Bailout Breakdown
I have had several questions from friends and family members in the last few days on what the status of lending has become and where it is going. Most are worried that the failure of the Governement to concede the passing of a 700 billion dollar wallstreet bailout. There isn’t a “freeze” per se but most lenders this week have been asking for 720 credit scores, 20% down, and your first born child. The credit crisis has banks less willing to lend money to each other, which ultimately means it will be harder for borrowers to get the credit they need. But that doesn’t mean it’s impossible to borrow money for those in good credit standing. From a consumer standpoint, credit hasn’t been frozen says Texas Home Loans advisor Shon Lorg with Lonestarfinancing.com. “If you’re somebody with excellent credit, you’re in a good position to borrow money.”
The thing to remember at this time is that standards are back and now higher than ever with mediocre interest rates. Lenders are no longer lending money on stated income and poor or even good credit scores are not under to qualify under most lending criteria. That means that the first step in the borrowing process is making sure your credit report is squeaky clean and your credit score is a minimum of 680 and preferrably 720. You can get a credit report for at freecreditreport.com or annualcreditreport.com for approximately $16.00.
Eventually the bailout will go back through the house and ultimately it will be passed. It may not be in it’s entire original form or be any where near $700 Billion dollars but a traunch of the bill will be approved to tampen down the fears of wallstreet. Consumer confidence must be strengthened to ensure mass panic doesn’t insue and employment tumbles. The big bailout won’t prevent recession, according to many economists, so consumers who don’t have emergency funds and worry about their job security should think thrice before taking on new obligations. so when does a home equity or new loan make sense? A new loan makes a lot of sense for someone seeking to refinance a bad loan, buy their first house at a nice price, or get that fuel-efficient car they’ve been planning on for a while. And though interest rates have moved up slightly during the recent tumultuous weeks in the market, today’s rates may seem low compared to what they are predictted to look like in the future. Most economists are predicting interest rates to gradually start climbing and possible hitting a pinnacle in 24 months at an estimated 8% or higher.
Still not sure if the time is right for you? Whether it’s a home or auto loan, here’s how to find that cash now. Mortgages Conventional borrowers seeking less than $417,000 )Fannie Mae/Freddie Mac limit) in most housing markets—will not have trouble finding loans. Expect to pony up a down payment of at least 5 percent (20 is better) and prove that you can cover all of your monthly debt payments with about 40 percent of your pre-tax income. Big borrowers and commerical loans is where most borrowers will run into problems in the coming months. In short the market needs to correct itself and this will either take two years or five years depending on how much governement intervention this is in the coming years.
Now big borrowers will have a much tougher time. Rates on jumbo loans—those above the conventional level—are running more than a percentage point higher than the smaller loans, according to bankrate.com. If you’re looking for a big mortgage, make the rounds of the local lenders, but check with a local mortgage broker and a large national broker, such as eloan.com, too.
One group of borrowers has a particular impetus to move fast: In the most expensive housing markets, such as Texas , New York and many California cities, they can get conventional mortgages as high as $700,000, but that limit will drop to $625,500 on Jan. 1. Texas mortgage refinancing rates now 1.5% higher than 12 months ago. That means someone in one of those places looking to borrow more than $625,500 will pay a higher rate, and having a harder time finding a lender after the New Year.
And as far as automobile loans, forget about it. The car companies are in trouble, but would rather discount the car than the loan to buy it. That makes third-party lenders—again, the local small bank and the credit union—the place to shop for those loans. Line up a no-obligation loan before you go to the dealer, suggests Stephen Schooff of Capital One, whose capitaloneautofinance.com is one of the largest car lenders. It’s tightening its credit standards, but still offers a “blank check” auto loan to solid borrowers with rates as low as 5.5 percent now. You can take that check to the dealer and negotiate like a cash buyer.
Home Equity loans are still a great credit option for those with good or excellent credit. If you’ve already got a home equity line of credit (HELOC), that’s also a good place to borrow money for your next car or home improvement. Rates now average below 5.5 percent, according to Bankrate, and there’s a good chance that interest is tax deductible. Before maxing out your home equity line, check to make sure that it doesn’t put your total home-backed borrowing near or over the current value of your house, because lenders have been dialing back those credit lines.
Alternative Sources and privatization of lending may start slowing hitting the markets even as soon as the next few months. But that is a whole new blog.
September 30th, 2008 at 3:45 pm
News! You Can Refinance and Consolidate Your Debt Again
If you want to refinance your home and consolidate debt, now it’s the time. A group of private investors in los angeles California loan money to homeowners and real estate investors. These private investors also called hard money lenders are the bank.
Many of you tried to refinance with your local bank or a mortgage company in your area, but with no success. Now it’s possible again, but you have to know the conditions to qualify. You don’t need excellent credit score or great income documentation, but you do need a lot of equity in your property.
Hard money lenders have been around for a long time, but no body ever heard about them. Real estate investors and brokers were working with them for years, but homeowners didn’t know they exist. Today for many of us hard money lenders are the only hope to get a real estate mortgage.
Where can you find a hard money lender?
Many mortgage brokers and real estate agents are already in contact with one or two investors because of the fact that they just need them. If you will go online and look for a hard money lender, you will probably find a 100 private investors or more. You don’t need to get fanatic about it, you just need to know what they’re talking about.
How do you know who is the right investor for you?
Normally of course you need to go with gut feeling, but in this case you need to be a little more careful then that. There are many hard money lenders that you don’t want to work with. So what do you do? You ask questions. Here are some questions you will need to ask private investors when you call them:
1. The name of the company.
2. How long they’ve been in business.
3. Get some name of people they’ve worked with.
4. What are the interest rates they’re offering?
5. How many points they charge you.
6. Do they charge any due diligence fees, or any money upfront?
7. Are there any other fees included?
8. You want everything in writing from them, it’s very important.
You have to understand that you don’t deal with big corporations. Hard money lenders are individual like you and me, but they have few millions dollars in their bank account. They would love to help you as long as you offer your real estate as collateral.
October 3rd, 2008 at 11:17 am
Great blog! Continue like that!
October 3rd, 2008 at 5:08 pm
we’re all greatful for our huge goverment that tries to accommodate to everyone.. and in the end, ends up piling up more debt for this country…
-jason