Online Mortgages - The Advantages and Disadvantages

How To Work This New Option

Online mortgages are a relatively new option. There are a wide range of resources available online to research your loan options, use free online loan calculations, pose questions, and apply online.

You can apply online at different loan sources:

A large bank, such as where you have your checking account
Mortgage broker
Lenders that are only online
There are three different levels of online applications:

The first option is a very basic application form which doesn’t ask you for your social security number. There is no credit check.
The second option is to fill out a short loan form that includes your social security number with an online authorization to check your credit
The third option is to fill out a full mortgage application online, giving not just your social security number but your income, asset, and other information
These different applications give you very different results.

The first option generally allows several institutions to compete to give you "offers". Since they do not have your credit information the "estimates" they offer over the phone are really "guesstimates". Sometimes when you apply online for "up to 4 offers" you will end up with many more people calling as your lead is resold online to many different lenders and brokers. I have heard of some people being called by 10 or more different people.

The second option allows the lender to give you a better estimate of your loan, but the third option is what allows a lender to give you a more accurate estimate.

Online security

Another item to consider is security. Some people are comfortable with giving strangers all of their confidential information, and some are not. You may want to check with the Better Business Bureau or other online sources about the reputation of the business you are working with. A professional broker will have his license number (if required) in plain sight, allowing you to check their record with your state.

Make sure that when you are getting offers from different sources that you compare the same loan type. If one lender quotes you a 30 year fixed loan, and another one a 2 year fixed interest-only loan, you are comparing apples and oranges.

Some lenders that focus on people with bad credit have a very aggressive online presence. They can be quite punitive as they charge their credit challenged customers a lot of money.

Credit checks

One concern that potential borrowers have is that borrowers don’t want their credit "checked too much" because they believe it will drive down their credit. Generally for mortgage credit requests done within a narrow timeframe of a week or two are all treated by creditors as a single request. They understand that shopping around for a single mortgage is different than running your credit a dozen times in one week to sign up for a dozen new credit cards.

Without checking your credit, a potential lender is only guessing at your rates. They may be tempted to "lowball" the quote to get you to work with them, and then try to warm you up to a higher rate during the loan process.

Sometimes a person’s credit can drop if it is run too much over a certain time frame, although this is usually for reasons other than their mortgage credit checks.