Mortgage Loans: Possible to Get Even in a Credit Crunch
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The credit crunch has made lenders wary of approving new mortgage loans, and has discouraged many would be borrowers from making applications. Many people, both homeowners who want to refinance and new borrowers who want to buy their first house, think credit is so tight that there is no point to refinancing or to applying for a new mortgage loan. However, now may be the best time of all to fill out an application for a new or refinanced mortgage.
Why? The Fed has drastically cut interest rates to stimulate economic growth, leading to substantially lower mortgage loans interest rates. That can mean a windfall for you in the form of lower monthly payments and a lower total cost for mortgage loans. If interest rates are now at least two percent lower than they were when you got your loan, now is the time to refinance.
But arent banks refusing to approve new mortgage loans? The answer is both yes and no. The deciding factor is the applicants credit rating. Banks are leery of offering new loans to anyone with a bad credit rating (and guidelines for what constitutes a bad rating are more stringent now), but they are happy, even eager, to offer loans to people with good credit. If your credit is good, then by all means, apply right away.
If your credit rating is slightly below the zone considered good, then there are a few simple steps you can take to raise it over the next six months. Pay all your bills on time scrupulously, putting them on automatic withdrawal if you can. Because banks look at the ratio of credit available to you compared to credit you have used, pay down your credit cards and existing loans as far as you can. Do not close unused credit card accounts. Creditors were formerly advised to close unused accounts, but this advice is outdated, since leaving unused accounts open increases the amount of credit you have available and improves your ratio of available credit to used credit. Be especially wary of closing very old accounts, since doing so could shorten your credit history, which you want to be as long as possible. If you take these steps, maintain your payments successfully for several months, and avoid taking on new credit card debt, in months your score should be markedly better.
As you can see, a crisis in the credit markets can be the perfect time to refinance or to apply for new mortgage loans. Interest rates are dropping, so if you are the responsible credit user the banks want to lend to, negotiating new mortgage loans right now can lead to a much lower interest rate and substantial savings for you. Even a tight economy can turn to your advantage.
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