In the past, if you wanted to buy a house, you had to go through a bank or a lending institution to apply for a mortgage. These days, going through a bank isn’t necessary. You can instead apply for an online mortgage. And when you do, you can cut your application time in half.
Is Applying for a Mortgage Loan Online Faster?
Yes. According to a 2018 study published by the Federal Reserve Bank of New York titled, The Role of Technology in Mortgage Lending, “FinTech lenders process mortgage applications about 20% faster than other lenders, even when controlling for detailed loan, borrower and geographic observables.”
Is It Safe to Apply for an Online Mortgage?
The main question on everyone’s mind is, how safe is it to make such a large financial commitment online?
The answer is that isn’t not only as safe—or no more unsafe—as a traditional offline mortgage application, it’s very common—and increasingly so.
Online mortgage companies are referred to as alternative lenders or non-banks.
Marketing research company J.D. Power released its J.D. Power 2018 U.S. Primary Mortgage Origination Satisfaction Study in November 2018.1 The study showed that 43% of mortgage applicants applied online in 2017—a 15% increase over 2016. For the first time, more mortgage and refinance loans originated online that off. And Forbes reported in February 2018, that Quicken Loans had overtaken Wells Fargo as the largest mortgage lender in the U.S.2
A similar survey by Lending Tree found that 47% of all mortgages in 2016 came from non-banks, such as Quicken Loans and PennyMac. In the same period, loans from all banks combined made up just 44% of mortgage loans. 3
Whether a mortgage is obtained offline or online, it’s subject to the same laws and protections. The Consumer Financial Protection Bureau is charged with protecting consumers from unfair, deceptive, or abusive practices online and off. And if a hacker is going to try and steal information, whether that information originates offline or on, it ends up in a computer that could potentially be hacked. What’s more even traditional banks use online mortgage applications platforms.
Caution is always advisable though, especially if you choose to apply with a smaller, lesser-known vendor. Steer clear of all lenders that promise you a loan regardless of your credit. If your credit score is low or you don’t have a credit history, odds are you won’t be accepted for a mortgage anywhere. A rule to live by when applying online is, if it sounds too good to be true, it most likely is.
Now that we’ve crossed off the questions of safety and speed, here are some added advantages and disadvantages of applying for a mortgage online.
Advantages of Online Mortgages
1. Access to lower rates and fees
Unlike a traditional lender, online lenders can operate without having to pay overhead costs. That means they can transfer those savings to customers, often in the form of lower interest rates and fees. And a rate that is just one-quarter percent lower can end up saving you thousands of dollars over the term of your loan. See how much in the Credit.com Mortgage Calculator.
2. Fewer forms to fill out and copy
The application process for a mortgage involves a lot of forms to fill out and a long list of documents to complete and keep copies of. When you apply for an online mortgage, the process is simpler to navigate and organizes the information for you. Instead of making physical copies of documents and keeping them organized, all you have to do is upload the document to the lender’s platform when asked, which can save some time and headaches. You can access your documents online anytime and avoid piles of paper.
3. Getting approved may be easier
Traditional lenders are sometimes held to standards that require borrowers meet a minimum credit score threshold. Online lenders, because they aren’t banks, have more leniency and will often extend loans to someone with a lower credit score. Granted, that may mean you have to pay a higher interest rate and other fees. But, if you really want a home and your credit score is on the margin of good versus fair, applying online may mean the difference between being accepted and denied.
Disadvantages of Applying for Mortgage Online
1. A human may be harder to find
Typically, when you apply for a mortgage at a bank, a human representative is available to help you. The same doesn’t always apply to online lenders where you may need to spend precious minutes on hold to get help. However, don’t assume you won’t wait to talk to a person at your bank and/or be able to do so without an appointment. Some banks with small staff and “bankers’ hours” may not offer the service you want. And larger non-bank online lenders, may actually have larger staff available for longer hours and even on weekends. Bottom line, find out before you apply, so you know what you can expect from the lender’s customer service team.
2. A fixed rate may be harder to get
Some online lenders will promise a low rate, only to then tell you that you aren’t eligible later in the application process. Rates can also change daily, so the rate you apply for Tuesday, may not be available come Wednesday. A reputable online lender though, should offer the same lock-in opportunities as a traditional bank. Many lenders, offline and online, will let you lock in the rate while at the time you apply and before you have chosen a house to buy.
Whether You Apply for a Mortgage Online or Off, Do Your Due Diligence
Before apply for an online mortgage or an offline one, research the lender. Check online reviews and with the Better Business Bureau to see what other borrowers have reported. Find out what to expect if the interest rate changes while you’re applying or shopping. And compare all loan terms against each other to make sure you get the best loan possible.