The process of applying for a mortgage is now more convenient and easier than ever. Before you apply for a mortgage online, though, learn the benefits and drawbacks of the digital lending process to decide if it’s the right approach for you.
Should you apply for mortgages online?
The process of getting a mortgage involves a lot of paperwork and time. Whether applying for a loan online, over the phone or in person, your mortgage lender will ask for documentation about your employment history and income, any assets you own and any debt you owe.
As of May 2022, the average time to close a mortgage for a home purchase was 48 days, according to ICE Mortgage Technology. The timeline can be impacted by many factors, including the time it takes for an appraisal, title search and employment verification. Applying for mortgages online could potentially speed up this process, but there are also potential drawbacks to consider.
Pros of applying for a mortgage online
- Faster processing – Fintech mortgage lenders can process loan applications 20 percent faster than traditional lenders, according to a report by the Federal Reserve Bank of New York. While your experience can vary depending on the lender, an online mortgage application might be the better route if speed is a top priority — provided you have a very straightforward application.
- Less work for you – With an online mortgage application, you can upload copies of documents, such as bank statements, pay stubs and tax returns, to a secure website instead of needing to provide a hard copy to the broker or loan officer. You can also e-sign your disclosures, usually within an online account, which can save a lot of time.
- Possibly lower costs – Online mortgage lenders typically have lower overhead costs than traditional lenders like a bank, which can translate to lower interest rates and closing costs for you.
Cons of applying for a mortgage online
- Less hands-on help – If you have a question during the loan application or underwriting process, you might not have a dedicated person to help you if you’re applying online. Also, if you prefer an in-person interaction, that likely won’t be an option with many online lenders — you might instead find yourself on the phone (or worse, on hold) if you need to connect with someone.
- Might hit snags – A digital mortgage is designed to speed up the closing process through automation, but if your situation is outside the norm — maybe you’re self-employed, your credit history has some dings or your debt-to-income (DTI) ratio is high — it could take more time to process your loan application.
- Potentially higher fees – Some lenders offering “digital mortgages” assess higher loan origination fees.
Are online mortgage lenders safe?
Online mortgage lenders are generally safe, but as with any business you’re considering working with, make sure it’s legitimate. Before contacting the lender, check the Better Business Bureau or your state’s banking department for signs of bad actors and complaints. There are many mortgage lenders out there, so if anything seems off with a lender you’re considering — a too-good-to-be-true rate, for example — don’t hesitate to move on to another one.
Applying for mortgages online is typically just as safe as submitting a paper application, if not more so. Whether online or not, all mortgage lenders are required to comply with federal regulations for data protection and privacy. For example, they must notify you about how much of your financial information they share with third parties.
Online lenders also typically use secure websites for you to submit your application and upload your documents. These portals usually have a login with a password, and sometimes two-step authentication for an additional layer of security.
That said, there’s always some level of risk if you’re submitting personal information online. It’s best to avoid sending documents with personal information via email unless it’s encrypted, or over a public Wi-Fi network unless you’re using a virtual private network (VPN). It’s wise to inquire about your lender’s security practices, too, so you’ll know how it safeguards your information and addresses any breaches.
Depending on the lender, your loan officer might email you a secure link where you can upload documents safely. Sometimes, these links are phishing scams, so don’t hesitate to call your loan officer directly to confirm it’s legitimate. You should also hover your cursor over the sender’s address and any links (do not click them) to see if you recognize them. If you’ve confirmed the email is legit, be sure to submit personal information using this link, not by replying to the email itself.
How to get a mortgage online
The process for applying for a mortgage online is similar to the process of applying the traditional way. The key difference is that you’re doing it online and not in person or over the phone. Here is an outline of the steps:
1. Shop around
To get started, gather your financial information (including bank statements, pay stubs and tax returns) and research at least three online mortgage lenders. Many will allow you to get a mortgage rate quote online before you submit an application, though some might require you to speak with a loan officer first to get that quote. If you can’t get quotes, submit an application with more than one lender so you can compare rates and fees. Because rates change daily and your credit score can take a hit if there are several inquiries, aim to do this within a relatively short time frame — ideally in the same day for the most accurate comparison, at most over a few weeks. When you request a quote, be sure to provide the exact same information to each lender, as well.
2. Review the loan estimates
Once you submit your applications and you’ve been preapproved for a loan, you’ll receive loan estimates from each lender. This estimate is based on the information you provided on your application, but it’s not a final offer — you’ll need to submit documents and lock in your rate for that to happen. Still, the loan estimate provides you information you need to understand the costs of each offer so you can choose the right one for you.
3. Pick a lender
Take the time to compare your options. Consider whether the lender charges an origination fee and whether discount points have been factored into the offer, and how much these expenses could add to your closing costs. (Depending on how long you plan to stay in your home, paying points could end up saving you money.)
In addition, keep an eye out for excessive fees that might not be necessary, such as an “email fee” or “miscellaneous fee,” and ask for clarification about any costs you don’t understand. Consider, too, how your experience has been with the lender and how comfortable you feel working with your loan officer. Online testimonials from past customers can help you decide.
4. Provide documents
After comparing options and settling on a lender, you’ll proceed to the underwriting process. At this stage, you’ll be asked to upload your documents via a secure portal. The loan officer or broker will let you know which documents you need. Try to complete these requests as quickly as possible to avoid delays. The same goes for documents you’ll be asked to e-sign — but be sure to read them carefully to make sure you understand what you’re signing.
5. Close the loan
After you’ve completed all of the loan officer’s or broker’s requests and you still qualify, you’ll receive your final disclosures, which you’ll review and sign. When you get the closing disclosure, compare it to your initial loan estimate to ensure there aren’t any material cost changes you weren’t aware of. If there are, ask your lender for clarification. You’ll have at least three business days to review this document, so don’t feel pressured to sign right away. Once you do and complete the closing process, you’ll get the keys to your new home.