Should You Get a Mortgage Online?

You're likely seeing a lot of advertisements these days from online mortgage lenders who want you to think that getting a mortgage on the web is quick and easy.

So when researching or applying for a mortgage or mortgage refinancing, should you forget the trip to your local banks, credit unions and other walk-in lenders? 

As enticing as these ads may seem, the answer is: probably not.

It's fine to begin researching a mortgage online. And ultimately you may decide that's where you should get your loan. But don’t expect it to be as simple and fast as some of those advertisements imply. And you may be able to find better deals elsewhere.

Online mortgages gain in popularity

Shopping for a mortgage online is becoming increasingly popular. In its 2017mortgage satisfaction study, J.D. Power reported that, for the first time, mortgage shoppers submitted their applications online more often than any other way, including by visiting a walk-in lender. But in its 2018study, it found that only 3 percent of mortgage customers used mortgage self-service tools exclusively. And that’s probably for the good.

Shopping for a mortgage or refinancing can be complicated, especially if you're new at it. It's often helpful having a real-life human to explain the process and answer questions in person. Also, rates from online lenders aren't necessarily better than you can get locally. So it makes sense to cast a wide net. Finally, even if you get a mortgage online, don't expect to avoid paying those pesky mortgage-related fees, which typically amount to thousands of dollars.

Consider starting online

One of the things mortgage websites have in their favor is that they typically provide a lot of easily accessible information about how mortgages work, which can be very helpful if you're just starting out. Some websites also have handy mortgage calculators. At three of the sites I checked, Better Mortgage, Lenda and First Internet Bank, I was able to obtain customized mortgage estimates, including rates, closing costs and other fees, such as those borrowers have to pay for an appraisal, credit report and title insurance. 

All I had to do was enter a few details, including the zip code and cost of the house I was planning to buy, the amount of my down payment, the length of the loan and my credit score. I was able to adjust the estimates by changing the various criteria. That's handy if you want to test different scenarios, such as how making upfront payments, known as points, might lower your estimated rate. In none of the cases did I have to submit an application or provide personally-identifying information. That’s good because applying requires you to lift any credit freezes you've put in place and provide a lot of sensitive information, such as your date of birth and Social Security number. And applying for a mortgage can temporarily ding your credit score, an unnecessary step if you're only trying to get a feel for where you stand.  

But not every website I checked was as convenient. At SoFi Lending Corp, I couldn't get a customized estimate without registering and providing personal information, including my name, email address, and date of birth. 

And the largest and perhaps best known online lender, Quicken Loans' Rocket Mortgage, wouldn't provide an estimate unless I actually applied.  Also, while those Rocket Mortgage ads say you can get approved for a mortgage in as little as eight minutes, don’t expect your printer to spit out a check by the time you close your computer browser. What the lender actually provides is what the industry calls a pre-approval, which still can leave you a month or so from actually getting your mortgage. One upside of the Rocket Mortgage approach is that rates quoted based on a pre-approval are likely to be more accurate than those you'd get without actually applying. And Rocket Mortgage, like some other mortgage websites, lets you conveniently upload documents the lender will require, such as proof of income and employment. 

What to do

If you don't know how mortgages work, start by looking at some independent sources of information, such as the Consumer Financial Protection Bureau and the Federal Trade Commission. Also, check the useful information on mortgage websites. While you're at it, try to get at least a primarily estimate of the deals you'd be eligible for. But don't stop there. Also check with local banks, credit unions and other walk-in lenders. Also check at least one mortgage broker, advises David Reiss, a professor specializing in real estate financing at Brooklyn Law School. Reiss also is editor of the real estate finance blog REFinBlog.  

Keep in mind that mortgage rates can change quickly. So try to find as many rates as you can without a day or two to be sure you're making a correct comparison. To get the most accurate rates, you'll need to formally apply. The first application will ding your credit score, but the others won't as long as they're within 45 days of your first one.  Also keep in mind that rates can change between the time you apply and the mortgage is issued. So one you're pre-approved, find out a what point you can lock in your rate. 

Before moving forward with a mortgage or refinancing, check out the lender’s reputation by looking for a company report at the BetterBusiness Bureau. Also, try a web search with the lender’s name and such terms as “reviews” and "complaints" to see what others are saying. That not only can tell you something about how well the company treats its customers, it can give you an idea of the issues people encounter and the questions you might ask up front. For a mortgage website, one thing to look for is how easy it is to contact a representative by phone if you need to speak with someone. Finally, you can verify whether a lender is licensed to operate in your state by visiting the Nationwide Mortgage Licensing System.
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