Home Loan: Credit Crunch

In the recent years when housing prices were going up and up, banks were willing to give home loans to people even if they had bad credit, because the equity in the home would make up for the risk involved. It appeared that home prices would keep rising, and so banks kept lending and making commissions on the money they lent out. As real estate became more and more profitable, builders built more and more homes.

Unfortunately, too many homes were built in too short a time, saturating the market. This led to the “mortgage crisis” that continues to impact our economy. Too many houses on the market lowered prices drastically; some homeowners found themselves with a mortgage loan that was larger than the value of their house.

Through these so called boom times, people who had bad credit were given loans, but these loans typically had a very high interest rate. Occasionally the rates were low at the beginning, but became higher over time. Because the home loan was more than what the house was actually worth, people couldn’t sell their houses, and since the payments were increasing, they were forced to keep homes which they could no longer afford.

People started to fall behind on their loans, which caused their homes to enter foreclosure, where they eventually ended up back in the hands of the bank holding the mortgage. This caused the number of houses on the market to go up dramatically, forcing the prices downward, creating the cycle that we are still suffering from today.

It is becoming more and more difficult for people with poor credit to get a home loan. In the aftermath of the mortgage meltdown, lenders have become much more rigid about who they will give loans. Even those with good credit are noticing that it is harder to obtain a loan, or to obtain one with good rates. Through the time period when home prices were on the rise, many mortgages were made available with little or no down payment. This practice made it simple for people to get loans when they didn’t have much to put down, but that is no longer the case.

While it is conceivable that a person with bad credit can obtain a loan, they will undoubtedly need a significantly larger down payment. Many lending institutions might demand twenty-five to thirty percent of the purchase price of the home in order to grant a loan to someone with poor credit. You can look around and compare mortgage lenders to help decide who will grant you the best loan with the most favorable terms.

Over the last few years as housing prices were getting higher and higher, banks became more willing to supply loans to people, even those with bad credit. Sometimes people had a mortgage loan that was more than their house was worth. Because the home loan was more than what the house was actually worth, people couldn’t sell their houses, and since the payments were increasing, they were forced to keep homes, which they could no longer, afford. To get the best loan with the best terms, shop around and compare mortgage lenders.

- Jonathan Drake


Related Articles

December 24, 2009 | Filed Under Finance, Real Estate

Comments

Leave a Reply