I am here to report that there is NOT a credit crisis in America! Not if you have good credit and a decent size down payment that is. There are banks out there that are still loaning money to individuals for homes and cars. My wife and I are closing on our first home today. There are also people out there still getting jumbo mortgages (over $417,000 in the continental US) for under 6%.
Mortgage lenders during the first nine months of 2008 have actually loaned out 20% more money than they did in all of 2000. It is more of a reversion to the mean. It is getting back to lending the way loans should have always been and were in the not so distant past. Lenders are looking for down payments, good credit, and an actual provable income.
My wife and I have….
- Good jobs and a real income
- A decent size savings
- A big down payment
- Good credit scores
- Are buying with a 30-year fixed mortgage
Your credit score and types of credit you have will mean more now than they have in the past. Your credit score is like gold, and you should strive to protect it if you want to borrow money in the coming year. Lenders are looking at not only if you make your payments on time but what types of payments you are missing if any. Missing a mortgage payment or a car loan payment will hurt you more than missing a credit card payment.
There has been a dramatic shift in financial sentiment this bear market from the 2000-02 bear market. In 2000, people were doing everything they could to stay in their homes including skipping credit card payments or eating ramen noodles every night for dinner. Now, we are seeing more people skipping mortgage and car loan payments in favor of making credit card payments and putting food on the table. Many people have thrown in the towel with their rising adjustable rate mortgage payments.
So, what should you do? Cut back on needless spending. Do you really need 200 television channels when you are having trouble paying your car loan? Set up a monthly written budget and stick to it. Protect your credit score. Be picky about which bills you pay and which ones you leave until next month to pay. Debt busting guru, Dave Ramsey, suggests that people prioritize their expenses by the basics. You need to keep a roof over your head, food on the table, the lights on, and cheap transportation so you can get to and from work. Take care of your family and their needs first. And, finally, seek help or financial advice if you need it from a legitimate source before giving up.