Taking on a mortgage is a major financial responsibility. But oddly enough, nearly half of homebuyers don’t take the time to shop around for the right lender, according to the Consumer Financial Protection Bureau. In addition to traditional banks and mortgage brokers, homebuyers have a third option in the form of online mortgage lenders. If you’re cautious about going online to track down a home loan, here’s a quick rundown of the advantages and disadvantages of getting a mortgage online. You can also work with a financial advisor who can help create a financial plan to navigate the entire process.
The Basics of Getting a Mortgage Online
Getting a mortgage online was taboo or unheard of 25 years ago. Now, it’s one of the best ways to shop around for a mortgage that could maximize your personal benefits. Most every lender offers mortgages online and you’re able to find the right loan, whether it comes from the network of the broker you’re working with or not. It’s never been easier to find a mortgage than it is today, which has led to substantial housing growth throughout much of the last decade.
However, there are still scams that occur online that target the mortgage industry. It can also be frustrating to get a mortgage from a large online lender that doesn’t offer strong customer support. There is plenty to consider to determine whether finding your mortgage online is the right solution for your personal situation.
The Pros of Getting a Mortgage Online
1. You May Get Lower Rates and Fees
Unlike a brick-and-mortar bank, online mortgage lenders often operate without having to cover a lot of overhead. As a result, they might be able to pass the savings to their customers in the form of lower interest rates or lower fees. If an online lender offers you a rate that’s even a quarter of a percent lower than what other lenders offer, that could potentially save you thousands of dollars over the life of your loan.
2. Applying for a Loan May Be Less Time-Consuming
If you’ve never applied for a mortgage before, it goes something like this. The lender will hand you a stack of paperwork and a laundry list of documents that you’re required to make copies of. Getting everything in order can take days or even weeks if you’re chasing down bank statements or tax forms.
Online lenders can make the process less difficult to navigate. Instead of making copies of tax returns or other financial documents, you can just upload them to the lender’s website. That can speed up the loan process and save you some headaches.
3. It May Be Easier to Get Approved
Your credit score plays a big role in determining whether you can qualify for a mortgage. Conventional, FHA, VA and USDA loans all have minimum credit score guidelines for approval. But individual lenders can raise the bar to weed out borrowers who may be a credit risk. If your credit isn’t perfect, an online lender might be more willing to grant you a loan.
The Cons of Getting a Mortgage Online
1. Getting Help May Be Harder
If you’re applying for a mortgage through a local bank or a broker, you’ll probably be able to call them at any time within business hours to get answers to your questions. With an online lender, it might be more difficult to get someone on the phone when you need assistance.
2. Rates Aren’t Guaranteed
Jumping on board with an online mortgage lender because they’re promising you a super-low rate can backfire if it turns out that you’re not eligible for a great deal. By that point, you could be several weeks into the process, so you might feel like it’s too late to back out. And as a result, you could end up paying more for a mortgage than you had originally planned.
Tips for Getting a Mortgage
Getting a mortgage can cause a lot of stress or anxiety because it’s a huge financial decision. While online mortgages have become more of the norm, there is still some uncertainty with some lenders or online advertisements promising mortgages. Regardless, here are some important tips to help you in analyzing mortgage lenders as well as prep for a mortgage in general.
Do Your Homework Before Getting a Mortgage
If you think an online mortgage lender is the right way to go, it’s best to do some research before you apply. It’s a good idea to read reviews and find out whether there have been any complaints filed against the company, either with the Better Business Bureau (BBB) or your state’s attorney general’s office. Then, you can carefully compare the loan terms they’re offering to make sure you’re getting the best deal.
Be Realistic About What You Can Afford
Just because you can get approved for a loan of a certain size doesn’t mean you should close the loan and take on that amount of debt. It’s important to be really straightforward with yourself about how much house you can really afford. You don’t want to overborrow and cause your budget a bunch of strife to the point that one mistake could prevent you from being able to make your payments. You probably want a comfortable payment so that your finances aren’t stretched too far.
Get Your Finances in Order
By the time you find the right mortgage company to work with you’ll want to make sure your finances are in order. This means paying off any debt that you can so your credit score can be in good shape and then making sure your debt-to-income ratio isn’t out of line. This can help you prepare for a loan by maximizing your potential to get approved. Other than that, you’ll want to make sure your budget can take on the new mortgage payment you’re expecting before signing on the dotted line.
The Bottom Line
Getting a mortgage can be a rewarding time but it’s important to do your research and preparation in advance so that you’re finding the right lender and maximizing your potential qualifications. This can save you thousands of dollars over the life of the loan by getting a lower interest rate and can save you a lot of strife if you have a lender you trust. Online lenders are becoming more and more prevalent and can provide a high-quality experience that matches or exceeds other lenders. You just need to research each before deciding to move forward.
Tips for Getting a Mortgage
- Getting a mortgage can be stressful and you may not know how to get your finances in a place to prepare for one. Working with a financial advisor can help you with that and they can provide a financial plan to make sure you get there. Finding the right financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- As you prepare for a mortgage, consider using a free mortgage calculator to help you estimate what your monthly payment might be.
Photo credit: ©iStock.com/apomares, ©iStock.com/franckreporter, ©iStock.com/Tomwang112