Written by: Guest | Best Company Editorial Team
Last Updated: February 24th, 2020
Guest Post by CreditRepair.com
Owning a home is a central part of the American dream — and so are mortgages. According to Zillow, the average home in the United States is listed at $250,000. There aren't many house shoppers who have that kind of cash to purchase a home outright. Home loans help millions of people realize their dreams of homeownership. While mortgages have been around for decades, the way borrowers apply for these loans have changed in recent years.
Banks have long been the go-to choice for obtaining mortgages. However, the loan industry has changed dramatically since the late-1990s dot-com boom. Online lenders have emerged as an alternative for securing home loans. Applying for mortgages online has grown in popularity, especially among millennials.
There's no arguing that online mortgage companies make the loan process much easier. Nevertheless, the question remains whether applying online is the best option for every applicant. The fact is that online mortgages have advantages and disadvantages. Is it right for you? The answer often depends on your personal preference and financial profile.
Pros of applying for an online mortgage
Our consumer-based society prefers getting goods and services as quickly as possible. Web-based mortgage firms satisfy this demand within the marketplace. They offer the speed and convenience that's often lacking among traditional lending institutions. Here’s a deeper look into the advantages of applying for a mortgage online:
- Lower rates and fees: Interested in saving hundreds or thousands of dollars over the course of your loan? If so, consider internet-based lenders. These providers have lower overhead than physical banking institutions. Because of this, they have lower interest rates, fees, and closing costs. This allows customers to keep more of their hard-earned money.
- Fast application process: Applying for mortgages with a brick-and-mortar banking institution can take several days or weeks. This is not the case with online lenders, such as Quicken Loans, which uses digital tools to expedite the application process.
For example, you can photograph and submit your W-2s, application, driver's license and other documentation via your smartphone. In the case of Quicken Loan's Rocket Mortgage, the loan application is completed in as little as eight minutes. If you prefer an internet-based approach that streamlines the application process, then online lenders are a solid choice.
- Easier approval: Conventional lenders don’t always offer government-backed loans. This means you may have to apply for a conventional loan instead, which often requires a higher credit score and more money down to get approved. Online mortgages offer all types of loans and you don't need the best credit score to get your loan approved. However, applicants with lower credit scores pay higher interest rates and penalties.
Cons of online mortgage applications
Online mortgage lending comes with its share of shortcomings and risks. The more you know upfront, the better chance you have of determining whether going digital with a mortgage loan is best for you. As a potential borrower, there are things you must be aware of before starting the application process:
- Limited customer service: Banks, credit unions, and other traditional lenders allow borrowers to meet with loan officers face to face or talk with them on the phone. Although online lenders have a few loan officers on staff, they're not as accessible. Instead of in-person or phone contact, you may only be able to reach someone via email. Because of this, responses to your questions can take longer.
- Lack of specialists: Online lenders are national companies. They rarely have mortgage specialists on staff who have in-depth knowledge of local housing markets. The problem with this is that you may miss out on several homebuyer incentives that are available in your local community.
For instance, there are programs that can help homebuyers lower their closing costs and interest rates. Additionally, the lack of specialized expertise makes it difficult for internet-based lenders to handle complicated loans, such as FHA loans or mortgages for self-employed applicants.
- Mortgage scams: The universal warning for consumers is "if it's too good to be true, it probably is." These are wise words to remember when considering applying for a mortgage online. Since the growth of online lending, predatory lenders have been on the rise as well. These companies often offer loans that seem too good to be true, such as touting unbelievably low interest rates. On the other hand, these vendors may require borrowers to make a prepayment.
In either case, these are red flags. Do your due diligence and research lenders. Conduct an internet search and/or check to see if the lender is listed with the Better Business Bureau. Taking these kinds of steps can prevent you from being a victim of predatory lenders and even identity theft.
When applying for a mortgage online isn’t a good option
There are borrowers who aren't well-suited for online mortgage lending. It's usually better that they work with mortgage brokers, banks or homebuilder lenders. These applicants include the following:
- Self-employed applicants who prefer not to share their assets and income details with a mortgage provider
- Customers who have multiple accounts with one bank and seek an adjustable-rate mortgage
- A borrower who desires an easy loan even if it costs more
When applying for a mortgage online is a good option
Online mortgages are an optimal choice for specific borrowers. If you fall into any of the categories below, you may find that applying online for a home loan is more suitable than working with a traditional lender. An online lender is recommended for borrowers who meet any of the following criteria:
- Repeat home shopper
- Rate-and-term refinance customer
- Easy access to financial documents
- Long-term employment with one company
- Excellent credit
- Financially savvy
Online mortgage lenders have an upside and a downside. Take inventory of your financial needs and comfort level before submitting a loan application. One thing that is for sure is your credit score plays a vital role in your ability to secure a loan with favorable terms.