Don’t Get Crunched by the Credit Crunch – Crunch Back & Learn to Repair Your Credit

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Don’t Get Crunched by the Credit Crunch – Crunch Back & Learn to Repair Your Credit


We’ve all heard about the credit crunch, but what exactly does it mean and what can be done to minimize its impact on me? What an excellent question. The credit crunch came about due to overly lax underwriting for home loans back in 2003-2005 or so. Property values rose so quickly and interest rates were so low (for all credit grades, not just the premier tiers) that home loan lenders became very lax in their underwriting. Not to say that they weren’t doing their job correctly, because most or many of them were. This issue can be linked to a behind the scenes kind of thing. It had to do with what we’ll call silent investors in the secondary mortgage market. Home loan lenders simply underwrote loans based on what the secondary market would purchase. At the time it was anything.Get more details about¬†¬†

Evidently, not enough people really thought about the economic impact this might have. How could home prices actually keep going up so dramatically when the national median household income had dropped in comparison to 1998 (yes, 1998 was a peak & the U.S. saw a slight decline up until roughly 2003 and it’s only rose slightly since)? There had to be a breaking point. It just so happened to be the mortgage market. Think about it, tons of revenue was generated for all kinds of businesses and it all finally spun out of control. Any real estate associated business was booming (realty companies, appraisers, title company, real estate attorneys, etc.). Even non real estate related companies saw spikes in business. Builders and contractors were busy. Material vendors were busy. After all, people had new found money called home equity. With all the exotic loan products that allow for an interest only payments (some of them let you pay less than the monthly interest thereby creating an increase in the loan balance), there just had to be a breaking point.

The breaking point is here and it’s affected millions of homeowners. They can’t refinance because they borrowed 100% of their homes value and now the value is lower. They can’t afford their payment because their adjustable loan reset and the payment went up hundreds of dollars. Hundreds of mortgage companies large and small have filed bankruptcy or gone out of business. It’s filtered down to the other credit markets too, but not as dramatically.

What are you likely to see happen? Well, it’s much harder to get home loans to buy a property that you won’t live in (a 2nd home or investment property). Car loans have become a bit more challenging too and so have financing packages geared towards buying business equipment. At one point, the average person may not have to document income, but now it’s a lot more common for an auto lender to ask for proof of your income. It’s the same with home loans. Low or no income documentation loans have somewhat gone by the wayside. Lenders just want to make sure that you can truly afford whatever it is you’re looking to buy.

The lower documentation loans are still available, but on a different scale. It’s now become just an excellent credit tier product. Folks that are self employed and don’t have good credit will have a hard time getting financing for the next couple of years. Do whatever you can to fix, repair, restore, improve and maintain your credit that you can.

Fantastic deals and opportunities are already out there to some extent, but the next few years will yield many great opportunities to buy real estate. Lenders are settling for less than what is owed on homes. Some neighborhoods have seen prices drop by more than $150,000 to $200,000+. It’s likely to get worse too. Don’t let opportunities pass you by due to sub standard credit. If your credit profile needs help, buy a book that teaches you how to correct erroneous information, add positive information to your credit report, and how to take advantage of the way our credit laws are structured. These books are readily available on the internet and in books stores and are packed with hundreds of tips to help you get on the right track. If your credit stinks, do something about it. Don’t get crunched by the credit crunch.

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