Home financing not getting easier
Will the interest rates ever go up? Maybe yes, maybe no. Only the Federal Reserve knows for sure, and they're not talking. Then again, maybe they don't even know.
The Federal Reserve seems to have us on a string. One month they're suggesting that the prime interest rate could go up affecting short term loans, credit card debt, home equity loans and car loans; and then the next month they're saying well maybe not this month. We all know that mortgage rates are tied into treasuries and are not always directly affected by an increase in the prime rate, but since the system is really codependent, at some point mortgage rates will reflect the increase.
So what do you do in the meantime? If you're going to be purchasing a property that requires financing, the best thing you can do is get your credit score up. Credit scores are used not only for home financing but also for preferential rates on every other type of loan as well as premiums on homeowners and auto policies. In an Experian survey released in April, 40 percent of respondents who earn $100,000 a year or more worry that their credit score will hurt their home buying ability.
Your credit score should be reviewed regularly so there is no surprise when you actually need to use it. Per a federal regulation you can get free credit reports from all of the three credit reporting agencies, Experian, Equifax and TransUnion annually. Mine is actually part of my online American Express invoice. Credit scores range from 300 to 830, anything below 600 is considered poor and anything above 750 is considered excellent.
If you think you might be purchasing a home soon don't make any drastic changes that could lower your credit score. Don't take out a car loan before or during the mortgage approval process and leave your credit cards as they are, with no new ones and no closed ones. It's also good to have credit available so increasing your credit limit could give you a higher score.
That doesn't mean that you should go out and run up a lot of credit card debt. To the contrary: credit cards with little or no balances and higher credit limits boosts the credit score. Seniors in particular need to be careful not to decrease their credit score because they may have stopped using credit cards, their homes may have been paid off and they don't purchase new cars. It's good to have some debt as long as you pay everything in a timely fashion since 35 percent of the credit score is judged on payment history and another 30 percent on the amounts owed.
As a last resort to borrowers with low credit scores, you could look into private equity lenders who will charge you as much as triple the interest on your mortgage, but it will give you time to repair your credit rating; and then you may have the option to refinance with a lower rate. Private equity lending has increased substantially in the last few years since government regulations have made traditional bank loans backed by Fannie Mae and Freddie Mac more difficult to qualify for especially for buyers who can't document income or have a poor credit history.
It's a little scary when the government bureaucrats don't have a clue when to raise interest rates. Nevertheless, every homeowner and potential homeowner's fate rests with Federal Reserve Chair Janet Yellen. Why does that keep me up at night?
