How to Shop for a Mortgage Online
Ron Milman refinanced his mortgage in early 2015. A resident of an Atlanta suburb, Milman says he saved money, closed quickly, and except for one quick trip to a local bank to meet a local attorney to finalize paperwork, he never left his home office. Working strictly online and by phone, he says getting his mortgage online was a painless process for him. "I really don't like going into an office," he says. "It's so much wasted time and effort."
If you're in the market for a home loan, whether for a purchase or refinance, you may have toyed with the idea of using an online lender. But you may be wondering what getting a mortgage online is like. How is the process different?
"The Internet provides the most convenient way for consumers to compare mortgage service offerings; as a result, a growing portion of mortgage originations are anticipated to be completed online in the years to come," says Stephen Hoopes, an analyst with research firm IBISWorld.
It's important to first understand that shopping for a mortgage online can be different than getting a mortgage online. In the first scenario, you may be using a service that doesn't actually make loans but helps connect you to lenders. In the latter case, you actually apply for and complete the process largely online.
With that in mind, here are some of the differences when you get an online mortgage:
The Internet Holds Answers
Aren't sure about a mortgage term? Need help deciding which type of loan to get, or whether to go for a longer-term loan or a shorter one? You can take a break to research it before you decide without giving a loan officer a blank stare or feeling like you are being put on the spot. Not that you can't do that before you shop for a mortgage anyway, but apparently quite a few consumers don't fully educate themselves on all their options when getting the largest loan of their lives.
A recent report by the Consumer Financial Protection Bureau found that almost half of borrowers seriously consider only a single lender or broker before deciding where to apply. The CFPB also says that most borrowers rely heavily on those who have a financial stake in the transaction, and less than half get a lot of their information from outside sources such as websites, financial and housing counselors, or friends, relatives or co-workers.
Of course, researching online can be a double-edged sword. You need to make sure you are getting information from reliable sources, such as independent educational websites. The CFPB is one source of free education through its Owning a Home initiative.
Do It on Your Own Time
Need to dig up a bank statement for your lender? Want to check on the status of your appraisal? With an online lender you can usually take care of those things whenever it's convenient for you. Information about the status of your loan will be available to view online, and if you have a question, employees may be available to review your loan file and answer questions outside of the standard banking hours. "You can see (your information) 24/7 and you are not locked into business hours getting a hold of your loan officer or processor," says Bob Walters, chief economist at Quicken Loans.
While virtually the entire process can take place online, you aren't tied to your computer. If you have to provide documentation and don't have a fax machine or scanner, you should be able to overnight bank statements, tax returns or other documents to the lender. Certain documents will have to be notarized, and the notary will come to you or meet you in a convenient location, such as a local coffee shop. Most closings for purchase transactions take place at a title company, while closings for refinance transactions can take place anywhere you choose.
Some Things Never Change
Of course, whether you decide to work with a local lender or an online mortgage company, certain things don't change. You will want to get your free annual credit reports to make sure they are accurate. Do this at least six weeks before you plan to apply, or earlier if possible, to give yourself time to correct mistakes. In addition, getting a free credit score will help you understand whether your credit is excellent, fair or poor. (You can get two of your credit scores for free on Credit.com.) While you are at it, if you hope to buy a home, it's a good idea to get pre-approved for a mortgage.
And be prepared to be 100% truthful and supply documentation your loan officer may need -- including copies of bank statements, tax returns, pay stubs, etc. Just because you scan documents doesn't mean you won't have paperwork! But you may save a few trees -- and save yourself a few headaches -- this way.
It goes without saying that you should make sure you are dealing with a reputable lender with a secure website. No one should be emailing a copy of your tax return or credit report back and forth to you. The last thing you want is for this kind of sensitive information to fall into the hands of a scammer.
And while rates are very important, Scott Sheldon, a loan officer with Sonoma County Mortgages and a Credit.com contributor, warns that you may get what you pay for. "Internet lenders are priced incredibly thin. Their pricing and rates can be fantastic, but they operate solely off of volume."
He is concerned that going this route can be especially risky for homebuyers with unique circumstances or a less than "squeaky clean" file. What happens to your home purchase if the "underwriter denies your file because it wasn't packaged properly upfront by the loan officer whose is also working on 50 other loans simultaneously?" he asks.
For Milman, at least, the process that started with a phone call in December resulted in a closed loan by mid-January. "It makes a whole lot of sense to do this online," he says.