It’s no secret that since the economy took the plunge banks have started tightening up on their lending standards. Many people are excited about lower rates, but just exactly how many of them can get approved for a loan in this economy?
In February of this year, many banks were still lending at 100% loan to value (LTV). Basically what this means is that they would allow you to tap into more equity in your home, but it would cost you a higher rate than if you went with the standard 89.9% LTV.
For example, if your house is worth $300,000, and you don’t owe anything on it, before you would have the possibility of a Home Equity Line of Credit or a Home Equity Loan of $300,000 if you wanted to go 100% LTV. Today, the most you could borrow out of your home’s equity would be $269,700, which is 89.9% of $300,000.
The reason banks are doing this? To cover their assets. I know many banks went crazy lending money to anyone who wanted it about 1-2 years ago. Now they are seeing the repercussions of this in today’s economy. Banks were lending too much money and consumers just couldn’t handle it. Here came the foreclosures.
If you were to go into the bank today and ask about home equity lending, you would probably be asked a couple questions: how much do you think your home is worth, and what is the total amount of any mortgages on the property? From there, the banker would tell you what amount you could get financing up to.
Banks are using the same lending procedures for auto loans, unsecured loans, and lines of credit. If you don’t have good credit and a good income, you’re probably not going to get approved. Use common sense when you are applying for any type of loan. Make sure you ask questions first before you sign. If you have any questions about lending, I’d be happy to help!