If you're looking to buy a home, you're most likely going to need to borrow money to do that. Today's mortgage business is extremely competitive as years of low interest rates has afforded the chance for many homeowners to refinance their mortgages. With the refinance market drying up, lenders are competing for business from homebuyers. This, in conjunction with the proliferation of internet shopping, has created some great opportunities for those in the market who are looking to obtain a mortgage. But beware - the process of obtaining a mortgage and closing on a home go far beyond that attractive online mortgage rate.
Online Lending: Pros and Cons
The Internet is well-stocked with lending choices, but is online lending for you? Here are the pros and cons.
1. Great deals abound. Online lenders know that to attract business they must make a good offer, so they usually have competitive interest rates.
2. Less chance of being charmed. Without slick salesmanship, the numbers have to speak for themselves. If terms and conditions are lacking, you won’t feel obligated to go with someone just because he has become your buddy.
3. User friendly. If your credit profile is good, you are a perfect candidate for online financing. Spending a few hours in front of your PC can lead to multiple email offers. Let mortgage bankers and brokers outbid each other to win your business.
4. A loan is a loan is a loan. Most companies on the Internet stick with traditional methods for application approval and funding. Regardless of where they originate, all mortgage loans are protected by state and federal regulations.
5. Simplistic rate comparisons. When you’re checking only the facts, loans are easy to compare. Double-talk doesn’t transmit via the Internet.
6. Easy access to providers. Online, borrowers can skip the middleman.
1. Lack of accountability. Local lenders rely heavily on referrals and repeat business, so when loans go bad, it reflects poorly on the company. Online lenders face less accountability. Also, with online lending your file will bounce around to multiple departments, rarely with single point of contact for you to reach in case you have questions. Often times, these departments are in different states and don't communicate effectively with each other.
2. A new breed. Since online lenders are a recent addition to the scene, they haven’t earned the reputations of their off-line competitors.
3. License requirements vary by state. It’s possible that you could select an online lender who isn’t licensed in your jurisdiction. If an online company is placing mortgage loans in your area, make sure they have the legal authority to do so.
4. No face-to-face contact. Some online lenders are bad apples, as are some traditional lenders. Though consumer confidence in Internet purchases is rising, Internet suspicion may still be too big a deterrent for you.
If you are ready to surf for online lenders, take the following precautions:
1. Expect a professional site. A good website doesn’t guarantee a good company, but a poor site is a bad sign.
2. Do research. Many lender sites offer the company’s history and business practices. If you can’t learn anything about the company, try another one.
3. Talk to your Real Estate Agent. In my experience, there are definite advantages to obtaining a mortgage with a local lender vs an online lender. Real estate transactions are complicated and very emotional. The road to a successful closing is bumpy with many unexpected turns. Being able to speak directly and immediately to a local lender has proven to be not only an advantage in getting to a successful closing, but can also make the difference in your offer being accepted by a seller in the first place.