When it comes to getting a mortgage, you have tons of options these days.
You can walk into your local bank or credit union and apply for a loan like everyone did in the good ole days.
Or you can turn on your computer and see tons of online lenders competing for your business.
But is using an online lender for your mortgage a good or bad idea?
We are going to take a deeper look into the pros and cons of online mortgage companies.
Rate Search: Shop and Compare Mortgage Rates and Offers
Online Lending Companies
There are thousands of online mortgage lenders out there like Loan Depot and SoFi. They offer very competitive rates, and the entire transaction from start to finish is done online, by phone, and by mail.
This may be a new concept to those who are used to walking into a brick and mortar lender to apply for a loan, but there are many advantages to using online mortgage companies.
Pros of Using Online Lenders
Lower Interest Rates
One advantage of using an online lender is that you can expect to get the most competitive interest rate.
The mortgage industry is one of the most competitive online spaces because of the high margins lenders make on a loan, so lenders offer the absolute best rates to compete.
It’s effortless to go to a website, fill out an online loan application, and get a quote in minutes. To close loans, lenders have to offer the most competitive rates possible, or they won’t earn borrower’s business.
If you have a quote from your local bank, take a look online. There is a good chance that several companies can easily beat the rate you were quoted from your bank.
More Loan Options
When you walk into a local bank or credit union, the number of loan products they offer will be limited. All banks will offer a conventional mortgage requiring a 640 credit score and at least a 5%-10% down payment.
But they don’t all offer FHA loans or VA loans requiring low down payments. First-time buyers can often find some great loan programs online that a local mortgage company may not offer.
Lower Required Credit Scores
If you have some credit issues, you’re more likely to find a lender that can help you get approved. For instance, most brick and mortar lenders will require at least a 640 credit score. However, many online mortgage lenders require just a 580 credit score or even lower for FHA loans.
In many cases, those with scores below 620 will have no option but to go with an online mortgage lender. But that isn’t necessarily a bad thing.
Save Time and Compare Lenders from Your Couch
Let’s face it; going to the bank is a huge hassle. Even if it’s a short drive, you have to sign-in, wait for a banker and spend close to an hour talking and filling out a loan application.
By the time you get a quote, you’ve spent a couple of hours of your day at a bank for a single quote.
Or you can Google a few online lenders and complete 5 loan applications in an hour and pick the best deal. It’s much easier, and it saves you quite a bit of time.
Cons of Using Online Mortgage Lenders
Online lenders are about volume, so most loan officers are kept very busy. As a result, customer service may be negatively affected. This is not always the case, but it does happen. When using a local bank, more often than not, the loan officer is on top of the situation and is easier to contact.
Loan officers with local lenders usually have to build relationships to get more loans. Your local bank may be more invested in closing your loan because they hope to earn future referrals from your real estate agent.
Closing costs include fees the lender charges for processing and funding the loan. It’s true that with both online and brick and mortar lenders that there may be some hidden fees.
Because the world of online mortgages is so competitive, lenders may have a lot of fine print clarifying the offers you see. Make sure you look closely and ask lots of questions to ensure there are no surprises at closing.
Getting a mortgage with an online lender has many advantages and few disadvantages. You can expect to get the lowest rates and have more loan programs to choose from with an online mortgage company.
When it comes to getting a mortgage with bad credit, online lenders win hands down. Most banks will not work with credit scores below 640, but online, you can find lenders able to go down to a 580 score or even lower.
If you’re looking into getting a mortgage soon, you should feel confident about getting the best deal from an online mortgage company.