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Tips for Getting Mortgage Loans in a Tight Economy
The credit crunch has made lenders wary of approving new mortgage loans, and has discouraged many would be borrowers from making applications. Many homeowners and would be homeowners think there is no point to applying for a new mortgage loan or trying to refinance an existing mortgage. 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 have dropped at least two percentage points between when you signed your mortgage and today, then now is the time to refinance and lock in a lower interest rate.
But aren't banks leery of giving out new mortgage loans? Yes and no. The key is the borrower's credit rating. Banks are more wary than they have been about offering loans to borrowers with a poor credit rating, and they are using more stringent guidelines for deciding what constitutes a poor rating, but they are eager to draw in new lenders with good credit ratings. If your credit is good, then by all means, apply right away.
If your credit is marginal, there are a few steps you can take to improve it within 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. Ignore old advice to close down unused credit card accounts; leaving the accounts open increases the amount of credit available to you, improving 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. If you are what the banks are looking for, you can indeed benefit from even the worst credit crunch.