Lending Monk - Learning Center - All web content
- What is a Mortgage? (350-400 words)
When you've decided on buying a home, the first thing you will have to look into is the process of your mortgage. Simply put, a mortgage is a loan that either a bank or a mortgage lender gives you, to help finance the purchase.
The house itself is deemed collateral in exchange for the money you are borrowing to finance the mortgage. Agreeing to a mortgage is signing a legal contract. If the debt is not repaid, the lender has the right to take back the property, a process otherwise known as a foreclosure.
Most mortgages last 15 to 30 years and are paid on a monthly basis. In general, borrowing 80% or less of the value of the house is the best course of action when applying for a mortgage.
A mortgage consists of four separate parts known as PITI: principal, interest, taxes, and insurance.
- o Principal is the total amount of money you borrowed to purchase the home. Therefore, if your mortgage loan was for $175,000, then that is the amount of the beginning principal balance.
- o Interest is the price you pay to borrow the money from your bank or lender. This is usually expressed as a percentage, which is called the "interest rate."
- o Taxes are simply that. It consists of the property taxes you pay as a homeowner and are generally calculated based upon the value of your home. These taxes go toward financing the costs of running your community, such as public services, schools, and roads.
- o Insurance is required to close the deal on your home purchase. It can include both your homeowner's insurance and in some cases, mortgage insurance (MI) as well. Homeowner's insurance is what the bank or lender will require to cover your house from losses such as fire, theft, or bad weather. In some cases, it can also cover your property inside. If you borrow more than 80% of the value of the house, a mortgage insurance may be required to protect the bank or lender, if you default on your loan.
What is the difference between a Fixed Rate and an Adjustable Rate Mortgage (ARM)? (100-150 words)
There are two types of mortgages in terms of the interest rate. You can either take out a fixed rate mortgage or an adjustable rate mortgage (otherwise referred to as ARM). With a fixed rate mortgage, the interest rate is set when you take out the loan and does not change over the course of your payments. An ARM is slightly more complicated and subject to change depending on various factors.
With an adjustable rate mortgage, the interest rate can go either up or down. An introductory period during your ARM means, that at first, the rate will not change and will stay the same for months, or even years. ARM's typically start at a lower interest rate than a fixed mortgage, but usually, increase once the introductory period is over.
If you choose an ARM, you should ask yourself the following questions before making a decision on the loan:
- o How soon can your payment go up?
- o How high your monthly payments can go with each adjustment?
- o Will you still be able to afford the loan if the rate goes up to the maximum?
- o Is there a limit on how high or low the interest rate can go?
- o How often will the interest rate adjust?
- What is the difference between a Conventional and an FHA mortgage? (100-150 words)
There are two types of loans you can apply for known as a conventional loan, or a Federal Housing Administration (FHA) loan. The main difference between the two, is a conventional mortgage loan originates in the private sector. It is not insured by the government. An FHA, although also applied for through the private sector, it is insured by the government through Federal Housing Administration, and is intended to protect the bank or lender, should you default on your loan.
Conventional mortgage loans are harder to get than an FHA loan, but you can typically qualify if you have good credit, a steady income, and can afford the down payment. For an FHA loan, since the government insures the loan, a bank or lender can offer a lower down payment, and they can also offer lower closing costs. Closing costs are simply the fees you pay at the closing of the real estate transaction and are handed the title to your home.
- What is the best mortgage that I can get based on my credit score? (100-150 words)
Your credit score plays a significant role in determining your mortgage rate. Banks and lenders prefer borrowers with low balances, on-time payments, and a mix of credit utilization. Today's lowest mortgage rates go to people with a 740 or higher credit score.
For every 20 points or so less than 740, extra fees can be incurred. Keep in mind, however, that depending on the bank or lender, the mortgage rates offered to people with both low and high credit scores can vary as much as a full percentage. It is essential you shop around when looking for the best possible mortgage rate for your credit score.
Fear not, however. Many people can raise their scores at least 10-20 points in a matter of 30 days. If you don't know your score, you can check for free several places online, including Experian.
- How do I go about getting a mortgage? (100-150 words)
The first step in this process is familiarizing yourself with the basic terminology of the mortgage process. Knowing terms like principal, interest, taxes, and insurance, and how they will affect your loan, is the very first step in the process.
Once you understand how the basics work, you need to make informed decisions on the type of interest rate and loan you'd prefer. Ask yourself if you want a fixed rate or something adjustable over time. Lastly, decide whether you want a loan from the private sector or one insured by the government (known as an FHA).
Once you've gotten these simple answers out of the way, LendingMonk can help guide you with the exact process and detailed steps to take. They can provide you with all the tools you need to make the decision that is best for you and your household.
Knowing Your Numbers (Intro: 150 words)
Once you are familiar with how the process works, you have to familiarize yourself with where you stand and how much you can afford. Answering key questions about the purchase price of your home, the monthly expenses you can afford, and the additional funds you may need to close, are absolutely essential for your future in mortgage affordability.
Your mortgage is most likely one of the biggest financial decisions you'll ever make, and you can never over plan for it, but many certainly under-plan. The following is some information to guide you in making the best decisions on your mortgage.
- What is affordable for me? How can I tell? (150 -200 words)
It is always best practice to get a pre-approval or pre-qualification prior to shopping for a mortgage, however, there are simple ways to calculate where you initially stand financially, before even taking that step. Knowing what you can afford and are comfortable with, is imperative before taking a mortgage loan.
The easiest way to crunch your numbers is with a mortgage calculator online. Entering details about your income, monthly debts, and down payment will help you to understand what is left over for your monthly payments. Your remaining income should be enough to cover living expenses, and any savings goals, as well. It is always wise to have some savings for possible home repairs, or financial emergencies.
The following are some popular affordability calculators you can use to determine your correct numbers. Keep in mind, these calculations include principal, interest, tax, and insurance.
- What other monthly expenses should I anticipate? (200 words)
It is important you don't forget about other possible monthly expenses when calculating your mortgage affordability. The following are a few additional fees, you may incur on a monthly basis, that should not be overlooked:
- Mortgage Insurance is generally required if your down payment is less than 20% of the purchase price for your home. Depending upon your financial situation, the amount could have a wide range, but it is typically advised to set aside a small budget of $50 to $150 per month, just to be on the safe side. There are ways, however, to make more precise estimates. The following are online calculators you can use to have a better idea of an exact number:
- Homeowners Association (HOA) / Condo Fees are monthly expenses incurred when you purchase a condominium, townhouse, or any type of property in a planned development (such as a gated community). The fees go toward the upkeep of the community and typically range from $50 to $300 or more. If you are required to join an HOA, ask up front for the total monthly fees you can anticipate.
- Repair and Maintenance fees should always be anticipated in the upkeep of your home. Setting aside a small amount of savings, depending on the age and condition of your house is always a smart idea.
- How much money should I pay towards the purchase price (known as a down payment)? (200 words)
To avoid as many additional monthly costs as possible, it is always wise to put a down payment of at least 20% towards the purchase price. If you choose to put down less than 20%, you will be required to get mortgage insurance. This is to insure any chance of you defaulting on the loan.
It is best to avoid paying any mortgage insurance at all, as it can become a costly monthly expense. That being said, it is not the end of the world if you do not have at least 20%. You can get a mortgage for as little as 3.5%. That being said, you should know that the lower the initial down payment is, the higher your monthly costs will be. This is because less of your money is going toward the actual purchase price, but rather to higher interest and insurance rates. Many people may choose a different house with a lower purchase price, to offset this cost. It is entirely up to you based on your preferences, finances and time frame for purchase.
- How much should I save for any additional funds to finalize the deal? (known as closing costs) (300 words)
In addition to your down payment, you also need to be aware other costs you may incur to close the deal on your home. These are known as "closing costs" and are one-time expenses you need to pay in order to purchase your home. The following is a brief list of other fees that you may have to pay at the time of closing:
- Origination Cost / Lender Fees consist of additional money you may need to pay to the broker or lender for finding your loan. You will be given a documents known as either a Loan Estimate (LE) or a Closing Disclosure (CD) that delineate these fees. They go by many names, including origination fees, application fees, processing fees. Your lender is required by law to provide you with these during the loan origination process.
- Escrow is where you place a specific amount you will be required to pay for the first year of homeowner's insurance and future property tax.
- Taxes and Fees involve costs charged by the local government for real estate transactions.
- Third-Party Closing Costs are any fees that are paid for services that are needed to close your mortgage. This can include fees such as title related, survey, inspections, appraisals, and credit reports.
- Points (optional) include a one-time payment or credit you may pay (or receive) in return for a lower or higher interest rate. 1 point equals 1% of the loan amount and will lower your interest by 0.125% if you pay the point, and if you take the credit, it will yield a higher interest rate. These fees, unlike the others, are entirely optional based on your finances.
To save yourself the headache of calculating each one of these, the good news is that you can use an average of 2-5% of the purchase price as an estimate for the closing cost. Once you have completed the loan application, the lender should help provide you with this figure. You can also take a proactive approach, and use an online calculator, such as the one Bank of America provides.
- Summarize your bottom line (150 words)
In order to have a full understanding of your bottom line, it is best to summarize all of your mortgage calculations. The costs incurred from the start to the finish, that include pre-approval, affordability, down-payment, and closing cost can best be summarized as the following:
- The monthly payment you are comfortable with (example $1,800)
- The maximum purchase price of the house (example $200,000)
- The down payment (example 10% or $20,000)
- Closing Cost (example $6,000)
- The total savings needed to close on your house (example $26,000)
Once you have all your ducks in a row with these figures, you are in great shape to begin making offers on a house, and obtaining a reasonable mortgage that works for your lifestyle.
The Pre-Approval Process (Intro: 150 words)
Although getting pre-approved for a mortgage loan is not absolutely necessary, it is highly recommended. If the bank likes what they see, the results can produce what is known as a "good faith estimate" (GFE) which is a document that spells out the likely terms of the loan, including interest, loan type, and closing costs.
Although it can be time-consuming, the pre-approval process should be completed with a few banks and/or lenders to make sure you are doing your due diligence when shopping for a mortgage.
- Should I get pre-approved before shopping for my home? (150 words)
The greatest benefit from getting pre-approved is that it will help lay out the terms of your mortgage in a simplified manner, as well as help you to understand the maximum loan amount you can borrow.
Another positive aspect of pre-approval is that it will improve your chances that your bid for the home is accepted. The process is relatively straightforward, and in some instances, can even be completed on the phone, or online.
Just remember, you don't need to stop at just one bank or lender when it comes to the process. in fact, it is highly recommended you get pre-approved by more than one, so as to have the most options available when shopping for a mortgage loan.
- Which lenders offer mortgage pre-approval online? (100 words)
Believe it or not, online pre-approval is not as widely available as you may think. The following are some good places to start the process, and again, there's no need to limit yourself to just one.
Keep in mind you can utilize all avenues in this process. You can also e-mail, call or visit with local lenders and banks as well, to broaden your resources.
- What documents do I need for mortgage pre-approval? (75 words)
Before even attempting to apply for pre-approval, it is important to make sure you have all the documents you need, otherwise it may delay the process. You may be asked to provide documents related to employment, income, debt, assets, and history, to name a few. The following are some common documents requested by banks and lenders for the process:
- o W-2 forms
- o Paystubs
- o Tax returns
- o Total Debt (you or the lender should be able to get most of this from your credit report)
- o Assets
- o 2yr residence history
- o 2yr employment history
- o Loan application including personal information such as date of birth, SSN, etc.
How Lendingmonk.com can help?
Note that a pre-approval letter can only come from a Lender. While Lendingmonk.com does not provide a pre-approval letter, the information you provided for your pre-approval letter is the same information you need on Lendingmonk.com to find the best-fit mortgage at the lowest price.
- What is the difference between Pre-approval and a Pre-qualification? (200 words)
The main difference between the two is paperwork. A pre-qualification is a ballpark figure based on information you provide and self-report, but don't actually prove through documentation. Pre-qualification is the simplest and easiest way to understand where you stand but is not set in stone.
However, since pre-approval is a more thorough process, it carries more weight in the eyes of sellers when you start making offers for a home. If you think of it like baseball, 1st base would be a pre-qualification, 2nd a pre-approval, 3rd your mortgage loan, and home plate would be closing on your new home.
The following are some great online resources you can get a pre-qualification letter online:
A Guide to Mortgage Shopping
- Why is mortgage shopping important? (150 words)
Since your mortgage loan is probably one of the biggest financial decisions you will ever make, taking your time shopping for one, should carry just as much weight. Buying a home can be a lengthy process, and people often tire out by the time they need to look for the best mortgage. The fact remains, however, it is in this phase, where a buyer has to be the most motivated of all.
The L.A. Times recently wrote an article about this phenomenon, and how people often settle much too quickly into a mortgage loan, without looking for the best possible fit. If you are not careful, the wrong decision could cost you tens of thousands of dollars. The mortgage loan process needs as much consideration, as the time you spent looking for your home in the first place.
Being an adept shopper for your mortgage loan includes factoring in things like mortgages you should avoid, how to shop for one, red flags that may come up, and what it means to get the best possible mortgage.
- What are the mortgage red flags to avoid? (350-400 words)
Despite the laws to protect you, and the resources available, you can easily get caught in a mortgage trap, if you're not careful. There are many red flags you should be mindful of when shopping for your mortgage. The following are a few that you should seriously reconsider, to be in the best possible place with your loan.
- A negative amortization mortgage is a loan in which the amount increases over time, regardless of if you are making regular payments.
- Any mortgages that have a high upfront cost or origination fees. An upfront cost greater than 5% of the loan amount is considered high for most loans.
- Mortgages with a pre-payment penalty. These mortgages will penalize you if you making additional payments to pay down the loan sooner. You should never have to pay a fee for being more financially responsible than anticipated.
- Any mortgage with what is known as a "balloon payment." These loans require a larger than usual payment at the end of the loan term.
- Mortgages that you pay “interest only” on for a period of time. These mortgages might seem to have a low monthly payment at first because you aren't paying anything towards the principal, as you should.
- Mortgages with high-interest rate
- Loans that last longer than 30 years.
For more information on the protections you have by law, visit the Consumer Financial Protection Bureau resources.
When you use Lendingmonk.com to analyze a mortgage quote you've received from a lender or to simply find the best-fit mortgage for your situation, our smart mortgage suggestion will include a comprehensive list of red flags to avoid and the questions you need to ask your lender.
- How do I get the best mortgage possible? (250 words)
Although knowing the red flags is the best way to avoid any financial pitfalls, it is not everything when deciding what your best possible mortgage will be. You could still be leaving thousands of dollars on the table if you don't know the type of mortgage loan to choose or the costs that would benefit you the most.
To get the best possible mortgage to suit your needs, you should be able to understand and answer the following questions:
- o Should I get a 30yr fixed mortgage or go for a cheaper adjustable rate mortgage (ARM)?
- o Should I pay or receive Points? If yes, how many Points make sense for my situation?
- o How much of a down payment should I make? Does 20% work for me?
- o Should I get FHA or a conventional loan? Do I qualify for a conventional?
- o Should I pay mortgage insurance or get a second mortgage?
- o If I decide to get mortgage insurance, should I do borrower paid or lender paid mortgage insurance? Should I pay mortgage insurance upfront in one lump sum payment or over the life of the loan?
How Lendingmonk.com can help?
Lendingmonk.com can help make answering these questions seem much less daunting then they appear on paper. We can find the best mortgage that fits your needs, at lender direct mortgage rates.
- What information will lenders need?
Now that you're getting ready to seriously shop for your mortgage, it's best practice to be prepared with all your information and documents the bank or lender will need to make a decision on your loan. The following is a general guideline for what is typically requested during this process.
- Income –Lenders use your income as part of the underwriting criteria to ensure you can cover monthly mortgage payments, as well as other living expenses. You can easily calculate your total income from your recent paycheck. On your paycheck identify the pretax income ( as well as the income for every person who will be a co-borrower on the mortgage) and convert that to an annual income figure. Always make sure your income includes any bonuses, commissions, part-time pay, or any other sources of income so that you have an accurate number.
- Credit Score and Credit Report - Your credit score is one of the most important factors that determine if you qualify for a mortgage, what type of mortgage you are eligible for, and what interest-rate is that you should pay. The lender will automatically run your credit as part of the mortgage application process. However, it is a good idea for you to get your credit score and report in advance. The following are sites you can visit to obtain a free report:
- Total Debt Payments - Your existing debt will determine how much additional debt you can afford. Existing debt can include things like other mortgages, car loans, student loans, credit card payments, etc. You can use your credit report to get an accurate representation of all your debt payments.
- Total Assets - This number includes all your assets such as investment accounts, 401(k), IRA accounts, Savings and Checking accounts.
- Loan Amount - This is the amount that you plan to borrow. If this is a new purchase, then the loan amount will be based on the purchase price of the home. If you are refinancing, then the loan amount will be based on the current market value of your home. You may need to have your property appraised as part of the appraisal process. For a general estimate of your current home value, you can visit the following sites:
- Time horizon - This is the time frame for how long you intend to own the home. This will help to determine the type of mortgage you can get. For example: if you plan to own the home for only five years, a 30 year fixed mortgage will not make any sense at all. Knowing how long you want to have ownership, is essential to the lender in what type of loan they need to offer.
- How to shop for mortgage quotes?
How do I shop for a Mortgage?
Assuming your offer got accepted you are now ready to go mortgage shopping. However, you need to do some prep work before you can go mortgage shopping. Just like how you would prepare before shopping for a new flat screen TV or a new fridge you will need to prepare for a mortgage. Mortgage decisions are made based on your data so you will need to collect information about you, your home, and the mortgage. You may already have some of this information and the rest you will have to look up. Below is the information that most Lenders will ask (for a mortgage application) so you should have it ready –
Once you have collected this information either on paper or spreadsheet or a document, you are ready to go mortgage shopping. However unlike shopping for television or fridge mortgage shopping is very different. There is no such thing as an Amazon or Walmart for mortgages. There are a lot of brokers and lenders in the mortgage business so you need to shop around quite a bit to make sure you have the best deal. However, even after shopping around you will need to answer the following questions –
- 1. Is this the right mortgage for me?
- 2. Is this the best price I can get?
- 3. What are all the fees and why should I be paying these?
. Armed with the information you have already collected (see the previous section on how to prepare for mortgage shopping) you are ready to go mortgage shopping. You should start the mortgage shopping process by creating a list of various brokers, lenders, banks, that you want to contact. Get a list of national and local lenders based on the location of your home. Plan on getting at least three mortgage quotes so that you can compare the mortgage price from multiple sources. Mortgage shopping is a three-step process –
- Step 1 - You can get a preliminary mortgage quote via phone or email based on information that you provide to the broker lender or banker. The reason this is a preliminary quote is that you haven’t yet completed the mortgage application which would determine the final loan pricing. Plan on getting as many quotes as possible however you should get at least three quotes. You can use these quotes to narrow down the list to lenders that you want to continue working with and take the next step of completing a mortgage application.
- Step 2 - The next step is to complete a mortgage loan application where you will have to provide all the information you collected including your social security number so that the lender can run a credit check. Note that if you are doing multiple mortgage loan applications in a period of 10 days it only counts as a single hit on your credit score.
- Step 3 - The law requires that within 3 days of completing a mortgage loan application you receive a formal Loan Estimate or LEthat lists various mortgage details including the mortgage rate, origination fees, and closing costs. Click here to view a sample Loan Estimate. Since the Loan Estimate has the same format across various lenders it can be used to compare various mortgage quotes. Note that getting an LE does not require you to get a loan from a particular lender. LE is similar to getting a formal quote from an electrician or a plumber and you are under no obligation to buy.
- How to compare mortgage quotes and determine the best mortgage for me? – This would mostly be a sell for LendingMonk since this is a big part of what we do.
How Lendingmonk.com can help?
- Lendingmonk.com, however, makes it really easy for you to answer these questions. Lendingmonk.com finds the best mortgage the fits your needs at lender direct mortgage rates. Lendingmonk.com does not charge broker commission or any other fees which is typically around 1% of the loan amount (so $3,000 for a $300,000 loan). In addition, since Lendingmonk.com does not get paid by any lender there is no incentive to steer you towards a mortgage that is profitable for the lender or the broker. Our objective is to find you the best mortgage possible at the lowest price without any broker fees or commission
Who is LendingMonk and what does it do?
LendingMonk’s mission is to make it easy for borrowers to find a mortgage that fits their needs at the lowest price available. Getting a mortgage is a complex process. It requires that borrowers either really understand mortgages including things like down-payment, points, mortgage insurance, etc. and is able to make the right trade-offs OR that they rely on the mortgage broker to find the best deal. Either of these is not a good solution. Borrowers don’t have the time or the desire to understand mortgages and brokers are incentivized to find the best deal for themselves and not the borrower. LendingMonk solves for both these as we make it really easy to find the best-fit mortgage, at the lowest price, and make the right trade-offs. In addition, LendingMonk is completely unbiased since we do not get paid based on the mortgage or lender a borrower chooses.
LendingMonk is a startup and is currently we are in the process of taking our site live by December end. You can view the clickable prototype at the following link -
How Lendingmonk.com can help?
You can also bring your mortgage quote Loan Estimate to lendingmonk.com and we can in 3 easy steps tell you if you have a great deal already or if you can get a better mortgage price.
- Once I have found a mortgage, what happens next? (250 words)
Lock your mortgage rate
Based on the Loan Estimate comparison you can narrow down the list to a particular Lender that you want to move forward with. Once you inform the Lender that you want to move forward, the Lender will typically lock the rate for 30 or 45 days and get the underwriting process started.