Advice on Getting a Mortgage in 2009

There are only three more days until the new year, so I thought it was a good time to make a list of mortgage tips for 2009 home buyers. If you've been following the news over the last year, you'll realize that much has changed in the world of real estate, credit and mortgage.

The home buyers of 2009 need to understand what all has happened to our economy, and how it affects their chances of getting qualified for a mortgage loan. And that brings us to the purpose of this article. Here is my advice on getting qualified for a home loan in 2009.

Tips for Getting a Mortgage

If you ask me, getting a home mortgage loan in the so-called "new economy" is the same as it always has been. The only real difference is that lenders aren't giving loans out to borrowers with bad credit, like they did over the last few years. Subprime loans are going to be hard to come by in 2009, if not completely extinct.

1. Start Saving Money

Before the housing crisis of 2008 - 2009, home buyers with decent credit could get qualified for a "no-money-down" home loan. But this has changed. Today, getting a mortgage without a down payment is nearly impossible. Many lenders are requiring a 20% down payment -- in fact, that seems to be the norm lately.

You'll also need some extra cash for closing costs and other expenses associated with the home buying process. So if you plan to buy a house in the near future, start saving your money now. It help you in getting a mortgage loan, among other things.

2. Fix Your Credit if Necessary

I've never thought it was a good idea to buy a home with a bad credit score. For one thing, it makes a lot harder to get qualified for a loan. And even if you do get qualified, you'll end up paying a much higher interest rate than a person with good credit. This can lead to all sorts of financial problems, including foreclosure.

Here's another reason to review your credit score before getting a mortgage loan. Improving a score takes time, so you need to find out where you stand as early as possible. That way, if your score needs improvement, you can take the necessary steps before applying for a mortgage. This will help you qualify for a loan, and it will also help you get a good interest rate on the loan.

3. Choose the Right Type of Mortgage

Do you know the pros and cons of a fixed-rate mortgage loan versus the adjustable-rate mortgage? If not, you've got some homework today. There are many variations of the home loan, but most of them fall into one of these two categories -- fixed or adjustable. So your first homework assignment is to learn about these differences.

Next, you should consider your home buying situation and your long-term plans, and then choose the best type of mortgage for those plans. For example, if you plan to live in a home for only a few years, then you can probably save some money by getting an ARM loan with a lower rate. On the contrary, if you on plan on staying in the home for many years -- or even permanently -- then you're better off with a fixed-rate mortgage.

And don't count on being able to refinance from one type of loan to the other, down the road. There's no guarantee you can do this. Take the current economy for example. Right now, a lot of people are trying to refinance their ARM loans into fixed rate loans. But property values have dropped significantly in many parts of the country, leaving homeowners upside down in their mortgage loans. This means that many homeowners are stuck with their ARM loans -- unable to refinance because they owe more than their homes are worth in the current market.

This is just one scenario that illustrates the importance of choosing the right type of mortgage for your particular scenario.

4. Use the Internet to Save Time

This is one of the most common pieces of advice I give to first-time home buyers. The Internet can save you a lot of time and energy when getting a mortgage loan. But a lot of people are afraid to get online quotes because of all the identity theft stories in the news. Let me offer this advice on the matter. If you follow the Internet security tips we offer here on this blog, your personal information will be safely guarded. On top of this, you'll save yourself some time by getting mortgage offers from several lenders at once. It's a great way to get the ball rolling.

The Best Online Lenders for Home Loans

Reader Question: We are buying a home early next year, and we want to get mortgage quotes online to save time. Who are the best online lenders for home loans these days?

As you can tell by the yellow box on the side of this blog, I am partial to LendingTree as an online lender. I just like everything about their business model, and that's why I recommend them so strongly.

But let's go beyond that one company. Here are some things you need to consider when choosing a web-based lender in 2009.

1. Which ones are still around?

You ended your question with "these days," and that pretty much says it all. Two years ago, there were a lot more web-based lenders than there are today. Many of them collapsed during the mortgage / housing crisis that came to a head in 2008. In 2009, you will have fewer options when choosing the best online lender for your home loan. But this is good news as well as bad news. While you have fewer companies to choose from in 2009, you can rest assured that the ones still around are well-run and well-financed. They have, after all, survived the worst economic crisis of our lifetime.

2. Which lenders are on stable ground?

We just talked about the economic turmoil our country is going through. So when choosing an online lender for your mortgage loan, it's important to research the company behind the website. Start by running their name through Google's news search engine to see what comes up. Is it good news or bad? Are people predicting their collapse? The best lenders will not only survive in 2009, but rise to the top as well. So with a little homework, you can easily find out which lenders to avoid and which ones to consider for online quotes.

3. Which lenders have the best reputation?

Also during the course of your online research, keep an eye out for any "bad press." If you see a consistent pattern of complaints and other negative information about a particular online lender (or their parent company), it's probably best to steer clear of them. Of course, you always have to consider the source when doing this. Sometimes, even the best lenders have unhappy clients. So don't rule them out based on a single piece of bad news. Remember, you are looking for reputation patterns -- for better or for worse.

4. Which ones have the biggest network to leverage?

Some online lending sites only give you access to a single company. For example, if you visit the website of a company like Bank of America to get online mortgage quotes, you'll probably only get offers from BOA itself.

Other lending websites, however, give you access to a wider range of brokers or lenders. In other words, you submit a request for a mortgage quote through the website, and then you receive offers from multiple lenders. Without question, this is the best way to find a home loan online. So, by extension, the best online lenders in the U.S. are those that have access to the biggest networks.

The Truth About Instant Mortgage Quotes

What is an instant mortgage quote and how do I get one? Is it really an instant offer from lenders? How can they give me a quote so fast without even reviewing my finances?

These are common questions about mortgage shoppers, and I can certainly understand the confusion. You see advertisements for instant loan quotes all the time. But it makes you wonder ... how can a mortgage broker or lender offer a quote so fast, when they need to review your financial situation first?

The answer is two-fold:

1. There is no such thing as a truly instant mortgage quote.

Even a basic, cursory review of an applicant's finances will take some time. So the only way to make the process instantaneous is by offering "blanket" quotes to everyone, regardless of their qualifications -- and that would be a waste of everyone's time. Sure, this initial process can be pretty quick, thanks to the Internet. But it's just not instant.

2. The initial quote is far from approval.

It's also important to realize that this kind of up-front mortgage quote is based on limited data. So it's not the same as a pre-qualification or pre-approval. In other words, just because you get an instant quote for a certain loan amount and interest rate, it doesn't mean you'll receive final approval for that amount. This will make more sense when you read the series of events described below.

The Online Mortgage Quote Process

When you hear the word instant used to describe this process, it usually refers to online quotes and the companies that provide them. This truly is one of the fastest and easiest ways to get the ball rolling. Here's an overview of how the process works:

• Step 1 - Choose an online lending website. Here are some security considerations to keep in mind.
• Step 2 - After reviewing the security recommendations provided above, provide the requested information on the mortgage website. Typically, this will be a short web form asking for your name and contact info, your desired loan amount, size of down payment, desired mortgage terms, etc.
• Step 3 - Once you have submitted the information needed for the online mortgage quotes, you will eventually receive some offers from brokers and/or lenders. This may come in the form of emails, online messaging through the lending website, or a combination of the two.
• Step 4 - You would then review the quotes presented and see which one offers the best interest rate and terms. Just keep in mind you may not actually qualify for those terms -- it's just an initial offer based on the information you provided.
• Step 5 - Based on the mortgage quotes provided, you would choose a broker or lender and follow up with them by email or phone.
• Step 6 - Eventually, you would go through a more detailed review. The lender will request financial documents such as your W-2 forms for the last two years, pay stubs, etc. They will also pull your credit score to see where you stand. You'll eventually be pre-qualified for a certain loan amount, and you can use that pre-qualification letter when house hunting (it shows the seller that you are capable of buying their home).
• Here are some of the things you should do before you apply online for a loan.
  

This is the basic process that takes place when you request the so-called instant mortgage quote. Your actual experience may differ from what I've outlined above, based on any number of variables. But at least now you have a general idea of what takes place.

Not Instant - But Still Convenient!

When people email me asking about home loans, I usually refer them to one of the big online lender websites. I do this because it's a convenient way to initiate the mortgage application process. As you can see from the outlined steps above, it doesn't take much to get started.

It's also a convenient way to compare mortgage quotes / offers from more than one lender. In some cases, you can receive information from up to four lenders at once -- and you can get it by the end of the day, straight to your email inbox.

Before You Apply for a Home Loan Online

Summary: In this lesson, I'll explain the steps you should take before you apply for a home online through a mortgage lender's website.

Applying for a home mortgage loan via the Web is really quite simple. In fact, that's one of the reasons I publish this blog -- to teach people who easy the process can be. But in reality the process starts long before you apply online for a home loan quote. At least, it should.

Before You Get Home Loan Quotes

Before you start visiting lender websites and requesting quotes, you should spend some time reviewing your finances and coming up with a realistic budget for yourself. Here are five things you can start with:

1. Start Saving Money

In the current economy, most lenders will require you to make a down payment on the home you intend to buy. You used to hear about "no money down" home loans all the time, but they are hard to come by these days. This is true with online mortgage lending as well. In fact, you'll probably be required to make a down payment in the neighborhood of 20% -- especially if you want to get a decent interest rate on the loan.

That's just one of the reasons you should start saving money. You'll also need enough cash to cover your closing costs, and these can add up to several thousand dollars. Most lenders will review the amount of money you have in checking / savings for this very reason. If you apply for a home loan online you could very well save some money on these closing costs, but you should prepare for the worst and hope for the best.

2. Review Your Credit Reports

When you request a quote for a home loan online, what you get back is just an initial offer. After you follow up with the mortgage lender or broker, they will review your finances much more closely. Your credit score is a big part of this review process, and your score is based on the information contained within your credit reports. So early on in the home loan process, you should get copies of all three of your credit reports and review them for errors / inaccuracies.

If you do find an error, dispute it through the company that produced the report until the item gets removed. Inaccurate information on your credit report can drag down your score, which makes it harder to get qualified for a mortgage loan.

3. Check Your Credit Score

We just talked about the importance of having a good credit score in this economy. So this is another item you should obtain before you apply online for a home loan. Remember, your credit reports and scores are two different things entirely. The former is a record of your financial history, and the latter is a number. The higher the number the better. A high credit score will make it much easier to qualify for a mortgage, and (more importantly) it will allow you to get the best interest rate on that loan.

You can learn more about obtaining your scores on the credit page of our main website.

4. Determine Your Budget

I was recently watching a news program with yet another sad story of mortgage foreclosure. They were interviewing the person who lost a house to foreclosure, and she said: "When we got the home loan we just figured we could afford it, because the mortgage lender approved us for the loan."

This completely backward, and I've been telling people this for years. Don't ever let a lender tell you how much you can afford to pay each month. You must determine this for yourself. So before you apply for a home loan online, you need to have a budget in mind -- including the maximum amount you can afford to pay every month.

Online Mortgage Lending Explained

You've seen the ads on TV. You've heard people talking about it. You've even encountered the websites when surfing the Internet. It's known as online mortgage lending, and it can help you find a home loan while saving time and energy in the process.

But what is online lending and how does it work? Is it safe? And how much of the process actually takes place on the Internet? These are common questions among mortgage shoppers, and rightfully so. Here's what you need to know about online lenders and the services they offer.

Online Lenders - What's In a Name?

The first thing you need to realize is that different lenders use the word "online" in different ways. For example, one company might claim to offer online mortgage lending services when they are actually just a regular "bricks and mortar" lender with a basic company website. Other companies, such as LendingTree and E-Loan, truly specialize in Internet lending and offer a variety of web-based services to back that up.

When I refer to online mortgage lenders in the context of this article, I'm referring to the latter example -- I'm talking about the new breed of home loan websites.

How the Process Works

It's also important to realize that only a certain part of the lending process takes place online. In most cases, it's just the "front end" of the transaction that happens through the website. This includes the mortgage application and the initial review by one or more brokers.

To get the ball rolling, you would visit the company's website and fill out a form with some basic information about (A) yourself and (B) the type of loan you want. After that, you'll typically get email offers from lenders or brokers, and you can then review those offers to see which one has the best terms.

Keep in mind that the offer is not an actual loan approval, and the terms presented will depend on your level of qualification (income, credit score, etc.). This is something that often confuses people about online mortgage lending websites. They fill out the form and they receive several offers from the lenders on the other end, and they think: "Wow, I just got approved for a loan!" But this is not the case.

After the initial online application / review, you will still go through an in-depth financial review, wherein the lender looks at your current income, debt levels, credit score, etc. The final approval comes after all of that ... and after you have found a home you want to buy.

Related articles:

• How to get mortgage quotes from the web
• How to protect your identity during the process

So let's sum up what we have discussed in this lesson:

Today, there are some companies that specialize in the online lending process and offer a variety of web-based tools. Getting mortgage quotes online can save you time and money. In most cases, only the initial steps of the process take place on the Internet, and this will be followed up with phone calls, emails and possibly even an office visit to a local broker or lender's office.

During the online mortgage lending process you should also take certain steps to protect your identity (see the second link provided above for more on this). If you would like to get started with the quote process, refer to the yellow box at the top of this blog.

Online Mortgage Advice - How to Get Mortgage Quotes From the Web

Summary: In this blog post, I'll offer some online mortgage advice to help you get quotes from mortgage lenders via the Internet.

Imagine this. You're shopping for a home loan, and as a smart shopper you want to compare multiple offers. So you go online to a certain website, and you fill out a short form with information about yourself. By the end of the day, you receive information from several different lenders or brokers -- straight to your email inbox.

Sound too good to be true? It's not. These days, there are many reputable companies that offers this kind of online service to consumers. You've probably even seen their ads on TV. It's a great way to save time and energy while achieving your ultimate goal of finding a home loan. So in this article, I'd like to give you some online mortgage advice based on my own experience with this industry.

Here are the steps I recommend when getting mortgage quotes online.

Step 1 - Determine Your Home Buying Budget

Some people think a lender will only approve them for a loan they can afford. In truth, this is a flawed way to look at things. And as we have seen from the housing crisis of 2008, this is simply not the case. You cannot rely on a mortgage lender to determine your housing budget. You have to do that for yourself. This is one of the most important pieces of advice I can give you, related to online quotes.

Use a mortgage calculator to get a rough idea of the monthly payment you can afford. Be sure to consider all of your other monthly expenses, such as your car payment, credit card bills, groceries, insurance, entertainment and savings. This will help you determine how much of a loan you can afford, and you can use that number as a cap when requesting quotes.

Step 2 - Choose a Lending Website

The best online mortgage advice I can give you here is to choose a well-known company, such as the big-name brands you've seen advertising on TV. These companies spend a lot of time and money developing their reputations, which means they also want to protect their reputations. They do this by offering a good service with built-in security, and by treating their customers right.

Step 3 - Complete the Online Request

There's actually not much to say about this step, because it's very straightforward. But it needs to be included in the list. Once you've chosen a lending website, just follow the instructions they provide to request a quote. In most cases, you will be asked to provide your name and contact information, the amount of loan you wish to apply for, the amount you have to put down, and similar information.

After you submit the form, you will get some preliminary offers from mortgage brokers or lenders. Keep in mind these offers will likely differ from the loan amount and interest rate that you ultimately qualify for. The online process is just to get the ball rolling. You'll go through a more thorough approval process after this initial request.

So there you have it -- online loan quotes in three easy steps. I told you it was simple. If you'd like more advice on this process, of if you'd like to get started requesting an offer, check out out our mortgage quotes page.

Getting Home Loan Quotes Online

The Internet has made all aspects of the real estate process easier. You can locate properties faster, find home values easier, and get home loan quotes from lenders with a lot less effort.

Of course, you also need to exercise some caution when applying for a home loan online. You must guard your personal information from identity theft, as much as possible. This is why a lot of folks are afraid to get loan quotes via the Web. They think that everyone is out to get them, and that all websites lead to identity theft. But this is simply not the case.

Home Loan Quotes & Internet Security

Let me offer you some reassurance, based on my own experiences with this industry. With a basic understanding of Internet security -- and a healthy dose of common sense -- you can enjoy the speed and convenience of online home loan quotes while also protecting your personal information. Here are five tips on doing just that.

1. Stick With the Names You Know

I recommend using companies and websites you've heard of before. For example, if you were to use the website of a big-name brand (like Ditech, eLoan or LendingTree), you could be fairly certain there would be no "monkey business" behind the scenes. These companies, and others like them, have a lot invested in their reputations. So they would be foolish to act unethically. Personally, I would never provide my personal information to a company I've never heard of before. I recommend you exercise the same caution when getting home loan quotes via the Internet.

2. Look for the 'S' in the Web Address

A secure website has special encryption to prevent hackers and identity thieves from accessing certain areas. You can tell if you're on such a website by looking at the web address / URL up in your Internet browser's address bar. Before the "www" part, there should be an "https://" prefix. Note the letter 's' in that prefix -- this must be present to indicate a secure web page. If it starts with "http://www" (without the letter 's'), then it's not a secure site and you should not transmit personal information through it. Find a more secure place to request a home loan quote.

3. Look for Third-Party Verification Seals

Today, there are companies whose sole mission is to verify the Internet security of other companies. You've probably seen their logos at the side or bottom of financial websites. For example, you might see a graphical seal of approval that says something like "verified by TRUSTe."

In most cases, these graphics are hyperlinks as well, and you can click on them to check the security verification status of the website you are currently using. All of the big-name online mortgage companies have these verification seals on their websites. Combine this with the first two recommendations above, and you can be 99% sure you're on a safe and legitimate website.

4. Trust Your Instincts

If something doesn't seem right to you, there's a good chance it's not. For example, if a website asked you for bank account numbers and passwords as part of the home loan quote process, you would know something wasn't right. Why would a mortgage broker need this information? They wouldn't, of course. Yet you would be surprised by the number of scams online that operate in this way. Trust your instincts when using financial websites. And when in doubt, back on out.

Of course, if you follow the previous tips I offered above, you can avoid this kind of thing altogether.

5. Research a Company / Website Before Using It

Just by using Google, you can become an amateur detective and research everything about a particular company -- aside from their private financial data, of course. I recommend you do this before dealing with any kind of financial company, but especially when dealing with a website that offers online loan quotes.

Conclusion and Going Forward

With a little bit of research, and a lot of common sense, you can capitalize on everything that's good about the Internet while protecting yourself from the bad. Follow these five pieces of advice when requesting mortgage offers via the Web, and you'll be more likely to enjoy a smooth and safe process. And remember … when in doubt, back on out!

Related article: How to Apply Online for a Mortgage Loan