Low rates on credit, loans are out there
— -- Interest rates on everything from home mortgages to credit cards have been falling in recent weeks. And despite the Federal Reserve's decision Tuesday to leave short-term rates unchanged, they could decline even more in the weeks to come.
Does that mean it's a good time to get a loan? Not necessarily. Unless you have gold-plated credit, you might not qualify for the lowest rates. In fact, if you have tarnished credit, you might not be able to get a loan at all. Here's why: The credit crunch has made it harder for lenders to raise capital. That means they have less money to lend. To qualify for the dwindling supply of loan money, you need to convince lenders that you'll pay the money back. Here's a look at what you'll need to do to make the grade:
Home mortgages.
Long-term mortgage rates have been sliding since the government announced it would take over Freddie Mac and Fannie Mae. In recent months, the mortgage giants cut back on the number of mortgages they bought, driving up rates for borrowers. But now that the two companies no longer need to make a profit for shareholders, they can buy more loans. And that will inject more money into the mortgage markets, says Keith Gumbinger, vice president at HSH Associates, a mortgage information firm.
Last week, the average rate for a 30-year mortgage fell to 6.15% from 6.55% a week earlier. The turmoil in the financial markets could lead to even lower rates, at least in the short term, says Greg McBride, senior analyst for Bankrate.com. The mood in the financial markets "is very dour," McBride says. "That's helping drive Treasury yields and mortgage rates down."
But here's what you may need to get the lowest mortgage rates: a 20% down payment, well-documented income and assets, and a FICO score — a widely used measure of borrowers' creditworthiness — of 720 or higher. Lenders will also take a hard look at your other debts, such as credit cards and student loans, in relation to your income.
"Two years ago, if you could fog a mirror, you could get a mortgage," Gumbinger says. "Now, what you're going to do need to do is go through your credit and make sure it's as clean as it possibly can be."
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