If I have a 20% downpayment available in cash, and decent credit, is a bank likely to give me a loan in light of recent events? Or are banks tightening the screws so much that only borrowers with perfect credit are going to get loans?
That’s a big “it depends.” It depends on the area of the country you live in, the rest of your financial picture, the size of the loan you want to take out, and all the zillion other factors.
As a general rule, we are nowhere near a period in which people need to have perfect credit to qualify for a loan. The credit crunch is far more of an effect on people with poor credit. But the only place where you can get an answer about your personal situation is the place you want to borrow money from.
Based on what I’ve been reading on all the finance websites, a consumer like you described won’t have any trouble.
That is the factual part of this post.
I expect the worst she would have to deal with would be an interest rate that was 25 points higher than she would have had before, as lenders adjust their expected yield to reflect a more realistic model of default rates in today’s economy.
That was the speculative part of my post.
For borrowers with reasonably good credit, the problem won’t be with your credit history. The problem is the crappy market. I assume you’re aware of what happens to your situation if you’re unable to unload your existing home before you buy the new one. The bank might not let you close the deal if it looks like you’ll be stuck with 2 mortgages that you can’t pay.
If you aren’t stuck with a home that you are trying to unload, then you should have no trouble. The bank is going to be a lot more cautious about lending money but that means you won’t be as likely to end up over your head.
If you’ve got twenty percent down, decent credit, and are employed, I can’t imagine the bank not giving you a loan.
I read a financial article in the Sunday paper yesterday (no cite) that says the current line between prime and sub-prime loans is a credit score of approximately 620. The article went on to say that that line is being raised to 680 or even 700 by some lenders.
Yes, you could meet all the current criteria for a loan, but if the lending criteria changes, you could be SOL through no fault of your own.
Credit scores are based on your personal actions so it is really not true to say you could be denied a loan through no fault of your own.
Mr. Neville and I bought our house in Pittsburgh this summer. We have good (but not perfect) credit, and managed to get a good rate with 20% down. We weren’t selling a home, so the buyer’s market was a good thing for us.
You’re nitpicking, so I’ll nitpick:
Or, the actions of some nice serial armed robber with your last name who happenned not to pay his criminal defense bill.
You are taking all the fun out of blaming the poor for their plight, Mr. Slant!
I have to imagine that 20% down is a rarity these days, right? And so you’d be an awesome prospect for the bank if you’re credit is okay. Rates, though, what are they doing? A quick look at bankrate.com doesn’t look like they’re too high, yet.
Here are a couple of good discussions:
http://www.chron.com/disp/story.mpl/metropolitan/5066087.html (many subprime borrowers are going to FHA mortgages now)
AIUI, that depends where you are. In the Bay Area, it’s a rarity. It’s supposedly not uncommon in Pittsburgh, where we bought our house.
NPR talked about home loans a bit on marketplace recently. The basics of what they had to so is the really good deals have gone away. Consumers with good credit will still have access to good loans but should expect a more involved screening process.
20% down tends to be a function of weather or not this is your first house. If you have had a house for 5 or ten years you will probably have 20% down for the new house if you sell the old house.
So what happens if it is our first house? I’ve bought a house before, but my husband hasn’t. We currently rent, but may have an option to buy this home from our landlord. Just curious, as we’re scoping the market and our options.
Without a 20% down payment most lenders will require private mortgage insurance (PMI). The cost varies with the credit score, but is usually around 0.5% of the loan for the first year. As soon as your equity in the home reaches 20%, either through payments to principal or through rising valuation or combination thereof you can get the PMI dropped.
It’s worth noting that you can get it dropped, but it will likely take some paperwork and hassle and phone calls. They don’t want to stop taking your money, because the PMI is insurance that you pay that doesn’t insure you against jack – it only insures the lender’s money if you default. I scrounged up the 20% up front, and heartily recommend the same course to anyone who can swing it (even if it means borrowing from relatives).
I agree with Mr. Slant, including the speculation portion. But, OTOH, the price of the new home you might be buying could well be enough lower that a slightly higher interest rate still means you pay the same or even a little less.
However, if it is your 1st house, you need to see what your local governments might be offering in the way of “first time home-buyers assistance”. It can be rather significant.
You could also do FHA or VA (if eligible) to avoid PMI, or do an 80/20 loan (mortgage for the first 80%, home equity for the last 20%).