Is Online Lending Right for You?
When you go to the grocery store to buy breakfast cereal, do you enjoy choosing from a few stale boxes, or would you prefer to make your selection from well-stocked shelves? Believe it or not, choosing a lender for your home purchase is a lot like buying cereal. The wider the selection, the better decision you will be able to make.
The Internet is today’s well-stocked lending supermarket. With the touch of a button you can research rates, terms, and lender incentives without picking up the phone book or the phone. But is online lending for you? Here are the pros and cons.
Pros of Online Lending:
l Great deals abound. Since online lenders know that their only way of attracting business is to offer good rates, they tend to offer the most competitive interest rates available.
l Less chance of being taken in by someone’s charm. Without slick salesmanship, the numbers have to speak for themselves. If the terms and conditions are lacking, then you will not feel obligated to go with someone just because he has become your “mortgage buddy.”
l User friendly. Point, click, sign. If your credit, income stability, and income-to-debt ratio are good, you are a perfect candidate for online financing. Spending a few hours in front of your PC can lead to multiple email offers for home loans. Why not let mortgage bankers and brokers do the work, trying to outbid each other to win your business?
l A loan is a loan is a loan. Most online offerings seem familiar because most companies who have ventured onto the Internet stick with traditional industry methods for application acceptance, processing, approval, and funding. Regardless of where they originate, all mortgage loans are protected by state and federal regulations.
l Simplistic rate comparisons. When all you are looking at is the facts, the facts are easy to compare. Double-talk is hard to transmit via the Internet.
l Easy access to providers. While searching for a suitable lender, mortgage brokers traditionally contact one lender at a time, searching for the right match. Online, however, borrowers can skip the middle man, searching for the lender that best meets their needs, not the needs of the broker.
l Puts you in the driver’s seat. Let’s say you need a zero-down VA loan without mortgage insurance. If you call a mortgage broker, he might not thoroughly research your request. After calling two of his favorite lenders, he may come back empty-handed. Using the Web, however, puts you in charge. Who cares more about your home loan, you or a broker?
Cons of Online Lending:
l Lack of accountability. Local lenders rely heavily on word-of-mouth referrals and repeat business. So if a loan goes bad, it reflects poorly on the company. If things go bad enough, a local firm could even fold. Online lenders, however, face less accountability. If you have a dispute with an online lender, where do you file a report? How will other potential borrowers learn about your experience?
l A new breed. Since online lenders are a recent addition to the mortgage-lending scene, they haven’t yet earned the reputations of their time-tested, off-line competitors.
l License requirements vary by state. Since lending legislation varies, you could possibly select an online lender who isn’t licensed in your jurisdiction. If an online company is placing mortgage loans in your area, make sure they have the legal authority to do so.
l No face-to-face contact. Online and traditional lenders alike want to offer a service and make a profit in the process. Some online lenders are bad apples. Some traditional lenders are, too. And though consumer confidence in Internet purchases is on the rise, Internet suspicion may mean it is still too soon for you to make the jump to home loan cyberspace.
Do They know the market area you are buying in ? Do they have good local appraisers that will understand the are of your new home ? A bad appraisal can kill a deal.
Do their processors know the legal paperwork required by the State you are buying in? Each State is different in regard to title and closing requirements. Incomplete or incorrect paper or procedure can delay a closing. Are they in the same time zone, if not this can make communication between title and closing companies difficult.
Have they thoroughly pre approved you ? You don't want to get into a deal only to find out that you will ultimately not be approved for the loan.
Do they have a well known reputation for good service and the ability to provide a smooth transaction ? If the lender is not known to the seller your offer may be looked over for another with perceived lower risk.
Tips for Choosing an Online Lender:
If you decide you're ready to surf for online lenders, be sure to take the following precautions:
l Make sure the website is professional. While a good website will not guarantee a good loan company, a poor one is an indication the company is biting off more than it can chew. Do you want to borrow money from a company that can’t afford to hire a professional web page designer?
l Do research. Many lender websites offer the company’s history and business practices at the click of a button. If you can’t find out anything about the company, try another one.
l Ask your Realtor for suggestions of reputable online lenders.