Every week we hear about historically low rates on home loans. 30-year fixed loans are available with interest rates well below 5%, and they’re still going lower! 15 and 20-year loans offer even lower rates. At any other time, interest rates like these would have jump started the real estate market from a standstill to a frenzy in no time. But now very few people are taking advantage of these low, low home loan rates. What’s wrong?
The fact that so many homeowners are upside down on their mortgage is the root of the biggest problem. Property values have fallen significantly in the last few years. Many homeowners are finding that their homes are worth less now than when they bought them. Even those who bought their homes several years ago are now under water because they took out cash when they refinanced their homes or got second mortgages.
You can know how to escape payday loan debt with higher rates. There is an increase in real cash with more savings. The finding of the correct savings methods is possible for the individuals. You need to take advantage of the information to have a pleasant experience.
Banks will only make loans of some percentage – 80% up to 97.5% – of a home’s current value. The thousands of people who owe more than their homes are worth can’t pay off their old loan with the proceeds from a new loan. Whether you want to sell your house and buy another, or just refinance the one you have, this is a deal breaker. Unless a homeowner can come up with the cash to make up the shortfall, they’re stuck, no matter how well qualified they are.
In this economy the unemployment rate is high, but as concerning is the length of time it has been so high. Many homeowners have been out of work for an extended period of time. There are also a lot of people who are working jobs that are far below their qualifications – and pay less – or working part time jobs. In spite of this, a lot of them are making ends meet somehow. They’ve cut back on spending, stay-at-home moms have gone back to work, and they’ve started their own businesses. Still, proving to a lender that they can make payments on the new proposed loan is difficult. And this in spite of the fact that they can show that they’ve been successfully making payments on their existing loan at a higher interest rate! Changes in employment make it difficult to qualify for a loan even if the income is sufficient. Most lenders want to see two years of employment in the same field to consider a buyer stable. Borrowers who switched to a different field because they couldn’t find work in their chosen field, or borrowers who took a contract position won’t qualify until they have a two year history to show.
Lending standards have risen. The fact that lending practices were too lenient, causing the large number of defaults that we’ve seen is to blame. As a result, lending requirements have become much tougher. They want to see higher credit scores and lower debt ratios than they did years ago. If a homeowner has been keeping it together through falling home values, employment problems and other challenges, the chances that they have near-perfect credit and lots of money in the bank is slim.
First time buyers face all of these problems, except for being upside down on their mortgages. Unfortunately potential first time buyers with sufficient verifiable income, a hefty down payment and great credit are in short supply. Fear of losing their jobs or of home prices falling further has detered many of those who actually are in a good position to buy a home. This isn’t a comfortable time for a beginner to take the plunge.
So while we all drool at the latest reports of historically low interest rates, they remain just out of reach for most. An enticing treat that we can see and smell but not taste.