It's a turbulent time in the market. Gas prices are hitting record highs. Over a quarter of a million American homeowners are in a stage of foreclosure, according to RealtyTrac's June report. And today, fears that government-sponsored mortgage firms Fannie Mae and Freddie Mac are faltering sent the stock market on a wild ride.
So, what can people do to protect their pocketbook in this shaky economy? We asked for advice from two financial powerhouses: Suze Orman, finance guru and author of nine best-selling books, including her latest, "Women and Money," and Mellody Hobson, president of Ariel Investments, to tell us the seven things you need to know to survive the slowdown.
First, some good news from Mellody Hobson. "If you are a homeowner doing all you're supposed to do, you have nothing to worry about." But what if you're not "sitting in the catbird seat?" she said. Here are some tips to help get you through:
It depends on the reason why you want to sell your house, Orman says.
"Do you want to sell it because you are just afraid real estate is gonna crash?" asks Orman. "If that's the reason, don't sell now."
But if you want to sell because you're worried that you can't make your monthly mortgage payment, she says, "You are going to have to slash your prices so somebody comes in and buys it from you."
"If you are being forced to sell your home because you are already six months behind on your mortgage payment [and] you are about to go into foreclosure, nobody wants to buy your home — everybody on the block is selling a house. Now we have serious trouble," Orman says.
When foreclosure looms, homeowners have to make a tough choice.
"That's where you either have to look at a short sale, which means you are selling your home for less than what you owe on it possibly — and many banks are allowing you to do that — or sometimes you have to walk away or give the bank your deed in lieu of foreclosure."
"I'd be on the phone calling my lender immediately," Mellody Hobson says. "The lender has just as much incentive to keep you in your home, believe it not, as you have in wanting to stay there."
"You are going to have to have perfect credit," Orman says. That means having a good FICO score, which Orman says is considered 760 or above.
"If you don't have a good FICO score — that three-digit number that determines the interest rates that you will pay on a car loan, a home loan — why would a bank want to lend you money?" Orman says.
The days of easy mortgages are clearly over. Banks are no longer willing to risk loaning money to people who might not pay them back.
"You are going to have to make sure that you have enough money to put down," Orman continues. "It's no longer 3 percent down, 5 percent down for a normal mortgage; it's gonna be 10, 20 percent to put down."
And if you don't have perfect credit? "You may be turned down," Orman says bluntly, or "you may not get terms that are favorable to you."
Keep investing and saving, Hobson says. "Do not give up on your 401K plan. This ia bump in the road. The U.S. economy has always gotten through these tough times."