Consumer empowerment is always a good thing. But there are certain things you need to know before you apply online for a home mortgage loan. By researching the online loan process before venturing into it, you will be better prepared to take the right steps toward success.
Applying for a Mortgage Loan Online
It's important to note that the mortgage application process varies from one borrower to the next. Your process, for example, will be influenced by the amount you're trying to borrow, your credit history, your debt-to-income ratio and other factors. With that said, here's how the basic process works when you apply online for a mortgage / home loan.
1. Review your credit report.
2. Determine your mortgage budget.
3. Make a list of online lenders.
4. Provide basic information at first.
5. Compare the interest rates offered.
6. Compare other elements of the loan.
7. Get everything in writing!
1. Review Your Credit Report
When applying for a mortgage loan, this should always be one of the first steps you take. You can be sure that mortgage lenders will review your credit report and credit score (two different things) with a fine-tooth comb, so it makes sense for you to review these things first. Make sure your credit report doesn't have any errors or discrepancies. If it does, submit a correction request to the company with the erroneous report -- either Equifax, TransUnion or Experian.
2. Determine Your Mortgage Budget
Before you apply online for a mortgage / home loan, you need to know how much of a mortgage loan you can afford. Don't rely on the lender to tell you where your budget lies. You need to determine that for yourself. When a mortgage lender approves or disapproves a loan, they do so based on credit scores, risk factors, and other data-driven elements. They do not consider how the loan will affect your quality of life ... so that's your job. Use an online mortgage calculator to reduce a hypothetical sales price down to its monthly payments. This will help you determine where your mortgage "comfort zone" lies.
3. Make a List of Online Mortgage Lenders
Once you've completed the self-assessment process outlined above, you are ready to create a list of lenders that offer online mortgage application. These companies can be loosely categorized in one of two ways -- they will either be (A) traditional mortgage lenders with an online application tool, or (B) a web-based lender who specializes in the online mortgage process. Examples of the latter include E-Loan, Ditech and Quicken Loans.
As a rule of thumb, stick with the online mortgage lenders who have been around a while, and those who have a strong reputation (like the three mentioned above). This is primarily for information security purposes. Empowered by the anonymity of the Internet, some unethical "lenders" seek to take advantage of consumers through their online application tools. This can lead to identity theft, among other things.
Before you apply online for a home mortgage loan, always make sure you are using a trusted, well-known mortgage company. It's also a good idea to look for a VeriSign or e-Trust logo / link on their site. This will give you even more comfort by knowing the website has been reviewed by a company specializing in online security.
4. Only Provide Basic Information at First
Most online mortgage lenders will only ask you for some preliminary information regarding your income, debt, etc. They do this so for basic screening purposes -- they want to make sure you're somewhat qualified for a mortgage loan before taking the time to review a full application.
This is good for you too. By providing only basic information up front, you can find out if the lender is even willing to work with you. In this way, you can avoid filling out a full mortgage application for a company who cannot help you. This will also limit the number of credit inquires made by lenders. If you have too many credit inquires (by frequently applying online for a mortgage, for example), it can send a red flag to other lenders that you're having trouble being approved.
5. Compare Interest Rates Offered to You
The interest rate is one of the key elements that determines the mortgage amount you'll pay each month. So it should also be a key decision-making factor when you apply online for a mortgage / home loan. Many times, online lenders can offer better interest rates than traditional "bricks-and-mortar" lenders. Companies like E-Loan and Ditech have become extremely efficient at the online mortgage process. This obviously limits face-to-face time, paperwork, and other factors that can increase the lender's overhead.
The world of online mortgages is a highly competitive one. If you have decent credit and are generally a good candidate for a mortgage, online lenders will try to offer you the lowest rate and best terms possible, in order to get your business. Keep this mind when applying online for a mortgage.
6. Compare Other Elements of the Mortgage
Interest is only one part of the mortgage picture. So when comparing online lenders, be sure to ask about closing costs, prepayment penalties, and other aspects of the "fine print." For an excellent article on comparing mortgage lenders, click here.
7. Get Everything in Writing
When you apply online for a home loan, it's absolutely critical that you get everything in writing. This is good financial practice in general, but it's especially important with large financial transactions such as mortgage loans. For example, if a lender promises you a certain interest rate based on your qualification and credit score, ask them where it says that in writing.
Lenders are required to provide you with this information within a day or two of your mortgage application. This is a basic requirement of the Real Estate Settlement Procedures Act, or RESPA.
Conclusion
We hope you have enjoyed this guide to online mortgage loans. Elsewhere on this website, you can learn more about the types of mortgage loans, information about your credit report, and other topics related to home buying and mortgages.
* You may republish this article online if you retain the author's byline and the active hyperlinks below. Copyright 2007, Brandon Cornett.
Brandon Cornett publishes a network of websites related to home buying and mortgages. The latest website in this network offers tips on how to refinance a mortgage online. Learn more at http://www.mortgage-refinance-advice.com
