The days of meeting with a mortgage consultant at your bank with pay stubs and tax returns in tow are over. Mortgage lenders are developing or refining their mortgage application systems to serve customers who'd rather deal with an interface, rather than a lender face-to-face. Choosing, applying, and closing on a home loan can be done almost completely online, but a digital mortgage has yet to fully replace the expert advice of a loan professional or become so efficient that the majority of applicants can complete one without the help of a human intermediary. The digital mortgage option has added a new facet to the mortgage selection process, requiring borrowers to think beyond the rate, the bank name, or the loan program, and consider whether an online mortgage experience is right for them.
Overview of Digital Mortgages
The term digital mortgage is a moving target, changing with technological developments and varying from lender to lender. In general, it describes a process in which a phone call or a branch visit is not necessary to complete the paperwork for a purchase or refinance home loan. It's a user-friendly, understandable process that uses pre-populated data, which cuts down on the typing when answering the various questions on the online mortgage application. Borrowers upload financial documents and sign mortgage disclosures electronically, seldom or never having to print, scan, fax or snail-mail a form. The digital mortgage obtains an applicant's bank statements, pay stubs, and e-filed tax returns directly from the source, rather than the borrower retrieving them for the lender.
Pros and Cons of Going Digital
The loan process is sped up through digital verification. According to the leading digital mortgage lender at the time of publication, Rocket Mortgage, a division of Quicken Loans, claims that its digital process shaves eight days off of a purchase or refinance loan. Digital verification helps lenders make decisions quicker. It also provides more accurate information than a borrower or lender might provide up front on the application. The reduction in human error and paper flow mean increased efficiency, which may lower costs – a savings that can be passed on to the borrower. The most commonly used loan types are also readily available with digital mortgages, such as Federal Housing Administration, or FHA, loans, adjustable-rate mortgages, or ARMs, and low down-payment loans from Fannie Mae and Freddie Mac.
But a digital mortgage isn't for everyone. Even borrowers who would prefer to do everything online can't, due to their mortgage amount or employment. For example, borrowers who need a loan amount above $417,000 – the "jumbo loan" customers – are often ineligible for automated loan approval. Also, self-employed borrowers, borrowers with multiple sources of income, those who have manually prepared income taxes, and borrowers who don’t have online accounts with all of their financial institutions, require more human intervention and legwork to get a mortgage. Although a borrower with any of these scenarios can apply online and provide authorizations digitally, they'll still need to gather and submit documentation the old-fashioned way, which can take days as a lender's underwriter to manually processes, reviews and approves the paperwork. According to Fox Business, the two largest misconceptions about digital mortgages are that the borrower can get a loan with just the push of a button and that the lender requires less documentation. When a digital lender can't get the information it needs online, the borrower still has to provide the documents and have them manually reviewed by an individual.
When and How to Find a Mortgage Loan Consultant
Because homebuying or refinancing is a major financial move that can be intimidating and confusing, borrowers likely want expert advice along the way. Although the digital mortgage does offer the opportunity to click a button to communicate with a live loan specialist, borrowers may prefer regular face-to-face meetings and a brick-and-mortar office to visit or call with questions.
A borrower who prefers to do business at their bank or at a non-depository mortgage lender's office, should first choose three candidates to interview about rates, programs, fees, and their mortgage process and get their offers in writing, called "loan estimates." Putting in the necessary work to find a good loan officer can save money up front and thousands of dollars over the life of the loan, according to the Consumer Financial Protection Bureau. Although one lender may offer a loan that costs less or has a lower monthly payment, make sure to discuss with each lender the pros and cons of the loan program and base your decision on the rapport, service and reputation of the lender as well as the numbers.
When A Digital Mortgage Might be Right
The ideal applicant for a fully digital mortgage fits the following criteria:
- Applying for a conforming mortgage
- Straight salary employee (no bonus or commissions received)
- Works for a large company for at least the past two years (no employment gaps)
- Taxes filed using an online service
- Online accounts with all financial institutions that hold borrower'smoney
With this scenario, the digital mortgage process will likely be seamless, resulting in a loan approval within 10 to 30 minutes.