The bear market, housing crisis and sluggish economy have made it increasingly difficult to land a loan at a decent interest rate. "Good Morning America" financial contributor Mellody Hobson tells you what you need to know about home, auto and college loans in this economic environment.
But getting money isn't the only thing consumers are worried about. They're also questioning how to keep their funds safe after seeing big bank Indymac go under. Fox Business Network anchor Alexis Glick offered the skinny on how to keep your money safe.
Find out everything you need to know about borrowing 101 and how to keep your money safe below.
How difficult is it going to get to secure a home loan?
In response to the credit crisis and precipitous housing downturn, lending standards have become much more stringent across the board and banks are less and less willing to take on any additional risk. So, if you are looking to buy a home with less than 20 percent down and/or your credit is not great, you may have significant trouble securing financing.My advice at this time would be to consider renting for a bit longer to give yourself more time to become a more appealing borrower.
What do people with existing home mortgages need to know?
If you are an existing homeowner with a fixed rate mortgage and you have been making your payments consistently, there is no need to worry — the terms of your loan and mortgage are unaffected.
However, if you have an adjustable rate mortgage and you are concerned about making payments once your rate adjusts, contact your lender now and try to work out a plan. Foreclosure is not a good option for anyone — the borrower or lender. It is in the best interest of all parties to try to negotiate terms that will allow a borrower to keep up with payments and maintain the home.
How does this economy affect student and auto loans?
There is no question it has gotten much harder for students to get loans for college. Not only are many lenders disappearing from the marketplace altogether, but most of them are setting the bar much higher, making it harder for cash-strapped students and their families to qualify.
Then, with the rise in delinquencies in auto loans, it will likely be tougher to secure lending for car buying as well. In the fourth quarter of 2007 delinquencies on auto loans reached their highest levels since 1992. These delinquencies are a symptom of the weaker economy as well as falling housing values. Essentially, people have less and less money to spare and are having trouble making ends meet. And given the troubles in financial services and banking, lenders are going to be less willing to help out.
How can you make yourself a stronger candidate for borrowing?
Several factors contribute to your credit score, including the type of credit you have, newly acquired credit and the length of your credit history. But the two biggest components are bill paying history, worth 35 percent, and credit utilization, worth 30 percent.
With bills, paying consistently and on time is critically important. In terms of credit utilization, a utilization ratio of 35 percent or less is good. To give a simple example, if you have two credit cards and between the two cards, you have combined limits of $10,000, you want to keep your total balance under $3,500 (or 35 percent of $10,000).