Should You Get a Mortgage With an Online Lender?

Back in the day, home buyers would head off to their central banks to get the mortgage they needed to finalize a purchase on a home. But these days, there are a myriad of options for buyers to choose from when it comes to obtaining a home loan.

Online mortgage companies are popping up everywhere, many times offering excellent mortgage rates and making the application process as simple and convenient as possible. Americans are just so busy these days that any way to simplify the mortgage process is highly welcomed. It only makes sense that the latest trend in mortgage lending is full-service internet-based mortgage lenders.

The online lending marketplace has become incredibly popular for borrowers looking for various loan rates and options. The spread between the highest and lowest interest rates available online is wider today than it’s ever been, making comparison-shopping critical.

But who exactly are you dealing with? Can these online mortgage firms be trusted? And are you really getting the best rates, terms and services compared to conventional mortgage brokers?

The Online Application Process

For the most part, the online mortgage loan application process is somewhat simplified compared to going to a big financial institution or meeting one-on-one with a mortgage specialist. That’s one of the biggest reasons why they’ve become so popular; you can pretty much apply for a mortgage while watching your favorite television show or preparing dinner. With online lenders, you don’t have to spend unnecessary time with in-person meetings, which can save you a ton of time.

Online lenders also have a tendency to undercut conventional mortgage brokers on interest rates and fees, too. And with the online mortgage industry becoming increasingly competitive, these lenders are always coming with ways to snag more clients – including by offering the lowest rates and more flexible payment terms.

For those with a low credit score (under 680), online lenders may actually be your only recourse when it comes to getting approved for a mortgage. Traditional lenders have strict lending criteria, including high credit scores. If you don’t meet their stringent borrowing requirements, you stand a good chance of getting declined on your mortgage application.

Instead, online lenders often use different underwriting investors compared to big banks, so you might be able to qualify for a mortgage even if you were turned by your bank. Just keep in mind that the interest rate you’ll be charged will probably be quite high if your credit score is low.

Are Online Lenders Reputable?

Perhaps the first question you need to ask yourself is whether or not the internet-based lender that you plan on working with can be trusted. The good news is, the majority of mortgage lenders are honest, but there’s always the bad apple in the bunch that can spoil the bushel.

Companies that are below the bar will show red flags that you should be on the look-out for, such as negative online reviews or bad ratings from the Better Business Bureau. Make sure you do a little digging into the online lender you’re considering before you apply for a mortgage loan with them, and make it a point of reading the fine print of each website carefully to understand their terms of use and privacy policies.

The Convenience of Online Mortgages

Online lenders provide for a highly streamlined process. A pre-approval application will be submitted online, along with the necessary documentation (credit reports, income statements, etc). The best online lenders will have impeccable customer support that is highly knowledge able always accessible. This is especially important if this is your first mortgage, and you’ve got a lot of questions that you need answered in order to make you more comfortable throughout the process.

The Fine Print

No shocker here, but there are frauds and scams out there that you should be wary of in the world of online lending. You should never have to pay a fee for a pre-approval or quote. While plenty of lenders charge an application fee to cover things like your appraisal, credit check, and other expenses, you shouldn’t have to pay this fee until the application process is well underway.

You’ll also come across online lenders who promise a specific low interest rate just as an incentive to fill out a mortgage application. Then once your credit score has been run, you find out that this introductory rate in not available anymore. Not only is this unethical, it’s also illegal. The only way to avoid being scammed like this is to do your homework and pay close attention to each stage of the process.

Going with an online vendor is a viable option when it comes time to get a mortgage. It’s recommended that you consider both online mortgage lenders and a local broker and do a little comparison shopping before you commit to a specific lender. Your real estate agent may be the perfect source to find out where to look, and can even provide you with a few reputable references to check out.