Buying a home is likely the most important and substantial purchase you will make in your life. The deal you strike for a home loan will impact your finances for years or decades to come. There are a variety of options to apply for and secure a mortgage to buy a home. The latest trend in mortgage lending in the digital age is using an online lender or mortgage comparison site rather than a traditional bank or mortgage broker.
With online activity at an all-time high and growing every year, COVID-19 fears have made the world more reliant on digital technology for business and personal communication. With social distancing and stay-at-home mandates, online mortgage lenders are more popular and accessible than ever.
Digital Age Sees Increase in Online Mortgage Applications
As millennials who have grown up with smartphones in their hands reach the prime age to buy a home, online mortgage applications are becoming a more accepted method to secure a loan. Social distancing guidelines resulting from the global health pandemic have put online mortgage companies in the unique position of performing a valuable function of the home buying process most safely.
There are now thousands of mortgage lenders on the internet, with more coming online every year. If you decide on using an online mortgage lender, it is in your best interests to shop around to see which ones offer the benefits and features that suit your needs and preferences.
What Are the Benefits of Using an Online Mortgage Lender?
Consumers worldwide are taking advantage of the speed and ease of online processing for all types of industries, and the mortgage industry is no exception. The convenience of applying for a home loan using an online mortgage lender offers homebuyers a range of benefits and features, including:
Lower Interest Rates, Fees
With so many options on the market, online mortgage lenders typically offer the most competitive interest rates to attract homebuyers. The ease and range of choices forces internet-based mortgage companies to offer the best rates and lowest fees possible. Because they have no overhead expenses operating an automated system, online mortgage companies offer rates that can save you thousands of dollars over the life of the loan.
Homebuyers can often find a wider variety of programs online that the local bank or credit union may not have access to. Government-backed mortgages with more flexible down payment restrictions include FHA loans and VA loans. If you are purchasing your first home, additional loan programs may not be available at a traditional mortgage broker.
Lower Credit Rating Requirements
Your credit score has a major influence on your ability to secure a home mortgage loan and will affect down payment and interest rate. The higher your credit rating, the more lenders are comfortable taking the risk of lending you money.
If you have a low credit score, it will be harder to get a home loan with manageable terms approved through a traditional lender. While most lending institutions require a credit score of at least 640, online lenders may offer you a 580 rating loan or lower for FHA loans.
It takes time to physically go to a bank or credit union and fill out the necessary paperwork for a loan application. It takes a fraction of the time to get a quote from an online mortgage lender with a digital application process. In one computer session, you can get quotes from multiple sites, making it easier and faster to find the deal that works best for you and your family.
According to a New York Federal Reserve report, processing times for online mortgage lenders average two weeks faster than traditional lenders and shorten the purchase time by nine days.
What Are the Disadvantages of Online Mortgage Lenders?
If you are a first-time homeowner or not computer-savvy, it is important to fully investigate and weigh all options before making a decision as big as purchasing a home. There are some drawbacks to using an online mortgage lender instead of a brick-and-mortar bank or credit union. The following are examples of the disadvantages of using an online mortgage lender.
Reduced Customer Service
Because you are not dealing directly with a real person, communication and customer service are less of a priority with a high-volume online lender. You will lose the personal touch of having any questions or concerns be addressed by an agent or loan officer with a vested interest in your satisfaction.
Hidden Closing Costs
Closing costs are fees to pay for the processing of the loan. Any type of lender can work in additional fees specifically designed to increase their profit without benefit to you, but it is easier to hide them in a long, complicated digital document. Online mortgages often have more fine print and confusing language. Before agreeing to the terms of an online loan, you should study the document for any hidden fees or questionable items, so you are not surprised with additional expenses when you close.
Rates Are Not Guaranteed
Online mortgage lenders will lure you in with the promise of a low rate without even knowing if you qualify. Bait-and-switch techniques can wind up costing you more than a traditional home loan over the life of the loan.
Is an Online Mortgage Lender Right For You?
Online mortgage lenders can offer convenience and savings for some homebuyers, but it may not always be the best option for everyone. The important thing is to shop around and perform your due diligence so you can make the right decisions for yourself, your family, and your financial status.
The realty professionals at SimpleShowing, have years of experience in the market and can help guide you through the complex and stressful home buying process. Contact a knowledgeable representative at SimpleShowing today.