Here’s something interesting. Getting a mortgage means taking on an enormous financial responsibility, and yet, homebuyers tend to settle for the first lender that crops up. In fact, according to the Consumer Financial Protection Bureau, close to half of homebuyers don’t shop around for the right lender. Kind of startling, right? Most of us are used to researching our options online when it comes to purchases like a new laptop or shoes. Why don’t we do the same for the right lender? The catch, of course, is using the web to our advantage – for research and to compare your options – and not getting sucked in to something that’s likely too good to be true. To that end, here’s what to know before you use an online mortgage lender.
On the Plus Side
You’ve probably seen the commercials for online lenders. They promise lower rates, faster timeframes, and easier approvals. And to a certain extent, these promises may be true.
They say: Lower rates and fees
Brick-and-mortar banks and lenders have to factor for overhead and other expenses. An online lender, on the other hand, may be able to pass along those savings with things like lower interest rates or fees. And over the life of your loan, those savings can really add up.
They say: Faster timeframes for approval
The online version of the home loan application process is designed to be simpler and less intimidating than meeting a lender face to face. Actually, that’s a big part of their appeal – with a smartphone and an internet connection, you can apply for a loan whenever and wherever you want.
By its very nature, seeking a loan online also cuts out things like in-person meetings and the chore of making hard copies of necessary paperwork, which must then be hand delivered or mailed. Again, the benefit here is the convenience factor and faster turnaround times.
They say: Easier approvals
Qualifying for conventional, FHA, VA, and USDA loans requires a minimum credit score for approval. But individual lenders – especially those online – may be more accommodating if your credit score is less than perfect (although interest rates will likely be sky-high).
But There are Drawbacks
Working with an online lender clearly has some benefits, but there are potential issues. The biggest issue is the increased risk of scams, fraud, or illegal business practices. You have to be absolutely certain that you’re dealing with a reputable company. And even if you find a company you trust, there are a few things you sacrifice for the convenience of online lenders.
Help When You Need It
You can get online 24 hours a day, but you may not be able to reach someone at your online loan company when you need it. There are lots of moving parts during this process – even the loan application form itself can be confusing – and an 800 number and call center may not offer the help you need. Make sure to get clear details about a lender’s availability and response time early in the process.
When you work with a local lender, like the Cushing Team here in Reno, you have someone to answer your questions, offer guidance and direction, and generally hold your hand during the entire home loan application process. Face-to-face meetings may take time, but they also build familiarity and camaraderie. Ask yourself how important it is to you to have someone you trust during this journey. Are you willing to give that up for convenience?
About those Lower Rates
It’s illegal – though still common – for online lenders to dangle exceptionally low rates as incentive for visitors to fill out a form and officially set the wheels in motion. Only after the application is submitted and your credit has been run do you find out that this special introductory rate isn’t available or you aren’t eligible.
And while online lenders are automatically associated with low rates, a brick-and-mortar lender is just as motivated to offer you the best rates too. A mortgage lender has the freedom to shop all kinds of different programs, and investors. You may be surprised at what they’re able to put together.
The Final Call
If your motivation for going after an online lender comes down to convenience and lower rates, consider what you’re willing to concede. After all, limited availability that potentially jeopardizes your entire deal kind of defeats the purpose of chasing those lower rates! Remember, buying a house in inherently stressful. A face-to-face relationship may offer the kind of reassurance and expertise you really need.