Facts: Interest rates on home mortgages have remained very low - the lowest in 40 years. Home values have continued to drop or are stabilizing in some markets. These are crucial timing factors for anyone considering getting into or out of real estate right now.
Who can (or should) get a mortgage in these turbulent times?
While many many potential home buyers are competing for lower priced homes, we are seeing many loan applicants in angst due to longer time frames. New laws are affecting how banks and brokers operate. As a result, many loans that would previously be sent to Fannie Mae or Freddie Mac (investors who hold the lion's share of loans) are now being funded under FHA, USDA or VA to take advantage of easier government loan terms. Folks with decent credit and stable income are buying or refinancing in droves. The lines at our government underwriters became very very long due to this overwhelming demand.
Is this perfect timing to buy a home?
Our sources on several sides of the trading and banking world feel that economic turbulence will be here for a while and likely we will turn a corner some time late in 2010. Mainstream media promotes 'recovery' but few people are feeling that just yet. Realtors and sellers are particularly anxious as property values have continued to fall. Buyers must rely on their knowledge and local advice for which way the tide may be turning.
Banks in merger?
For those of you who missed it, several failed banks are either merging or reshuffling their decks. Timing could not be worse during the summer sale season. If you had a loan in process at a merging institution, you may now be scrambling for another lender. This situation only provokes more angst and distrust of brokers, bankers and sellers. Banks, in such an environment, are more likely to consider the lending guidelines as absolutes, not just guides.
What can you do to improve your chances of getting a loan?
1. Live within your means: keep your card account balances under 30% of the available or pay these balances down to under 30% (the 30-30 rule).
2. NOW is the time to be disputing errors on your credit report. Chances are many people are overwhelming the credit reporting bureaus - so know this process takes time.
3. Don't open new credit accounts and don't close your old ones!!! (old history is good history)
4. If you don't have any credit accounts now: establish three accounts over the next six months, say one every other month and follow the 30-30 rule...never go over 30% of the available balance and never miss a 30 day payment. The best accounts to have are a bank card, an auto loan or gas card, and a department card where you regularly shop. Four active lines are ideal. Manage them well. You need at least one to two year's history to create a solid report.
Live long and prosper!
Seriously folks, a solid credit history will serve you well and save you a bundle over a lifetime of borrowing even small amounts, regardless of the market. If you aren't buying a home then consider the effect of bad credit over your lifetime of owning cars, having credit cards with higher rates, paying higher insurance fees, being denied credit for important needs...all those fees and rates are higher if you have bad credit. What's bad credit? Anyone with a FICO Score under 680 will pay more for everything these days. Achieve 740+ and you will enjoy the benefits for many years!
To your success!
© 2009 susan templeton