Online Mortgages – What A Buyer Should Know

These days it seems offers are everywhere online to get an approval and complete a loan.  Many of these offers seem great and easy to complete.  And in some cases they are.  What is important to know is how it works, what the risks are, and how to go about determining which offers are legitimate and which are not.  Here is a quick tutorial and a quick reference guide to navigate you through the wires of an online mortgage:

How the online process works

Online technology has evolved to a point where it is easy to communicate information and documentation, even if you know little about computers.  Entering information into an online form, such as a mortgage application, is fairly straight forward.  Click the apply online button, enter your information such as employment, income, credit, assets, address, identifying information and press send.  Viola, the check arrives in the mail!  Not so fast – a lender is required to verify your information submitted via documentation and determine your ability to repay the loan and meet loan qualifying criteria.  However, entering an online application these days is a snap!

What is needed from you

Once the lender does an initial review, they will request your documentation (paystubs, W2s, tax filings, bank statements, identification, and other items specific to your application).  Today, many lenders have the option for you to upload your documentation directly into your loan file.  This used to be referred to as FTP, or file transfer protocol, but today is as simple as click “upload file” and then select the file from your computer.  The days of faxing documents, or even bringing them into a Loan Officer’s office, are quickly slipping away.

With the application complete and your documents uploaded, the lender can then process and underwrite your loan.  Some lenders are trying an automated system that notifies you of missing items while other will have an assigned Loan Officer inform you of any additional needed items.  Also, some lenders will allow you to complete your lock on your own and others will have the Loan Officer discuss lock options with you via phone.

The entire process can be done online without ever having to go to a lender’s office or even talk with a Loan Officer.  Seems great, doesn’t it?  For some, the convenience of it is very appealing, but for others who want to understand and know how all the moving pieces work need a Loan Officer to assist them with the process and information.

Know the risks

It is very important to know the risks!  The first risk is when you are purchasing a home, Realtors want to connect with a Loan Officer who knows your file.  If you submit an offer with a preapproval letter from a lender with whom you have yet to communicate, the Listing Agent on that home may not accept your offer.  They will want to confirm with the lender that your documents have been reviewed, as well as credit score and some level of underwriting.  The listing agent will also want confirmation that you can close on time, and they want a go-to person with your lender who can provide timing and tracking updates.

The second risk is obvious – know who you are doing business with!  Some online lenders make all the promises, but may fail to deliver.  Reputation in the marketplace is important.  Do your research!  The Better Business Bureau, Department of Commerce and 3rd parties such as your Realtor, Zillow, Trulia and others are good ways to verify your lender is legitimate.  Not only are you submitting personal documentation to a lender you are not meeting face to face, you are also pinning your hopes and dreams of homeownership to this company.  Make sure they have a great reputation.  Another way to look up a company or Loan Officer is via www.nmlsconsumeraccess.org.  The NMLS system, or Nationwide Mortgage Licensing System, has the licensing data for each company and Loan Officer.

The third risk is having a point of contact.  Even the highest qualified borrowers will run into things that need to be corrected or problem solved.  If your loan application is in the hands of a machine and not a lending expert, who do you go to when an issue arises?  It makes great prudent sense to connect with a lender first before going through the online application process to make sure you have a contact that can help if the need arises.  Research the person as well to insure he or she is licensed and has the know-how to make sure your loan gets done, on time, and delivers the terms you are expecting.  Reading Loan Officer reviews on Zillow is a good way to get to know who you are working with, or use the trusted guidance of your expert Realtor to assist you.

Guide to the CFPB

Overall, completing a loan online is more efficient, flexible with your schedule, and can yield a positive experience if coupled with an expert Loan Officer and a highly reputable local lender.  The CFPB has a guide on shopping for a loan (http://files.consumerfinance.gov/f/201401_cfpb_booklet_settlement.pdf) and a lender should provide you with a Loan Estimate within 3 days of your completed application (includes your name, income amount, Social Security number and birthdate to obtain a credit report, a property address, an estimated value of the property, and the mortgage loan amount sought.