

The area's population is growing at a pace that makes building enough

houses difficult under any conditions, said Jim Gaines, a research

economist at Texas A&M. That challenge has been exacerbated by

financing conditions that took root following the housing bust, as developers

had a hard time borrowing money to buy land. Loans have been easier for developers to come by since 2013, Gaines said, but turning a large parcel

into buildable lots can take years; in the meantime, it's become harder for small and midsize builders to start new homes.

If there's an end in sight, it has less to do with new homes hitting the market,

and more to do with a decline in oil prices slowing job growth in the region. Dallas is less reliant on the energy industry than Houston, said Gaines, but would still take a hit. "I almost hate to say it, but it might be a good thing if

the demand side of the equation does lighten up," said Gaines.


7 Dumb (and Expensive) Moves Homebuyers Make
by MoneyTalksNews


Whether you're part of the 1 percent or the 99 percent, a house is likely the biggest single purchase you'll ever make.


Unfortunately, plenty of people make dumb mistakes when buying a house, mistakes that could cost tens of thousands of dollars in extra interest or, worse, saddle them with a home they can't afford and can't unload.


Here are seven dumb moves homebuyers make year after year. Read on so you can avoid them.



Dumb Move No. 1: Ignoring your credit score

Your credit score can make or break your interest rate. You see, lenders save their best interest rates for those with the best credit scores. They know people with great scores will almost certainly pay off their loan in full.


Meanwhile, if your credit score is hovering somewhere in the 600s or below, lenders get nervous that you're going to bail or go bankrupt on them. Sure, they might still give you a loan, but they're going to jack up the interest rate so they can get as much interest as possible before your finances potentially go belly up.


At today's interest rates, FICO estimates a person with a credit score of 639 will pay $138 more a month for a $150,000 mortgage than an individual with the same mortgage and a credit score of 780. That translates to someone's crappy credit costing them nearly $50,000 more over the life of a 30-year, fixed-rate loan.


Don't make the mistake of ignoring your credit score before house shopping. If your number is stuck in the basement, use our tips to raise your score as quickly as possible.

Dumb Move No. 2: Not getting pre-approved for a loan

Dumb move No. 2 is failing to get pre-approved. This isn't the same as being prequalified, although some people use the terms interchangeably.


Being pre-approved by a lender gives you a realistic number to use while house shopping. It can also give you an edge if multiple people are placing offers on the same property.


However, be realistic about what you can actually afford versus what the bank says you can afford. Borrowing up to the bank approved limit may stretch your finances and set you up for a major catastrophe in the event of a job loss or injury. My advice is to shave at least 10 percent off the bank-approved amount and use that as your maximum price while house hunting.

Dumb Move No. 3: Falling for an expensive loan

When you're talking to a lender, don't fall into the trap of signing on to a risky loan. Banks and brokers can sometimes use adjustable-rate or interest-only loans to persuade people to buy more house than they can afford.


These loans start out with low payments, usually for the first five years, and then the interest rate adjusts and takes your payment skyward. Some mortgage reps will try to convince you this is no big deal. They will say you can just refinance in five years or perhaps sell the home.


Well, that didn't work out so well for all the people who signed on for subprime mortgages before the Great Recession and then saw their home values disintegrate. Those people couldn't refinance their underwater loans or sell their home, and many ended up staring at foreclosure notices.


Resist the sales talk and keep your feet on the ground when looking at houses. A fixed-rate mortgage gives you security and peace of mind, which may not be as glamorous as the giant house of your dream, but it sure is smart.



Dumb Move No. 4: Going with an inferior (or no) agent

We live in a DIY age, but for most people, it's a mistake to go it alone through the home-buying process.


A good agent can direct you to hot properties entering the market, connect you to competent lenders and inspectors and generally smooth out any bumps that may arise. This isn't the time to be nice and use your brother's friend's uncle as a favor. You're making a major purchase, and you want a proven professional to walk with you through the process.



And if you really can't bear to pay a commission to an agent, at least get a real estate lawyer to help draw up your offer and look over paperwork before you sign on the dotted line.

Dumb Move No. 5: Buying based on emotion rather than reality

People see a house they love, and the planned budget goes out the window. Or, even if the house remains within their budgeted price, they don't think about all the extras that may come along with it. A pool needs to be maintained; a huge lawn must be mowed; and a homeowners association will not only demand annual fees, but also your undying loyalty to their bylaws.

Before buying a house, ask yourself these questions to make sure your purchase is a rational decision:

  • Can I comfortably afford this house?
  • Can I comfortably afford the taxes on this house?
  • Can I comfortably afford to maintain, heat and cool this house?
  • Can I pay for renovations if needed? Will my desired additions and improvements be allowed by the HOA or local zoning ordinance?
  • How long do I envision living in this house?
  • Is there anything outside my control that could negatively impact the resale value of this house?
  • Do the rooms and layout make sense for our family?
  • A [hot tub, outdoor kitchen, fill-in-the-blank] is a great feature, but realistically, will my family use it?

Dumb Move No. 6: Skipping an inspection

Part of the problem with buying on emotion is that it can lead you to make other dumb mistakes, like skipping a home inspection.


Regardless of whether you're buying new construction or a historic home, you need to have it inspected before finalizing the sale. Don't trust your own judgment. A professional will be able to point out possible code violations, safety threats and structural damage. To make the most of the inspection, try to walk through the house with the inspector so they can point out potential problems and you can ask questions.


An inspection can lengthen the home-buying process, but it's worth any inconvenience. The alternative may be finding out your house has a costly or dangerous problem after you move in.

Dumb Move No. 7: Forgetting to have a back-up plan

The last dumb move homebuyers make is not having a Plan B.

For example, what happens if the home inspection shows the beams in the basement are rotting? Do you pull out of the contract and lose your earnest money?


Hopefully, you've avoided mistake No. 4 and have a decent buying agent. That person should have entered a clause into your offer that ensures you get back your deposit in the event the inspection doesn't go well.


You'll also need to have a back-up plan for what happens if the house doesn't appraise as expected or if you were counting on funding through a particular loan program that doesn't materialize.


Does anyone want to fess up to making one of these mistakes? I'll admit to using the friend of a relative for our first home purchase. It wasn't a disastrous mistake, but I think we could have done better with someone more experienced.


FICO Creates New Credit Metric for Risky Consumers
by The Wall Street Journal



Millions of Americans unable to obtain credit cards, mortgages and auto loans from banks will receive a boost with the launch of a new credit score aimed at consumers regarded as too risky by lenders.


The new metric, set to be announced as soon as this week, is being developed by Fair Isaac Corp., creator of the most widely used consumer-credit scores, and is being tested in a pilot phase with credit-card issuers. Fair Isaac said it hopes to make as many as 53 million people who don't have credit scores more acceptable to lenders.


People without scores in most cases don't use debt either by choice or because a negative credit event, such as a bankruptcy, foreclosure or a collection account, has shut them out of mainstream borrowing.


The new score is largely a response to banks' desire to boost lending volumes by increasing loan originations to borrowers who otherwise wouldn't qualify, many of whom tend to be charged more for loans. But the new yardstick will also throw a spotlight on consumers who often are deemed riskier than the rest of the population and could saddle banks with losses if they fail to make good on their loans.

The new score, which isn't yet named, will be calculated based on consumers' payment history with their cable, cellphone, electric and gas bills, as well as how often they change addresses and other factors, according to Fair Isaac, also known as FICO. Traditional FICO scores that lenders use in the approval or rejection process are calculated based on the information in the credit reports from the three major credit-reporting firms, Equifax Inc.,Experian PLC and Transunion.


The new score will instead pull data from a separate database of telecommunications and utilities providers maintained by Equifax. It also will incorporate data from a LexisNexis database, including how often people change addresses, with frequent changes suggesting less stability.


FICO and 10 credit-card issuers, which the firm declined to name, have been quietly testing the new score since November. The firm plans to roll it out nationwide by around year-end. Some 15 million of the 53 million unscorable Americans already can be scored using the alternative data, said Jim Wehmann, executive vice president of scores at FICO.


Lenders often consider consumers who don't have a credit score to be as risky or even riskier than so-called subprime borrowers, who have low FICO scores, and often deny their loan applications or offer them interest rates that are very high. Without a score and little or no credit history, lenders have a difficult time figuring out whether the borrower is likely to pay back a loan.


The new score could help applicants who don't use credit often but are responsible with their monthly payments to get approved for financing. Proponents of scores based on alternative data have said that people who are on time with their other bills should be rewarded similarly to people who are on time with their debt payments when it comes to getting approved for new loans.


But many borrowers who don't have a traditional FICO score are very risky. Some 40% of the roughly 28 million people who have thin credit files and no score-an additional 25 million have no credit file-have had a major negative event like a bankruptcy or collection and haven't had any updates on their credit files in at least six months, according to FICO.


Besides increasing their pool of borrowers and loan originations, banks stand to earn more in interest revenue from riskier borrowers. Lenders charge higher interest rates and in some cases extra fees to borrowers who present a higher risk of falling behind on debt payments.

The new score is the latest attempt by FICO to bring more consumers into the credit system and for the firm to stay in lenders' good graces at a time when banks' profits have been squeezed by low interest rates and lackluster demand for loans.


The announcement comes as the housing industry seeks ways to make people more creditworthy to increase loan originations, an important source of profit for banks and real-estate agents. The National Association of Realtors, along with other real-estate groups, will sponsor a symposium on credit access on Wednesday, which is billed as the first of its type to discuss ways to increase access to mortgages using alternative credit-scoring systems.

Lenders use FICO scores in 90% of consumer-lending decisions, according to CEB TowerGroup, a financial-services research firm.


About 200 million adults in the U.S. have FICO scores, which range from 300 to 850, based on factors such as whether they pay their debts on time and maintain low credit-card balances, and how long they have been managing debt. The new score won't apply to them. To have such a score, consumers must have at least one account, generally a loan or credit card, that is older than six months, and at least one account on their credit report must be updated, which can occur when there is activity on it, in the past six months, among other factors, said John Ulzheimer, president of consumer education at CreditSesame.com, a credit-management site, and a former manager at FICO. One account can satisfy both conditions, he said.


Among the potential new crop of borrowers created by the new credit score, those who successfully apply for a credit card and handle their payments well-avoiding falling behind on payments and maintaining low balances-for at least six months will then receive a regular FICO score, which will make it easier for them to get approved by other lenders, including car-loan and mortgage lenders.


The new score comes after years of intensifying pressure from lenders on FICO to help make more people creditworthy. Lenders have been asking FICO for a score that will allow them to lend to more borrowers, including those who haven't been using credit but are responsible with monthly payments, said Dave Shellenberger, senior director of scoring and predictive analytics at FICO.


"There are more lenders who are very interested in addressing [this]-I don't think you saw that six or seven years ago," he said.


Mortgage firms Fannie Mae and Freddie Mac, which require lenders from whom they buy mortgages to use FICO scores when underwriting applicants, began reviewing alternative credit-scoring models, specifically scores from VantageScore Solutions LLC, last year.


VantageScore, which has been a small player in the credit-score market, is starting to make inroads. More than 2,000 lenders, including six of the 10 largest U.S. banks, and other industry participants, such as landlords, used VantageScore scores in their lending decisions in 2014, a 24% increase from 2013.


In January, the Federal Housing Finance Agency, which regulates Fannie and Freddie, directed the companies to "assess the feasibility of alternate credit score models and credit history in loan-decision models" in its list of priorities that it released for this year.




6 Financial Items to Include on Your Spring Cleaning List
by Financial Literacy



When most of us think of spring-cleaning, we think about dusting and sweeping and polishing. But there are other areas besides your home that could use a good annual cleanout, like your finances. Here are six things you should do this spring to make sure your money management strategy is as neat and orderly as your house will soon be.

1. Remove Unnecessary Expenses

Are you paying for more cable channels than you really need? Do you still have a gym membership when you haven't gone in months? Take a look at your annual and monthly expenses and slash anything that's no longer serving you.

2. Come Up With a Debt Payment Plan

If you have any outstanding debt, it's time to come up with an aggressive debt payment plan.

The "snowball" method is a popular strategy that works for many people. It involves throwing any extra money you have (like that cash you saved by slashing expenses in the previous section) toward paying down the account with the smallest balance, regardless of interest rate. Once that one's taken care of, you move down the list to the account with the next-smallest balance, until eventually everything has been paid off.

The idea behind this method is that crossing debts off your list will give you the psychological victory of "winning," which keeps you motivated. Debt is a burden that seriously limits your ability to make the most of your money. Make this the year you finally eliminate it.

3. Review Your Insurance Coverage

Chances are you've had some changes in your life since you first signed up for your various insurance policies. Review these annually to make sure you're still getting the coverage you need.

Call up your insurance agents for your home/renter's insurance, auto insurance and life insurance to discuss your current needs and find out if any plans or features have been added recently that you may qualify for. It may take a little time on the phone, but it's worth it when you have the peace of mind of knowing you're adequately covered in case of emergency.

4. Check Your Credit Score

Your credit report is one of the most important pieces of your financial life. The difference between applying for a loan with great credit versus applying for a loan with bad credit can yield a difference of tens of thousands of dollars over a 30-year mortgage.

You're entitled to request a free credit report each year from each of the three major credit reporting agencies: Experian, Equifax and TransUnion. Head to annualcreditreport.com to get yours.

Scan your report carefully to make sure nothing looks off. If you see a late payment you don't recognize, a balance that doesn't match your records or any other discrepancies, contact the reporting agency immediately to open up a dispute.

5. Shop Around for Better Rates

We often shop around for the best deal when we sign up for a new service, but once it's become a monthly line in our budget, we tend to pay it and forget about it. Take this time to re-evaluate your regular expenses and see where you can save some money.

Examine things like your cellphone bill and cable bill and do some research to find out if there are any new plans or promotions you qualify for. Call up customer service and negotiate -- they're often willing to make a few concessions to keep a longstanding customer, whether it's giving you a discounted rate or some premium features for free. Don't forget to arm yourself with the prices competitors are offering; threatening to switch providers can go a long way in making a your provider willing to work with you.

6. Revisit Your Budget

Our needs change over time, so your budget should be flexible enough to change with them. Revisiting your budget at least once a year ensures that it still works for you. Your budget will only be successful if it's in line with your current life and priorities.

Review your budget's performance over the past few months to see if there are any areas you can cut, any areas you need to increase or any new categories that should be added. If you're struggling to keep up with your budget, try adopting the anti-budget: pull your savings from the top first, spend the rest without constraint.