Applying for a mortgage online is becoming increasingly popular these days. But you may be wondering just what it involves and what to expect.
Most lenders allow you to initiate the mortgage process online these days, regardless of whether you’re buying a home, refinancing, seeking a home equity loan or another type of home loan product. Some, such as Quicken Loans, are known primarily as online lenders, although you can still contact them in other ways if you prefer.
Convenience is key
As a borrower, the main advantage of applying online is convenience. You can obtain and compare loan quotes from multiple lenders in a fairly short time, rather than having to visit their offices in person or place several phone calls, possibly waiting on hold while you do. You also receive your loan quotes and other information electronically, rather than having to jot down notes while talking on the phone.
What many borrowers don’t understand is that there are several types of companies offering mortgage services online. Each operates in a different way and offers certain advantages to borrowers. Before you go looking for a mortgage online, it’s helpful to understand the differences so you can recognize them and decide which type works best for you.
Types of online mortgage companies
The first type is mortgage lenders, such as banks, credit unions, savings and loans, and correspondent lenders. Wells Fargo and Navy Federal Credit Union are two prominent examples. When you apply online with a lender, you’re dealing directly with the people who issue the loan and can approve your mortgage. They can tell you what sort of rate you qualify for and discuss your various mortgage options.
Dealing directly with a lender allows you to get detailed information about the loan products they offer and your various loan options. However, those are the only products they can give you information on. If you want to shop around for the best deal, you’ll need to contact other lenders to get information from them.
Mortgage brokers
Mortgage brokers, on the other hand, are in the business of arranging loans between lenders and borrowers. You provide them with your loan information and they try to match you up with the lender that offers the best rate and terms for someone in your situation. They act as an intermediary between the borrower and the actual lender, and typically handle all the paperwork.
Mortgage brokers provide the benefit of shopping around for you, so you don’t have to research and compare a bunch of different lenders. However, they do charge a premium for this service, typically in the form of a slightly higher interest rate than you would otherwise get from the same lender.
Mortgage referrals
The third type you’re likely to encounter online are mortgage referral services. MortgageLoan.com falls into this category; LendingTree and Bankrate.com are other examples. With a referral service, you enter your borrower profile and the type of loan you’re seeking, and the service refers you to several different lenders that match your profile. You then compare their offers to choose your best deal.
Referral services offer the advantage of putting you in touch with several lenders who are looking for borrowers that match your credit profile, and you don’t pay additional fees for the service. However, you do need to sort through the separate offers and come to your own determination of which best meet your needs.
Tips on comparing loan offers
When comparing loan offers online, you want to make sure you look at more than just the interest rate. Pay careful attention to the fees that will be charged in addition to the loan and particularly to discount points – these are a way of lowering the interest rate by paying interest in advance, with the fee for each point equaling 1/10th of 1 percent of the loan amount.
A handy way of comparing loan offers is to look at the Annual Percentage Rate, or APR, for each. This figure, which must be included with any mortgage loan offer, expresses the total cost of the loan in terms of a figure similar to an interest rate. Be aware though, that the APR is based on the life of the loan, so it won’t be completely accurate is you eventually refinance or sell the home before the loan is paid off.
By: Kirk Haverkamp - MortgageLoan.com
