It’s no secret that creditors tighten their purse strings during a recession, making it much more difficult for the average person to get a loan. But what is not widely known are the secrets you can use to get money, even in these tough economic times. Although you should always be on the lookout for scams, knowing how to maneuver the lending market could mean the difference between your getting the money you need for the purchase of a big-ticket item, such as a home, or ending up on the sidelines. Here are some ideas:
NO.1 Know Your Credit Score before Applying
TIP: By knowing your three-digit score, you will know right away if you are likely to qualify for a loan. If your score has taken a hit during the past few years, dedicate a few months to employing some strategies to raise it before you start applying for loans.
TRICK: Start by making sure that you are caught up on all your bills. Also, pay off any collection accounts and accounts with small balances. You will need a score of 660 or higher to get approved for a loan, and if you want to get the best interest rates, you’ll probably need a 750 or higher.
NO.2 Do Your Due Diligence (Or Find Someone to Do It For You)
TIP: Research different banks and lenders before you start filling out applications. Look for institutions that have the qualifications you most likely meet. By doing this, you avoid numerous credit checks, which have a negative effect on your credit rating.
TRICK: There are now companies that, for a fee, will match you with financial institutions likely to give you a loan. This will help avoid multiple credit checks and give you a jump on getting approved.
BONUS TRICK: There are many housing organizations out there to help find loans for potential borrowers.
NO.3 Know Your Debt-To-Income Ratio
TIP: When you apply for a loan, one of the first things a lender checks is your debt-to-income (DTI) ratio. If your debt is a high percentage of your income, then you have a high DTI ratio and are less likely to get a loan.
TRICK: Every lender is different, but a DTI ration of less than 30 percent is usually needed to qualify for a loan, especially a mortgage. If you have more than enough money for a down payment, you may want to consider paying down some of your debt before applying for a loan. Also, hold off on big purchases until you have actually received your loan. Banks may check your credit a day or so before you close to be sure that you haven’t taken on additional debt.
YOUR DTI RATIO
“When you apply for a loan, one of the first things a lender checks is your debt-to-income (DTI) ratio.”
TOTAL MONTHLY DEBT / TOTAL MONTLY INCOME = DT
NO. 4 Go With What (and Who) You Know
TIP: In this time of economic uncertainty, the exotic, or unconventional, is out. Go with traditional loans and traditional institutions.
TRICK: Solicit business from financial institutions with which you already do business; they know you and can pull your financial profile from their own databases to help determine if you are a good credit risk.
NO. 5 Try Government Bread
TIP: While private banks (many of which lined up for a bailout from taxpayers) are now tightfisted when it comes to giving out loans, the government is not so stingy.
TRICK: Seek out government-backed lenders that are giving conventional loans through federally backed programs such FHA and VA (for veterans) loans. By their very nature, these institutions and programs provide loans to home buyers whose credit is less than stellar, and to buyers who can’t afford a double-digit percentage down payment. You can qualify for an FHA loan with a down payment of as little as 3.5 percent of the purchase price.
By Kevin Chappell