Online Mortgage Advice - The Top 12 Articles from HBI

By Brandon Cornett
© 2011 All rights reserved

Editor's note: There are more than 500 mortgage-related articles on this website. That's a lot of useful information. But it's not always easy to find what you need on such a large website. I thought it would be helpful to put a dozen of our most useful articles onto one page. So here you have it -- a library of online mortgage advice. Enjoy.

Before Shopping for a Loan

What do I need to do before applying for a mortgage loan? What are the first steps in the process? These are two of the most common questions we get from our readers. Lenders talk about gathering your financial documents, checking your credit score, etc. But in truth, the mortgage process begins long before this. Or at least it should.

Here are three things you should start doing today:

1. Establish a housing budget
2. Measure your debt
3. Start saving money

This is the best mortgage advice I can give to a home buyer. If you start doing these three things today, you'll be much better off when it's time to apply for a loan.

You need to establish a budget before you start talking to lenders. You need to find out how much money you can afford to spend each month on a mortgage payment. You would do this by comparing your net monthly income to your monthly expenses.

It's also important to consider your debt level, in relation to your income. How much of your monthly income are you spending on debt obligations (credit cards, car payments, etc.)? This is something you need to find out, because it can make or break your chances of getting a mortgage loan. Lenders refer to this as your debt-to-income ratio, or DTI. It will determine whether or not you can get a loan, and how much you can qualify for.

Do you have enough money for a 3.5% down payment, plus closing costs? Unless you qualify for the VA program, 3.5% is the smallest down payment you will face -- and that's for the FHA loan. A conventional mortgage loan will have a down payment of 5% or more.

Your closing costs can also add several thousand dollars to your out-of-pocket expense. This is why it's so important to start saving money. Start today, and save as much as you can before applying for a loan. You'll thank me for it.

Selected articles for this section:

• What do mortgage lenders consider when I apply?
• How to establish a home-buying budget

In the next section of the Online Mortgage Advice library, you'll learn why it's so important to check your credit before buying a home.

Your Credit Reports and Scores

You've probably heard a lot about your credit reports and scores. But did you know your credit score could make or break your chances of getting a mortgage loan? It's true. And that's why you need to check your credit reports and scores at least a month before applying for a home loan.

In the past (i.e., before the housing crash), you could qualify for a loan with bad credit. In fact, the credit score wasn't even used by some lenders. They were mostly concerned with your income at the time of application. But all that has changed. Today, lenders are looking more closely at credit scores to see how you've borrowed and repaid money in the past.

A low score can prevent you from getting a loan, even if you have sufficient income and minimal debt. Yes, it's that important. That's why I've included it in this collection of online mortgage advice.

Your credit scores are based on the information found in your credit reports. These reports are basically a list of your current and past debts, and how you've handled those debts. Bankruptcies, foreclosures, late payment and debt collections also show up on your credit reports.

The image below shows how the reporting process works.

Want to use this diagram? Feel free. Please link back to the source.

Check your credit reports early on in the process. If you find mistakes on any of your reports, you need to dispute it through the company that produced that report (Experian, TransUnion or Equifax). But this takes time. So you need to start today.

Selected articles for this section:

• Credit score needed to buy a house
• What is a good credit score in 2011?
• What you need to know about credit reports

It's hard to say exactly what credit score you'll need to get a mortgage loan these days. It varies, based on the type of loan you use. Sometimes it will vary from one lender to the next, too. Check out the first article in the list above for more on this. Here are some basic guidelines:

• The FHA requires a credit score of 500 or higher on FHA loans.
• You'll need a 580 or higher for the FHA's 3.5% down-payment option.
• Some FHA-approved lenders require a score above 620 for FHA loans.
• For a conventional mortgage, you'll probably need a 620 or higher.
• Some lenders set their minimum at 640 for conventional loans.
• The higher your score, the less interest you'll pay on the loan!

In the next section of the online mortgage advice library, we will discuss the different types of loans you can choose from. Choosing the right type of mortgage loan can spare you a lot of heartache down the road.

Types of Mortgage Loans

Home buyers today have fewer mortgage options than they did a few years ago. The housing crisis of 2008 - 2011 caused the extinction of several financing "strategies." The subprime mortgage loan is gone, and so is the no-doc or stated-income loan. Some lenders have also gotten away from piggyback loans and payment option ARM loans.

This is good news, actually. The mortgage options that are still available are the more sensible ones. Believe me, you do not want a negative-amortization loan with a principal that grows from month to month. Nor do you want a subprime mortgage with a ridiculously high interest range.

The restriction of lending options has led to higher standards as well. The modern home buyer needs to have good credit, steady employment, and a manageable level of debt.   

Most mortgage used today are either FHA loans, VA loans, or the "plain vanilla" conventional mortgage. So there are two key choices you'll have to make during the home buying process.

1. Do I want a conventional mortgage or a government-backed loan?
2. Do I want a fixed or adjustable interest rate?

Answering these questions will require some research on your part. You need to learn about the pros and cons of FHA loans versus conventional mortgages. You must also understand the key differences between fixed and adjustable-rate mortgages. The online advice below is a great place to start.

Selected articles for this section:

• FHA loans vs. conventional loans
• Fixed-rate vs. adjustable-rate mortgages
• The key to getting a good mortgage loan

When you apply for a home loan, there are certain things that could go wrong. You might not want to think about these problems, but you at least need to understand them. So let's talk about the various bumps in the road to financing...

When Problems Arise

Many things can go wrong during the mortgage process. By understanding what these things are, you can better avoid them. For instance, it's possible to get denied for a loan even after you've been pre-approved for one. It's also possible for the home to be appraised for less than the amount you've offered.

And then there's your financial situation. If something significant changes between the time you apply for a mortgage and the scheduled closing date, the lender could turn you down.

But all of these situations can be avoided. You can avoid the low appraisal situation by making a smart offer, based on comparable sales. You can avoid troublesome financial changes by maintaining the status quo, in terms of employment, income and savings. The articles below offer mortgage advice that is preventative in nature.

Selected articles for this section:

• What happens with a low appraisal?
• Making a smart offer on a house
• Being denied a mortgage after pre-approval

Mortgage Advice for First-Time Buyers

Is this your first time buying a home? If so, you've got a lot of homework ahead of you. A mortgage lender might say, "Don't worry about all the research. That's why we are here. We will tell you everything you need to know about mortgage loans." Don't buy it. You need to go into this process armed with knowledge and awareness.

Before you talk to a lender, you should know your credit score, your maximum budget, and your debt-to-income ratio -- at a minimum.

The online mortgage advice library is only a starting point. We have given you a solid roadmap for future research. Take the lessons you've learned here and build on them. Read a book about the home buying process. Talk to someone who has bought a home recently. Ask questions. Dig deep. Be your own advocate. 

If you would like to learn more about any of the topics discussed above, you can use the search box at the top of this page. It will give you access to hundreds of mortgage-related articles and tutorials. You might want to check our guide to first-time buyer home loans as well. Good luck!