Jan 12, 2018
Online mortgage lenders such as LendingTree and Quicken Loan’s Rocket Mortgage allow home buyers to complete the entire mortgage application on their laptop or phone, rather than heading to a bank to submit all that paperwork in person.
Online mortgages are growing in popularity, particularly for younger home buyers: One recent survey by NerdWallet found that a full 64% of millennial mortgage applicants would prefer to get it all done digitally.
While it’s hard to beat online mortgages in terms of convenience, home buyers should know that there are both advantages and disadvantages to financing a home purchase in this manner. Here are the pros and cons—and how to decide whether an online mortgage lender is right for you.
Pro: It’s easier to comparison shop
Let’s face it, comparison shopping is far easier to do online versus trekking from store to store—and this is certainly true with mortgages, too.
When looking for the best mortgage, “It always makes sense to check out a minimum of three lenders, and online is the easiest way to compare rates and terms,” says Guy Cecala, chief executive and publisher of Inside Mortgage Finance. You’ll want to get a good-faith estimate that breaks down the mortgage’s terms, including the interest rate and fees, in order to make an apples-to-apples comparison for the best deal.
Pro: Online lenders often offer lower rates and fees
Because online mortgage lenders don’t have the kind of overhead costs that brick-and-mortar banks do, a lot of them pass a portion of the savings onto their customers in the form of lower mortgage rates and/or lower fees. Nabbing even a slightly lower interest rate can save you a lot of money over the long haul.
For example, a 30-year, fixed-rate loan for $100,000 at 5% requires $93,256 in interest payments, whereas an interest rate of 4.5% requires $82,407 in interest payments—and that’s a savings of $10,849 over the life of the loan.
Pro: You can get an online mortgage fast
If you need a loan quickly, an online lender can deliver. Quicken Loan’s Rocket Mortgage, for instance, boasts that it can whiz you through the application process in a mere 8 minutes. This speed is made possible thanks to the many digital tools that help expedite the loan application process.
For instance, Rocket Mortgage’s mobile app lets customers quickly scan their driver’s license and W-2 from their phone, rather than needing to submit such documentation in person.
Con: There’s less personalized customer service
No matter how you spin it, using an online mortgage lender just doesn’t provide the same kind of one-on-one service you get when you work with a local mortgage lender. For a number of home buyers, that kind of face-to-face customer service is invaluable.
Granted, many online mortgage lenders do employ loan officers you can speak to on the phone, but they are often reachable only during business hours. By comparison, loan officers at brick-and-mortar banks may be available during nights and weekends, which can be helpful if you need your lender to draft a pre-approval letter on short notice. But this varies, so be sure to check your lender’s hours of availability so you can plan accordingly.
Con: Online lenders aren’t ideal for complicated home loans
Because most online lenders are national entities, many of them don’t employ mortgage specialists who know the ins and outs of your local market. This can be a big disadvantage if you’re applying for a complicated loan, such as an FHA loan or a mortgage for a self-employed borrower. Also, online mortgage lenders aren’t typically as well-versed in local home buyer’s incentive programs, and such programs can help drive down your interest rate or reduce your closing fees.
“Online lenders are great for conventional scenarios: salaried borrowers without financial or credit complications, and properties that are typical for the area in design, lot size, condition, and amenities,” says Richard Redmond, mortgage broker at All California Mortgage in Larkspur and author of “Mortgages: The Insider’s Guide.”
However, “for outside-the-box scenarios you may have more alternatives with a local mortgage broker,” Redmond adds.
Con: Mortgage lending scams are rampant online
The internet is rife with scams and fraudulent business practices of all sorts, and the online mortgage market is no exception. Indeed, many scam artists prey on people shopping for home loans on the internet and, unfortunately, online predatory lenders are good at covering their tracks.
Our best piece of advice? If a home loan offer sounds like it’s too good to be true, it probably is. Check to see whether an online mortgage lender is registered with the Better Business Bureau before you offer up any personal information whatsoever.
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