Home Loan: The Role Of Credit
Posted on Dec 27 2008 | Tagged as: Finance
Not long ago, when property values were on the rise, lending institutions were eager to make home loans even to those individuals with poor credit histories, since a home’s equity would cover a loan in case of a default. It seemed that this would simply go on forever, so lenders kept encouraging borrowers and raking in commissions for the loans they wrote. At the same time, since properties were becoming more and more valuable, more and more new construction was taking place.
Unfortunately, they built too many in too short a period of time. What followed was this mortgage crisis which everyone is talking about, and which we are still affected by. Since there was an excess of houses on the market, prices began decreasing again. At times, some people had a mortgage loan that was greater than the value of their house.
Through these so called boom times, people who had bad credit were given loans, but these loans typically had a very high interest rate. Occasionally the rates were low at the beginning, but became higher over time. Because the home loan was more than what the house was actually worth, people couldn’t sell their houses, and since the payments were increasing, they were forced to keep homes which they could no longer afford.
Then individuals started defaulting on the mortgages they had taken out. Their properties were foreclosed on and were repossessed by the banking institutions which wrote the loans on them. An ever-increasing number of residences flooded the housing market, sending values down and leading to a realty “bust” which is still plaguing us at the current time.
Nowadays it has become extremely difficult for people with bad credit to obtain a home loan. With the onset of the mortgage meltdown, lenders have gotten increasingly stricter about who will qualify for a loan from them. While up until recently people with good credit would have had no problem getting a loan, they now are experiencing not only difficulty in obtaining a loan but in getting one with desirable terms. While home prices were rising over recent years, many mortgages were approved with little or no money down. These conditions made it much easier for people who did not have substantial assets available to get a loan but now those times have come to an end.
It is entirely possible to obtain a loan, even with bad credit, however, you are likely to be required to put more money down on the loan to begin with. Sometimes the bank may require a down payment of as much as thirty percent in order to give final approval on a loan. You can compare mortgage lenders to discover who has the best loans with the best terms.
Over the last few years as housing prices were getting higher and higher, banks became more willing to supply a home loan to people, even those with bad credit. What followed was the “mortgage crisis” that we’re still feeling the effects of. Because there were too many houses on the market, prices started to go back down. Sometimes people had a mortgage loan that was more than their house was worth. It is not uncommon for banks to require twenty five to thirty percent of the home’s price as a prerequisite. To get the best loan with the best terms, shop around and compare mortgage lenders.
- Jonathan Drake