What the Mortgage News Means for You
The headlines have been full of news about the mortgage market. Headlines with words like “melt down” and “turmoil” may have you wondering just what is going on and what it all means to you.
What’s going on.
Many mortgages made by banks and lenders are bundled and sold to investors as securities. As many subprime borrowers - those with poor credit - default on their loans, those mortgage-backed securities lose value. This caused a “liquidity crisis” - which simply means those securities could not be converted to cash as easily. Since those securities are no longer as valuable, lenders are making fewer of those types of loans.
What it means to you.
The biggest impact to consumers is the tightening of requirements for loan approval. It used to be that if you had less-than-perfect credit, you could get a loan with no down payment and no proof of income. That is no longer the case. But if your credit score is above 700, you have at least a 10 percent down payment and can document your income; you improve your chances of being seen as a good loan candidate and qualifying for a loan with a competitive rate and terms.
What to do if you have a low credit score.
There are still loans out there for those with less than perfect credit, but they tend to carry higher interest rates. If you have a low credit score, it may be a good idea to improve your credit before you buy a home. Begin by getting a copy of your credit report. Then check for any errors that may be bringing your score down and then use your report to make some financial changes to improve your score.
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