Can I Apply For a Mortgage Online?

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Think about it. With everything else in life that can be completed online from paying bills to reading the news, is it possible to obtain a mortgage without going to a bank? Absolutely yes and it might be more common than you think. Besides requesting pre-qualification or pre-approval, you also can apply for a new mortgage or refinance an existing mortgage online.

There are several full-service online mortgage lenders. The two most popular companies are Lending Tree that serves as a third-party broker who will provide several offers from various lenders after completing a short questionnaire & Quicken Loans. Quicken is the probably the largest online mortgage lender & has made obtaining an online mortgage seem instantaneous with their “Rocket Mortgage” advertisements. Despite the perception from these advertisements, cannot be obtained in the blink of an eye, regardless of whether you apply for a mortgage from a traditional or online lender.

 

Who Can Apply For A Mortgage Online?

Anybody can apply for a mortgage online whether you want a 30-year fixed, 15-year ARM, or a VA mortgage. One advantage of applying with an online lender is they are more likely to lend to people with lower credit scores due to looser underwriting standards. The standards are still stricter than the pre-2007 housing crisis standards and the mortgage will have a higher interest rate. Traditional banks and credit unions are more likely to only consider applicants with a credit score above 700.

It’s important to note that even for those wanting to apply for a mortgage with a local lender, the application process can be started on the internet but the final stage will need to be completed in person.

The application process is virtually identical among all lenders due to federal regulations for obtaining a mortgage. The same general information is required by all prospective lenders including: past two years income and tax return information, year to date income and recent paystubs, and proof of assets with information from banks & investment statements. Your credit report & credit score will also need to be pulled, to earn pre-approval from a lender.

 

Differences Between Online & Traditional Mortgage Lenders

Choosing between an online or local lender depends on what you desire most from a lender. Do you desire the convenience of completing the entire process from your kitchen table or having access to a local agent if & when any assistance is needed? Each homebuyer has different needs, so it might not hurt to consider some of the following items when choosing a mortgage lender.

Due to federal regulations, certain processes like hiring an appraiser won’t differ much. Lenders can no longer hire a “preferred appraiser” that might show bias towards a particular lending institution.

Choosing an online lender can be more difficult because you can only judge off the appearance of the site and online reviews. With a local lender, especially if you apply through your own bank or one recommended by a realtor, you may already feel like you have already established a banking relationship that an online bank cannot.

Quality of Customer Service

Online lenders are often criticized for having lower quality customer service as you can only receive help through online chat or calling a 1-800 number and not guaranteed to talk to the same person each time. Going through a local lender gives you access to a specific loan officer assigned to your application who you can contact for any questions or needing assistance if any additional documentation is needed. Buying a home can be stressful, and having a dedicated loan officer, can make the financing process easier.

It’s a good idea to investigate the customer service availability of online lenders & local lenders. It can be important during the initial application process if you need assistance with certain application questions, but as the deal is in the final stages, you will want a lender who is available during those critical stages to prevent any last-minute roadblocks. For example, you might live on the west coast in Pacific Standard Time but your lender operates in Eastern Standard Time. Because of the three hour time difference & being thousands of miles away, there could possibly be schedule conflicts and postage delays for vital documents.

Convenience

Nearly every mortgage lender will allow you to start the application process online to receive pre-approval or apply for a full mortgage, even your local bank or credit union. As the application process progresses with a traditional bank or credit union, you will be required to visit their local branch as necessary to complete the various steps of the mortgage process. Depending on your work schedule, the local lender might close before you can arrive or you need to take time off from work.

With online lenders, most paperwork is digitally delivered for you to complete. The process could be delayed if additional documentation is required & you need to mail it to their offices.

Most online lenders make it easy to submit information regarding your employment history and your bank/investment assets as they can electronically pull the necessary information with your permission. Quicken Loans, for example, can access banking information from up to 95% of the nation’s financial institutions, eliminating the delays required to mail & verify documentation.

Interest Rates

Theoretically, online lenders offer lower rates because they have less overhead expenses than brick-and-mortar lenders. This isn’t always true, so it pays to shop around before committing to a lender. As mentioned earlier, certain online lenders are more likely to lend to applicants with credit scores lower than 700 due to less stringent underwriting policies than traditional lenders. Of course, mortgages for those with lower credit score will carry a higher interest rate.

Using services like Lending Tree or Bankrate will help you easily locate an online lender with the most competitive interest rates for your housing needs.

Closing Costs

Closing costs can be the largest cost variable when choosing a lender. They vary widely state to state and lender to lender, so most lenders will not provide an estimate to the casual shopper. Federal law requires all lenders to provide a reasonable estimate of closing costs.   In order to receive this estimate, most institutes will require enough information to essentially become pre-approved in order to provide a reasonable estimate.

Due to competitive interest rates, closing costs is the area where banks can earn extra income without the borrower realizing a good deal isn’t so good after all.

There are a couple different fees to look into, to ensure you received an accurate closing cost estimate:

  • 3rd Party Fees
    • Fees charged by the lender but paid to other agencies hired by the lender during the application process. Most fees are very consistent among lenders.
      • These fees can include any of the following: appraisal fee, credit report fee, closing fee, survey fee, tax service fee, title insurance fee, mailing fees, and flood certification fees.
    • Taxes & Other Unavoidables
      • Expenses in this category should be the same regardless of the lender.
        • Examples include state & local taxes and recording fees.
      • Lender Fees
        • These are fees charged by the individual lender and will vary the most.
          • Fees can include costs for: discount points, document prep fees, and loan processing fees.
        • Required Advances
          • Some lenders require certain fees to be prepaid to close the mortgage.
            • One example is paying the first year of homeowner’s insurance in full.

That is a pretty thorough list of what to look for when you receive the closing cost estimate. Take the time to look at your estimate and ask any questions. A credible lender who wants your business should be more than happy to answer your questions. It’s better to have a firm estimate in the beginning than to be surprised at the end of the process when finalizing the sale might be at risk.

An accurate estimate, will also help you determine how much you can afford for the initial mortgage payment and what lending terms to pursue.

Advantages Of Applying For An Online Mortgage

  • Can apply in as little as 20 minutes from anywhere with an internet connection, if you have all the necessary documentation.
  • Most documents are delivered electronically and do not need to visit a local branch.
  • Online brokers can offer lower rates & closing costs than traditional banks.

Disadvantages Of Applying For An Online Mortgage

  • Do not have the option of in-person assistance from a loan officer if assistance is needed.
  • Fees & closing costs might not always be as transparent as traditional banks.

 

Let’s get back to the original question. Can I apply for a mortgage online? Yes, and it might be easier and cheaper than you think. It’s not as quick as some commercials might suggest, but it can be easier than having to visit a local branch to complete the process. Online mortgages are not ideal for every situation, but the convenience of online banking and competitive interest rates make them an option worth considering for any homebuyer.

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