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| | BobVila.com > Channels > Finance > All Articles > Applying for a Mortgage Online
Applying for a Mortgage Online
Apply in your bathrobe and slippers. Learn if you’ve been pre-approved within minutes. Online mortgages appeal to many who work via the Internet and understand its advantages—and limitations.
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When applying for a mortgage online, check references, security, and the history of the company before revealing personal information.
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The Potential for Savings
With 24-7 availability and automated underwriting technology, there’s a lot to like about seeking a mortgage online—and there is always the possibility of saving money. By using the Internet, mortgage lenders and brokers can cut the overhead of brick-and-mortar buildings by operating from call-centers that homebuyers will never see. And with homebuyers doing some of the work themselves by filling out forms online, the need for—and cost of—loan staff is reduced.
Theoretically, those savings can be passed on to consumers. One Internet lender claims that consumers routinely save $1,500 on fees at its site. In a 2003 report, Boston-based research firm Celent Communications noted that traditional offline mortgages cost $1,200 to $1,500 per unit. Online originators with automated processes claim costs of less than $500 per loan.
But consumers must be careful. Lisa Geisweit, a former senior mortgage loan originator, says, “The customer saves money through fees with an online lender, if they save anywhere. Typically, though, there are hidden fees or exceptions on the loan if the company is strictly an ‘online’ company.” Geisweit says she has seen examples where online lenders did not disclose an origination fee up front. “An original good faith estimate could have one rate on it and, at closing, the rate could be completely different,” she warns. Ask upfront about fees associated with the loan package you are considering, and be mindful that different loan options may have different fees, even if they are from the same lender.
“Many companies considered ‘online’ are actually ones that advertise only online but have brick and mortar somewhere in the U.S.,” Geisweit says. “To find the best rate, however, is a matter of research. Depending on the customers’ credit scores and loan scenarios, they may get the best rate at their own credit union or bank.”
All Brokers and Lenders Are Not the Same
Storefront or not, brokers charge fees. It’s no different on the Internet. When searching online for your mortgage lender, learn whether you are dealing with a lender, a broker, or a lender-broker. Lenders can offer loan programs available in their portfolios. Brokers search the vastness of the loan frontier for wholesale loan products to offer you. They make their money by adding on a broker’s fee. If you deal with a broker, ask how he or she will make money on your loan and what the fees will be. Then negotiate.
There are many Internet businesses that are neither brokers nor lenders. Instead, they sell your request for information to several different companies. The benefit to potential homebuyers is the ability to receive multiple competitive quotes on loan packages. However, shoppers cannot be certain which loan companies will submit a proposal for consideration.
Whatever loan you go with, a loan application submitted via the Internet is subject to the same rules and guidelines as a loan application submitted in a bank, credit union, or other physical location. Typical information required—earnings statements, verification of employment, debts not noted on credit reports—remains the same.
It is important to note that while you can search the world over on the Internet, you need to deal with companies licensed for your area. Most loan companies announce the areas they serve on their Web sites. Loansnap.com, a New England-area financial services provider, notes on its home page that it services Massachusetts, Connecticut, Maine, New Hampshire, Rhode Island, Alaska, Colorado, and Florida. If the online offering does not note where it is licensed, ask.
You’re the Borrower
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One of the greatest advantages to online mortgage sites is the time saved. You can shop rates, compare packages, and apply for approval online without leaving your home or sacrificing personal time.
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Online shoppers tend to be much more comfortable with the dizzying array of mortgage packages and are better prepared to nail down the best deal when meeting (virtually or face to face) with a loan officer.
There are mortgage hunters who prefer to use Internet mortgage sites to shop and preview various loans. Many lender sites now offer mortgage estimating tools to help hammer out a loan plan. The visitor plugs in a loan amount, a loan term, and the desired down payment amount. These estimators allow you to play with interest rates and repayment schedules. 15 years at a fixed rate a bit high? Compare a 20-year term loan. Look at buying down a point and how that would affect monthly payments.
A growing group of mortgage shoppers is comfortable with the Internet, aware of online security requirements, and has no qualms about typing in personal information, including Social Security numbers. They’re confident in their mortgage knowledge and find “virtual” human contact enough for them.
Lenders and brokers are moving to cater to the needs of savvy, online applicants. E-LOAN, an online consumer-direct lender, calls its approach “high-tech, high-touch”. Tiffany Kelley Fox, a public relations officer for E-LOAN says, “Customers communicate with their dedicated personal loan consultant (one point of contact) via telephone and/or email. Every customer is unique as is their preferred method of communication, and we cater to each individual's preference.” So instead of feeling like an Internet number or client who is passed from associate to associate, clients can develop a one-on-one relationship with their own e-broker. Another e-lender, Home123, allows consumers to receive e-mail updates on their application status.
It’s an E-Merging Process
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Security Checklist for Online Home Financing:
• Do your homework. Check the Better Business Bureau and look for complaints. Ask the loan officer about the organization and why you should work with them and that company.
• Be sure you are using a secure Web site. Web sites identify the security of their server with information about authentication and encryption technology. This technology encodes text and data to make it impossible to read without the decoding key.
• Make sure that any online forms you are filling out are “locked.” A little padlock in the corner of the screen moves to the “locked” position indicating the information you transmit will be encrypted.
• Make sure the lender Web site is real. Be particularly suspicious of loan offers arriving in unsolicited emails. Fraudsters are faking entire Web sites in an effort to steal personal information.
• Make sure that you are the instigator and that you go directly to the Web site of a company you want to work with. In addition, call and talk to someone associated with the specific lender to confirm the Web site address if you are suspicious.
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It’s hard to judge the size and impact of this emerging field. Gabe Minton, vice president of industry technology for the Mortgage Bankers Association, says “it depends on how a person defines the ‘online’ process.” In Minton’s view, most lenders today have some online components—mortgage tools, prequalification and application forms—but, not surprisingly, the process is actually a mix: Web site forms, e-mails, phone calls, and faxing. If there is a poor credit history, questions still need to be asked. If there is a co-borrower or unrelated borrowers, more offline intervention is needed.
Not all aspects of the home loan process are fully integrated, so county registries and other municipal entities still require on-site filing. Not all lender processes have been automated either. There is still the need, in most cases, for hand-written, notarized signatures.
Bruce Cornelius, senior vice president for Internet and New Customer Acquisition at Countrywide Financial, one of the largest home mortgage originators, says “The ‘paperless’ mortgage is still in the future. But, it is not too far in the distance. The advent of the Internet and other enabling technologies and process improvements have reduced the loan approval process from days to minutes.” The stumbling block is still getting consensus and common standards put in place. “Many third parties, investors, and governmental bodies have not yet adopted e-business and/or have not agreed on common standards that would speed the introduction of a truly paperless process,” he says. Until then, Internet buyers will need to work with what is out there while pushing for safer, faster, and more complete online mortgage delivery.
Text by Maureen Blaney Flietner
Copyright BobVila.com © 2005
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