If you’re looking to buy a home, there’s good news and bad news. The good news is the $700 billion from the government is going straight to lenders, meaning it may become easier to get a mortgage than in recent months. The only problem is that in order to qualify for a mortgage, you’re going to need good credit (at least a 700 FICO score) and have enough savings to plop down a hefty down payment.
For couples who have already merged accounts, you’ll just have to work with the credit score you’ve got. But if you haven’t merged accounts and are planning on doing so, first discuss your financial outlines and credit scores. If one person has bad credit, merging is just going to bring both of you down.
If you already own your home, try to hang on to it. The housing market is one big cycle, and right now we’re at a low point. Financial experts expect the value of homes to keep going down in the near future, but if you stick it out, your home will once again be worth what you bought it for and (hopefully!) more. Also, don’t forget that you’ll get a little break this year with a property tax deduction that was passed over the summer: Couples who own their homes and are filing together will get a $1,000 tax deduction while individuals will get $500. This used to be available only to people who itemized their tax returns. You also won’t have to pay income taxes on any portions of your mortgage you had forgiven through 2009, and you won’t be penalized for repaying your loan in full (read: saving loads of money on interest) if you do so before 2012.
If you own your home but are drowning in debt, you’re not alone! Take a deep breath and then talk to your lender. The company you borrowed money from doesn’t want your home to foreclose any more than you do, so go over any options you have, such as lowering your monthly payments. Foreclosure is the absolute last option.
If you want to buy a car, you’ll also need a solid credit score. The standards for loans across the board are going to get stricter, meaning you’ll need to make sure you pay your bills on time and keep credit card balances less than 30 percent of the max credit line.
If you have a credit card, there’s a chance your credit line will be lowered in order to avoid the risk of people overspending and not being able to make payments on time. So keep your credit card purchases to a minimum!
If you don’t have a credit card, you might have trouble getting one. Major credit card companies aren’t making as many offers, which you might have already noticed just by looking in your mailbox.
If you have a savings account and your bank goes under, more of your money is insured. As part of the bailout, the FDIC is insuring accounts up to $250,000 instead of the previous $100,000. So even if your bank crashes and burns, gets bought out, or merges with another bank, your cash is covered.
If you don’t have a savings account, get one. The unemployment rate is still going up, and no job is completely safe. One of the consequences of the bailout is that companies relying on short-term loans for day-to-day expenses are going to have to cut somewhere, and that “somewhere” often starts with employees. If times get tough, having some emergency cash will keep you from dipping into your retirement savings -- a major money no-no! Cashing out on your 401(k) early means you’ll be charged a fee and taxed, so if you have $10,000 in the account, you may only walk away with around $5,000.
Nestperts: Dara Duguay, director of Citi’s Office of Financial Education and author of three books, including The Citi Commonsense Money Guide for Real People; Brett Graff, The Home Economist™ and former government economist
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-- Caitlin Moscatello