With the introduction of the Credit Card Accountability Responsibility and Disclosure (CARD) Act, many experts have opined that it would affect the eligibility of the borrowers to qualify for a mortgage.
How would the CARD Act affect the homeowners?
There was a time gap between the announcement and enactment of the CARD Act. Most of the credit card issuers raised the interest rates of the card owners suddenly within this time gap. In some cases, the interest rates were raised from 8% to 16%. Due to this, the card holders will now have to pay a comparatively higher minimum monthly payments on their credit cards.
As the minimum monthly payments have increased, the card owners will have to put maximum amount of their wages towards paying off the credit card debts. This may lead to the non-payment of the mortgage dues which will affect their chances of refinancing a home loan. Also, if they default on the mortgage payments, the lenders can start off with foreclosure procedures to recover their dues. This will increase the foreclosure rates in the country and in turn affect the recovery of the housing market.
How can borrowers increase their chances of getting a loan?
When a person is trying to purchase a property, he or she will have to try and make himself or herself as "attractive" as possible in front of the lender. Though it's difficult, it's not impossible.
If a card owner's rates have just been raised and the credit limit lowered, then he or she should negotiate with the bank or credit union to either lower the interest rate or increase the credit line to where it stood previously.
In order to achieve this, the customers can stick to a single bank. If they have all their accounts with a single bank, then they may be able to get annual fees waived off or get their interest rates lowered. The customers can even apply for mortgage with the same bank. It will be easier for the lender to judge a person's credit and thus it will be an added advantage while securing a loan.
However, this is an early stage to tell whether or not the CARD Act will really affect the mortgage market drastically. The concerns can be somewhat hypothetical at this point.