Online mortgage brokers? These days you can find and apply for a mortgage at the touch of a button.
In this article we break down how online mortgage brokers work and whether they could be the right option for your mortgage application. We would also be answering some very important questions you may have concerning online mortgage brokers to guide your decision making, so read on and enjoy.
How do online mortgage brokers and robo advisors work?
Online mortgage brokers enable you to carry out most of the mortgage comparison and application process online, without speaking to a mortgage broker in person or over the phone.
This might mean submitting details about your mortgage search to a chatbot, filling in an online form, or selecting options in an app.
As a result, online mortgage brokers are sometimes referred to as robo advisors (although technically speaking, the term also encompasses other forms of online financial advice).
Some of these services claim that you can find and apply for a mortgage in just 15 minutes, which is potentially much faster than speaking to a broker or carrying out extensive mortgage searches yourself.
However, there will still be paperwork to go through, and human mortgage brokers will always be used at some point in the process in order to make sure your application is correct and legally binding.
Can you a get a mortgage entirely online?
Yes, it is possible to get a mortgage entirely online. The traditional lending process requires borrowers to visit a branch in-person and apply for a mortgage there. However, online brokers allow borrowers to shop for a mortgage, complete the application, upload documents and respond to underwriting queries all online. Some brokers even offer e-closings.
How to find the best online mortgage broker for you
Many borrowers gravitate to online mortgage brokers for their convenience, efficiency and speed. These are important factors to consider when looking for the best online mortgage lender, but it’s also crucial to compare costs for your individual situation, and take the time to read mortgage brokers reviews to learn what to expect from the online experience. When comparing digital lenders, look for:
The kinds of loans they offer
Credit and down payment requirements
Origination fees
Rate locks and other perks
What support options are available
Keep in mind that these days, even more traditional lenders typically have online capabilities, as well.
Does an online mortgage broker have lower rates?
Some online brokers might advertise lower mortgage rates than their brick-and-mortar competition because they have less overhead. However, that doesn’t necessarily mean you’ll get a lower annual percentage rate (or APR) — the cost of the interest rate plus fees. The rate you’re offered often has more to do with your credit and financial profile and prevailing market trends, as well as your mortgage repayment term. For example, 30-year mortgage rates tend to be higher than those for 15-year loans. It can pay off to shop around with at least three different mortgage lenders, online or otherwise.
Pros and cons of online mortgage brokers
Getting a mortgage is one of the most consequential decisions of your life — in some cases, you might be paying back the same loan for the next 30 years. With that in mind, it’s important to understand the advantages and drawbacks of opting for an all-online mortgage experience.
Pros of online mortgage brokers
Speed: Many online mortgage brokers use proprietary systems and tools to help expedite the loan approval and underwriting process.
Often charge fewer fees: Some online mortgage brokers forgo fees, which can save you money at closing.
Potentially lower rates: Some online mortgage brokers run less expensive operations, which could translate to lower interest rates.
Cons of online mortgage brokers
Limited loan options: If you’re looking for a USDA loan, to refinance or obtain something other than a conventional mortgage, you might be disappointed — some online mortgage brokers only specialize in just a few types of loans.
Lack of in-person support: While many online mortgage brokers do offer phone-based customer assistance, applying for a mortgage can be an overwhelming process. If you want to be able to speak to a representative in person, you’re better off with a lender that has branch locations.
Might not work for unique circumstances: While algorithms can help speed along the process for a borrower with an easy-to-understand financial situation — a standard W-2 employee with a steady paycheck, for example — they aren’t great if your finances are more complicated.
Steps to apply for an online mortgage
Step 1: Strengthen your credit score – Before applying for a loan, take a hard look at your credit history and work to improve your score by paying down outstanding balances. Also, resist taking on any more debt and/or applying for any other loans or lines of credit.
Step 2: Set a budget – It’s important to understand how much house you can afford before you go shopping. Note that you may be preapproved for more money than what you can comfortably afford.
Step 3: Understand your mortgage options – There are a few different types of mortgages. Know what they are and which one you want.
Step 4: Compare several lenders – Rate-shop with at least three different lenders to get the best deal on rates, fees and terms. It’s not just about the rate, though: Do your research and read customer reviews of those mortgage lenders to see what other borrowers have to say about their experience.
Step 5: Get preapproved for a mortgage – Apply for mortgage preapproval with several lenders to compare offers and get accurate loan pricing for your specific situation. Preapproval shows sellers that you’re a serious shopper and that you have the financial backing to bid on a home.
More FAQs on Online Mortgage
What is an online mortgage?
An online mortgage is a home loan originated by a lender based either entirely on the web, with a digital end-to-end experience from application to closing, or a brick-and-mortar company with in-person locations and online services. While several big banks have built out their capabilities to include a digital mortgage platform, many mortgages are also being originated by non-bank institutions, like LoanDepot and Rocket Mortgage.
How does an online mortgage work?
With an online mortgage, all or many of the steps in the lending process can be completed electronically, whether through an app or online portal. These steps might include: preapproval or prequalification; application and document upload; loan processing and underwriting; and closing (sometimes called an e-closing). By streamlining these steps — and, in the case of a digital lender, having no offices and overhead — online mortgages tend to have lower rates and overall costs.
Is an online mortgage better than one from a bank?
The best mortgage option depends on your needs and qualifications as a borrower. Both online lenders and banks can offer distinct advantages, so it’s difficult to determine which is the better option. Online lenders stand out for offering convenience and quick results for borrowers.
Can you get an online mortgage with bad credit?
Generally, yes. You can get an FHA loan through many online lenders with a minimum credit score of 580 and 3.5 percent down, or a credit score as low as 500 if you put 10 percent down. Most conventional loans with online lenders require a minimum credit score of 620. (If your credit situation includes unique challenges such as a past bankruptcy or a recent divorce, be prepared to explain the situation to your loan officer.)