Ride Out the Storm With Good Credit

Financial experts are speculating that tightening credit and the volatile stock market will make it increasingly difficult for businesses to borrow money. But what effect will it all have on much smaller entities -- namely, you?

The main consequence is that the current credit crunch can make it harder for ordinary people to buy a home or refinance the one they own, particularly for those with shaky financial histories. But several industry analysts said the impact won't always be felt directly. Some argued that some consumers may not notice any changes in their finances.

Some answers to questions about the current turmoil are offered below, and the days and weeks ahead will provide more. But Greg McBride, senior financial analyst with Bankrate.com, said one thing is clear:

"The era of easy money is gone."

Q If my lender has a problem, do I have to keep paying my mortgage?

A Yes.

Though you may write your monthly checks to a particular lending institution, it probably no longer holds your loan. It bundles many mortgages and sells them to investors. So even if your lending institution were to fold, someone will still be looking for a check.

I'm thinking of buying a home. How hard will it be to get a loan?

As always, your chances of being approved depend primarily on your credit history. Those with good credit are unlikely to have problems qualifying for loans. The questions are what kind of home, and at what price. Interest rates on jumbo loans, which are those for more than $417,000, are up almost a full percentage point since May, with a sharp increase in the past two weeks. Banks are now worried about the risk of any home loan and may raise rates accordingly. They are also reluctant to offer nontraditional options, such as no-down-payment mortgages.

For people with poor credit, banks are tightening requirements and seeking more stringent income verification, experts said. They recommend that you focus on building your credit score before purchasing a house.

Already in the buying process? Keith Gumbinger, vice president of financial publisher HSH Associates, said you should ask your lender where the money for your loan is coming from. If the lender says Wall Street, ask if there is a backup plan for completing your mortgage. And steel yourself for the worst-case scenario.

"The possibility of a deal falling through in its midst is much more likely now than it was just a month ago," Gumbinger said.