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As most are painfully aware, since the 2009 recession, mortgage companies have had been having a hard time staying afloat in the financial industry. While many of the traditional mortgage companies have been decreasing the rate at which they take on new mortgages, the online marketplace for mortgages is still strong.
The resulting glut of online mortgage companies and aggregator websites has spawned a vast number of ways to get a mortgage quote online. Between the sponsored ads and the aggregator sites, finding mortgage quotes online that meet your needs can be confusing and may even end up costing money.
There are a few steps to begin the journey of finding mortgage quotes online. The best way to weed through the mass of sales talk is to first get some basic information on what you need the loan to do and how well you qualify for a mortgage. Before you even search mortgages or rates, make sure you know a few things about yourself and your needs.
Before starting your search for mortgage quotes online, know your FICO score and what it means. Lenders will see your score as a composite picture of how you deal with recurring debt. The Fair Isaac Corporation or FICO is the originator of applying a score to the credit-risk model, which hadn’t been done previously. They weren’t any fairer than anyone else, they just happened to be named Bill Fair and Earl Isaac. That score is different from other scoring methods that can be found online, such as Credit Karma. All types of credit scoring are based on the scores found at the three credit reporting agencies, Experian, Transunion, and Equifax.
Those scores are based on positive and negative standing of payments made to recurring credit accounts, such as credit cards and loans. Each credit reporting agency calculates their scores differently, but close enough to build a range of scores that become one FICO score between 300 and 850. The three credit reporting agencies also range their scores between 300 and 850, where 300 is the worst possible score and 850 is the highest possible score.
In simple terms, a credit score is more than any other thing in finance a level of risk taken on by the lender in a credit situation. If a credit score of 650 is offered as a total credit score of all three credit reporting agencies, then this is a person who is carrying some negative activity on their accounts. The lender could then charge a higher interest rate on the loan or credit they are offering, or reject the application for too much negative activity. The scores are applied to levels of creditworthiness differently but for the most part, are applied in the following way:
The closer a credit score comes to 700 the more likely it is to be approved for credit. Today, some online lenders will consider scores as low as 620, if other creditworthiness factors are in an excellent range. Let’s look at some of those factors.
The Debt-To-Income Ratio, or DTI, is a very important factor when looking for a mortgage. This ratio tells the lender how much debt you need to pay on a monthly basis, leveraged against your gross monthly income. The total monthly debt, including housing divided by gross monthly income from all sources (even alimony and child support) that number, will be a decimal product, that is to the right of the decimal point. (e.g., 0.25) That number is then multiplied by 100 and the resulting product is a percentage. (0.25 x 100 = 25 which is 25%).
The percentage represents how much of your income is going towards your recurring debt. This number should be below 45% and close to or below 36%. This is a very important number when looking for mortgage quotes online. The higher the percentage, the higher the interest rate. Lenders will not really entertain percentages of 50% or more.
The last bit of information you need to have before starting a search for mortgage quotes online is how much you are seeking to borrow, and the market value of the home or property you wish to purchase or refinance. The next step is to decide what type of mortgage you are seeking, of which there are several kinds.
Typical mortgages are between 15 and 30 years, but there are lenders who offer 20-year, or even 40-year loans. Some places will reduce the repayment period based on circumstance, like a balloon payment or refinance. Usually, the interest rate goes down with the repayment period, such as 30 years 5% or a 15 year is 3.5%, based on the length of the loan. The monthly payment amount will go up accordingly, based on the length of repayment time, so that 30 years would be the lowest installment amount, and 5-year term would be the highest.
There are a number of mortgage types that you can get mortgage quotes online. There are a number of mortgage types that can be found in mortgage quotes online, some of these will seem familiar and some are less known to the general public.
The most popular of all loans, a mortgage with a fixed rate has the same interest rate and installment amount for the life of the loan. This type of loan can be applied to any term, 30-year, 15-year, or even 40-year. The known quantity of this type of loan makes it very popular with people who are seeking the low risk, but a little higher payment or interest this type of loan provides.
The adjustable-rate mortgage (ARM) is a loan where the interest rate changes during the life of the loan. This is seen as adjusting the rate. Usually, there is a fixed period, where the interest rate does not change, and after that period the rate will adjust or change, every year. That is not a guarantee that the rate won’t change at other times, but there are now laws governing ARM loans, and they can’t spring this change on the borrower unannounced, as in previous years.
The interest rate is not fixed to any degree, which makes the ARM a risky choice for the average borrower. The positive aspect of an ARM is the initial interest rate can be lower than the fixed rate. There are several types of government-insured mortgages, and then the conventional type of mortgage, which is probably the most searched and the easiest to find mortgage quotes online.
Federal Housing Administration (FHA)
This federal program provides mortgage insurance to low-income borrowers. The management of the program is through the Department of Housing and Urban Development (HUD) and is open to all types of borrowers. The program is not just for first-time home buyers, and it is offered all over the country.
Some of the best options in all types of mortgages, the FHA mortgage provides the lender a guarantee against losses if a borrower defaults on the loan. The downpayment on these loans can be a low as 3.5% of the total loan amount. The downside is that there is a monthly payment for mortgage insurance, which raises the total payment each month.
Veterans Administration VA
The mortgage program for the military is administered by the Department of Veterans Affairs (VA) and is a federal department within the government, not just a program. The program for veterans, active service members, and their families is much like the FHA program in that it guarantees lenders against loss in a default situation. At the heart of the program is the ability to receive 100% financing and not need a downpayment at all, for the purchase of a home.
United States Department of Agriculture USDA
Many rural areas of the United States are in need of new residents, due to the lack of population in general. The USDA, through the Rural Housing Service, has developed a program for rural borrowers who qualify, to obtain mortgages, either new purchases or refinance. Offered to rural residents who have consistent low or modest income who cannot find housing through conventional means. The applicant can not exceed the adjusted area median income for the county where they wish to reside by 115% of their income.
Conforming or Jumbo Loans
In the United States, there are two sizes of mortgages loans, a conforming or non-conforming loan. The limits to the size of the loan are determined by Fannie Mae and Freddie Mac, two government-backed mortgage corporations that buy mortgages from lenders and selling them on Wall Street. The factors that determine whether a particular borrower qualifies for a mortgage is determined by in large part by the requirements of Fannie Mae and Freddie Mac. The size limit for most of the USA for a conforming loan is $417,000.00
A non-conforming or jumbo loan is any loan amount above $417,000, that also meets the requirements for that size loan as laid out by the guidelines for Fannie Mae and Freddie Mac.
The final aspect of what to look for when looking for mortgage quotes online is the conventional loan. The conventional loan is a mortgage that is accepted almost universally across the country as being the best type of mortgage for lenders. This is a loan where the loan-to-value is 80%, which is how much of a down payment is being offered towards the purchase price of the property. The property is usually owned by the lender until the mortgage is paid off completely. The conventional mortgage is not insured or guaranteed by the federal, state or local government, but can be conforming or non-conforming.
The best way to look for mortgage quotes online is to know what a mortgage is and how it works. Knowing the different types of mortgages, the different requirements needed to qualify and what is being offered. Knowing what the borrower needs — like having a property already picked out — is always the best way to approach a search for mortgage quotes online.
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