Whoever has been around in the last two or three years knows exactly what is going on in the market. If you are a first-time home buyer who has had trouble getting mortgage loans to buy a house, you understand the pain of many others who are in the same situation. The real estate market is in a slump because mortgage lenders aren't as eager to give out loans as they used to be. In the past, almost anyone with some kind of ID could walk into a bank and get a mortgage loan. But that's no longer the case. Now, lenders are more careful about who they give loans to, and it doesn't look like this will change soon.
There was a big problem because lenders were giving loans to people who shouldn't have had them. The borrowers, who became known as "sub prime" home buyers, quickly became a bigger risk than the bank had expected. Their old credit problems came back to haunt them and hit the banks right where it hurts: in the rear end. After a while, those mortgage loans that the bank was so happy to give out turned out to be a quick way for people with bad credit to lose their homes. They didn't have the money, the desire, or the ability to pay any of their new house's bills. So, the lenders had only one option. They had to make their rules for mortgage loans stricter.
The lenders were wise and smart to make that choice, because they had to start to protect themselves from huge losses. The problem is that they have gotten a little too strict with their rules. Now, instead of just turning away "risky" people, they are turning away anyone with a small mark on their credit report. The truth is, though, that banks have no choice. When the house goes into foreclosure, they lose a lot. After a while, all of these losses add up to a lot.
Many people who want to take out mortgage loans want to know if this is going to stop soon. When people look for a new home, will they be able to get a loan? More important for some people is whether or not interest rates will go down to the point where it makes sense to refinance or get a mortgage loan. This is important information not only for people who want to buy homes, but also for people who want to sell their homes but can't find qualified buyers.
Even though there isn't a clear answer in sight, there are signs that some change may be on the way. The Federal Reserve Board said last week that it was going to cut interest rates by a half of a point. Even though this doesn't directly affect mortgage loans, it's a good sign of where the market might be going. By making this decision, the government is saying that lenders need to stop being so proud. They want to make it easier for banks to get money so that banks can pass the savings on to customers. Even though this idea makes a lot of sense, there are signs that lenders might not be so quick to follow.
Since banks have already been hurt by subprime lenders who shouldn't have been given loans, they have changed their rules about who can borrow money. Even with these changes, they won't just give mortgage loans to anyone with a pen and a piece of paper. On the contrary, their strict standards are likely to stay the same for the next few years, no matter what the market does. If lenders are smart, they won't give loans to people who don't deserve them again. These actions have had a big impact on where the market is now.
Those who are tired of high interest rates might soon get some help, though. The interest rate on mortgage loans has been going down since early summer. Even though the change hasn't been huge, it may be a sign that lenders are letting up a little bit. This is a must if the real estate market is to get back to where it was a few years ago.
The best advice for people who want to buy a home or get a mortgage loan is to keep their credit score high and their history clean. So, no matter what the market does, you won't have any trouble qualifying. When lenders are in such a tight spot, you can't count on them to make a decision.
