Online Mortgage Shopping
Plug into the Web world of home mortgages, loans and lenders.
A growing number of consumers browsing the Web for housing are taking side trips to look for the perfect mortgage. Though most customers prefer to complete their loan transaction with a "live" mortgage broker or lender -- and many mortgage websites have gone out of business as a result -- the Web still offers 24-hour convenience when it comes to researching your options. Here, we explore the benefits and alert you to the potential pitfalls of shopping for your mortgage online.
Mortgage websites come in two basic flavors:
:: those sites that don't offer loans (called "no-loan" sites) and
:: those that do offer loans (called "mortgage money" sites).
:: Mortgage Information ("No-Loan") Sites
:: Mortgage Money Sites
:: Tips for Purchasing a Mortgage Online
Mortgage Information ("No-Loan") Sites
No-loan sites don't broker or lend mortgage money, but typically provide mortgage content, information and news as well as mortgage rates -- just what most mortgage shoppers want and need.
Sites like HSH.Com and Bank Rate Monitor (www.bankrate.com) keep daily tabs on mortgage rates, indexes and market events that push costs up or down. You can visit sites like these to obtain the latest regional average rates on purchase, refinance, equity and other mortgages.
Offering vast libraries of mortgage information for consumers, these sites are also a great place to examine mortgage programs, learn mortgage lingo, understand underwriting, get questions answered about the loan qualification process, crunch numbers with online mortgage calculators, check your credit and obtain other pertinent information, such as market trend analyses, forecasts and a host of other useful features.
No-loan sites are also referred to as "referral" sites because they introduce you to a host of participating lenders, either through advertisements or links embedded in the content. The referrals could be useful provided you gather enough of them to adequately compare loan costs. That's a tedious process.
In the no-loan site category, don't overlook informative government, quasi-government and trade sites, including:
:: Fannie Mae (www.fanniemae.com),
:: Freddie Mac (www.freddiemac.com),
:: the U.S. Department of Housing and Urban Development (www.hud.gov) and
:: Mortgage Bankers Association of America (www.mbaa.org).
These sites offer information about the latest mortgage programs, conforming loan amount changes, and general consumer and industry information. They also offer complaint services for mortgage problems on or off the Net.
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Mortgage Money Sites
Online mortgage loan sites that offer direct access to loans come in three basic varieties:
- direct or single lenders,
- auction sites and
- multi-lender shopping sites.
Direct or single lender sites.
Most mortgage websites are direct lender sites. These include mortgage lenders such as Countrywide (www.countrywide.com) as well as all-purpose banks that make mortgage loans, like Wells Fargo (www.wellsfargo.com) and Bank of America (www.bankofamerica.com).
If, for whatever reason, you've already decided to borrow from a particular lender, you might consider visiting its website. Simply search for the name of the financial institution you are interested in to see what's available, or check the online real estate section of your local newspaper. Many of the direct lender sites offer general consumer information, but it's impossible on the Web to compare rates among them. These lenders rarely provide complete product price information including points, fees, lock periods and the like.
Some mortgage sites allow you to complete a loan application, which is then sent to lenders who, in turn, compete for your business. Some of the lenders are sub-prime lenders making these sites a possible choice for you if your credit is damaged. You won't get immediate feedback, but must wait a day or so for several offers. To compare more loans you'll have to repeat the process on each site. Auction sites include LendingTree.com (www.lendingtree.com) , GetSmart.com (www.getsmart.com) , and RealEstate.com (www.realestate.com).
Multi-lender shopping sites.
With multi-lender shopping sites, it's not necessary to complete an application before you shop for a mortgage using more variables than some brokers use. You enter the loan amount, property details and other information and you'll get current rates, APR, points, even settlement costs for each loan from dozens of lenders. You can sort loans by each factor. You can also put loans side-by-side and make apples-to-apples comparisons of interest rate adjustments, margins, life caps, year-by-year payment totals and interest costs and tax benefits. You can even compare the home as an investment with other financial investments.
If you choose to complete an application, mortgage shopping sites review your application, process the required documentation and ship your loan to the lender for further review and underwriting.
While many shopping sites rely largely on traditional mortgage distribution channels, E-Loan.com, QuickenLoans.com, iOwn.com, and HomeAdvisor.com are among the few large shopping sites that cut out the costs of loan officers and brokers.
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Tips for Purchasing a Mortgage Online
Window shopping for online mortgages is a lot easier than actually completing the process electronically.
A confusing array of mortgage site types, mortgages that simply aren't a good fit for automated underwriting (built for speed and best suited for assembly line, cookie-cutter loans, typically refinanced and equity mortgages for borrowers with excellent credit), and consumers' own technophobias thwart many from cashing in on the proliferation of online mortgages.
Home purchase mortgages involve two parties and a longer and more complicated escrow process (that's the time between signing a contract and transferring ownership). If something goes wrong, the computer can't sit down with you and work it out. Likewise, if you have bad credit, a loan specialist will have to decide if you can qualify for a more expensive sub-prime loan and, if so, which one. Unfortunately, mortgage websites typically don't work well for shoppers with less than top-notch credit.
Also, first-time homebuyers often need a lot of hand holding that a cold Internet interface can't provide. Still other consumers have security concerns and avoid online mortgages.
Before you complete an online mortgage application for a purchase, refinance or equity loan, consider these tips:
- Get briefed on the mortgage process.
Attend a mortgage workshop, seminar or class or sit down with a good book or traditional mortgage broker.
- Choose an online broker licensed and regulated by your state.
(See State Real Estate Departments and Commissions.) Your state's regulatory agency may be at a loss to handle problems with outside lenders.
- Check out the lender, too.
The broker finds your loan, but a lender underwrites and finances it. Verify the online lender's status with the Federal Deposit Insurance Corp. (FDIC) or another federal regulatory agency that governs mortgage lenders.
- Use online technology to your advantage.
Shop around using online brokers, "click and mortar" brokers who are both on and off the Net and traditional "brick and mortar" brokers and lenders.
- Get the best rate and terms before you apply.
Offline lenders know online lenders can be competitive and they will try to offer you a better deal.
- Don't be taken by the ease of completing applications online.
Do your research, complete one when you've found the loan you want -- and then stick with it. Each subsequent application triggers another credit check and lenders could reject your applications after your credit report reveals numerous credit checks in a short period.
- Don't complete an online mortgage application if you can't follow through.
If you fill out an application at work, but don't have Internet access at home, you'll defeat the purpose of the automated online mortgage process. Online brokers use email to help you track your mortgage's progress and to advise you of interest rate fluctuations. Some sites allow you to track your mortgage application's progress and funding online.
- Get a rate lock.
Online or off, a rate lock -- in writing -- guarantees you a certain rate and terms for a given period of time.
- Consider security issues.
It is possible, but not very likely, that someone might steal your online mortgage application information. But it's probably a lot easier to break a window at your mortgage broker's office and ransack the files than it is to hack into a heavily secured online mortgage site.
- Beware of come-ons.
Use the same diligence when you shop online as you would shopping elsewhere. The same teaser-rate, bait-and-switch and small print games that occur offline unfortunately also exist on the Web.
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