As a result of the banking liquidity crisis, banks have become afraid to lend to each other, and so LIBOR has risen independently of the Federal Funds Rate. The Fed is desperately trying to lower LIBOR so banks can get back to lending to each other but it is not working nearly as well as the government would like. Many believe that LIBOR will not get back down to matching the Federal Funds Rate until the financial markets stabilize and who knows how long that will be.

In the New York Times articles today there were two different writers with very different views on the drop LIBOR experienced yesterday. One of the writers believed that confidence among banks is way up after the bailout by the world governments and believes that the banks are slowly starting to feel more and more comfortable lending to each other. We saw Citi and JP Morgan Chase lend money to banks in Europe, which is a big step in the right direction. The other writer saw things differently. He believed that it was just a one-day thing. One day does not start a trend. He believes that things will continue to worsen and that our worst days are not behind us.

The reason LIBOR should matter to everyday people like you and me is simple. Most credit cards and adjustable rate mortgages are based on LIBOR. When LIBOR goes up, our rates also go up. Banks charge us an interest rate by adding LIBOR, the rate they are paying to get the money, plus the margin, the amount that they are making by lending us the money. So the rate we pay on adjustable interest rates are typically

LIBOR+Margin=Interest Rate. So banks are very nervous about lending to each other which is making it very difficult for consumers to obtain credit and when and if they do the rate they have to pay are often times higher than they are used to. There is a liquidity crisis which is causing a lot of the problems we are facing. Banks are having a very difficult time obtaining capital and therefore are unable and unwilling to lend to businesses and consumers. This is one of the main reasons we are currently in a recession.

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Each of these things are definitely within your control and you can do some things to help make you a more attractive mortgage candidate.

Repair Your Credit & Increase Your Credit Score
Your credit score says everything about you and your ability to repay a loan issued to you and do it on time very single month. People with lower credit scores, can definitely expect a much higher interest rate tacked to their home loans, if your score is below 650 you will have a VERY difficult time getting a mortgage loan, if at all! However, those with scores above 800 will have the lowest interest rates and have no problem getting a loan.

Get A Higher Paying Job Within The Same Industry
If you are having a hard time getting qualified for a loan because you don’t make enough money to pay for the home that you are interested in, you should should start hunting for new job that pays more. One thing you need to take note of, lenders like to see a long, stead history of employment, so if you want to be considered for the loan after the job change, it needs to be in the same line of work. If you need a little more nudging and encouragement about switching jobs, you can click here.

Save Your Money Like A Mad Man
It is no secret that the larger your down payment is, the smaller the loan amount will be. Not only that, but the lenders that are considering you will see you as a less risky borrower.

Don’t Ever Pay More For A Home Than The Appraised Value
This is pretty much a no brainer, since the bank or lender will not want to lend you any more money than the actual property is worth.

Reduce The Amount Of Debt That You Carry
Other than your credit score, debt is one of the biggest reasons why people cannot qualify for a home loan. There is no magic number as to how much debt you can carry in addition to your mortgage, but lenders will be much more likely to lend you more money, if you have more debt.

I hope you can take some of these things to heart if you are considering purchasing a home in the next few months. You need to play the game and play it well if you want win!

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