Online Mortgage Advice and Lending

Many individuals want to own their own homes, but few can pay cash for them. This means that most people rely on residential financing. Of course, getting financing isn't as much fun a selecting a house, but it is important. Learning about the mortgage process can save youlots of frustration. You don't want to lose yourdream house because your mortgage applicationwas denied.

Forrester Research of Cambridge, Massachusetts, predicts that online mortgage lending will growfrom $18 billion in 1999 to more than $91 billionin 2003. This means that about 10 percent of allmortgages will originate online. The reasons for thisgrowth are easy to understand. The Internet hasquickly become one of the easiest, fastest, and mostcost-effective ways for consumers to research andapply for a home loan.

The biggest reasons for applying for a mortgage online are convenience, efficiency, and cost savings. Many homebuyers use the Internet to get the best interest rates. Online lending is convenient and efficient because homebuyers can communicate with their online lenders at lunchtime, during the holidays, or after working hours by e-mail, fax, or mailj and delivery services. In the past, getting a home loan often took between 30 and 90 days. Online technology has reduced this waiting period to a few weeks, and new technology will likely reduce this waiting time to a matter of minutes. Of course, the approval is contingent on the appraisal and supplying and confirming your documentation for the mortgage.

What is a mortgage?

A mortgage is a loan secured by your property. In other words, your property is used as collateral for your home loan. Monthly payments include interest and principal (see the glossary for definitions). Borrowers can obtain a mortgage from an online mortgage lender or online aggregator (a company that screens loan applications for lenders), traditional banks, or credit unions. For a fee, mortgage brokers (who can be individuals or companies) bring borrowers and lenders together for the purpose of loan origination. Most lenders require a cash down payment toward the purchase of the home, a certified appraisal , and your financial profile to meet certain guidelines.

Your financial profile is often evaluated using a Federal Housing Administration (FHA) formula.This guideline is based on FHA findings that most people can afford to spend 29 percent of their gross monthly income on housing expenses. Housing expenses include principal, interest, property related taxes, and insurance (collectively known as PITI). Therefore, if you multiply your gross monthly income by 29 percent, the result is the PITI. This is the maximum many lenders will allow for your housing expenses. For a conventional loan, the guideline is 28 percent of your monthly gross income, which can be used for total housing expenses.

Lenders require borrowers to sign a promissory note that obligates them to repay the mortgage debt. The borrower also agrees to keep the home insured against fire and other hazards, and to pay property taxes. If the borrower fails to meet these obligations, the home loan is in default and subject to foreclosure.

Monthly house payments are divided into two parts: interest and principal. Interest is the fee for using the lender's money to purchase the house. Principal is the amount of the loan due to the lender. Each monthly house payment includes a portion of interest and principal. There are several types of mortgages available.