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By Linda Stern | Newsweek Web Exclusive

Sep 29, 2008

In light of the current situation with the credit market, obtaining financing has become more difficult than in previous years. Because of this, some consumers incorrectly assume that it is impossible to qualify for a mortgage loan, auto loan, or other financing. However, consumers who have good credit should remain optimistic about their loan choices. And consumers with less than stellar credit can quickly and easily become attractive candidates in the eyes of lenders too.

MAKING SENSE OF THE STORY

· Most lenders have reinstated high credit standards, many of which were almost completely eliminated during the days of lax credit lending. Nowadays, most lenders require that consumers prove their ability to comfortably repay a loan, most often determined by their FICO scores. Most lenders require a FICO score of at least 720 to qualify for a mortgage loan. Consumers can receive a free credit report by visiting www.annualcreditreport.com. This Web site, created by the three nationwide consumer credit reporting companies — Equifax, Experian and TransUnion — provides consumers with their credit report, excluding their FICO score. Consumers can request their FICO score, for a fee of $16, by visiting www.myfico.com.

· Even though some consumers may qualify for a new loan, some experts recommend that consumers who do not have emergency funds or are concerned about job security not take on additional debt obligations. However, consumers seeking to refinance a loan at a more favorable rate or repayment option, or those who wish to purchase their first house may benefit from the current low interest rates. Today’s rates, although higher than in previous weeks, are still at or near historic lows. Some experts predict that interest rates will remain low until at least spring/summer of 2010, possibly the entire year or until the economy recovers.

· Consumers wanting to refinance their current mortgage, or purchase a home under the new permanent conforming loan limit of $625,500 — effective Jan. 1, 2009 — may best be served by their small local bank or credit union. These financial institutions often are in the best position to offer consumers a favorable or competitive interest rate. Consumers in California may qualify for conforming loans up to $729,750 until Dec. 31, 2008, as a result of the Economic Stimulus Act of 2008.

· Consumers seeking to refinance a mortgage loan or purchase a home with a jumbo loan — loans greater than the prevailing conforming loan limit — often will pay a percentage point or more than they would with conforming loans, according to bankrate.com. It also can be more difficult for consumers to find lenders offering jumbo loans. While consumers can check with their local small banks or credit unions to see if they offer jumbo loans, it is often best to work with a local mortgage broker or large national brokers when applying for a jumbo loan.

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