Online mortgages have their fans and critics: Borrowers like the convenience of shopping for mortgages without ever leaving home, while real estate agents complain that the loans don’t always come through. “Online lenders are just a nightmare,” says Toni McIntyre, a Long & Foster real estate agent in Reston, who has seen deals fall apart because of last-minute problems with the loans.
But ignoring online lenders, which can offer better mortgage rates and lower fees than a traditional bank, doesn’t make sense. “If they’re only an online lender, there are savings that borrowers can benefit from,” says Greg McBride, a senior financial analyst with Bankrate.com, who recommends including online lenders when shopping for a mortgage. The trick to taking advantage of online offers may be to rely on the same tried-and-true methods for evaluating any lenders.
Shop around. The Internet is ideally suited for finding and comparing mortgages, and “the more stones you turn over, the more likely you are to find a competitive offer,” McBride says. LendingTree, a search engine that lets borrowers compare financial products — including mortgages — from online lenders, has introduced a suite of tools for its My Account page to make the task easier. One of the tools — Look Before You Lock — helps borrowers compare customized loan offers to identify the best one. “It will give you a variable-by-variable evaluation of the loan — the rate, the points, the closing costs — and an overall evaluation,” says LendingTree’s chief marketing officer, Darren Beck.
Ask about local experience. One problem McIntyre sees with online lenders is that their appraisers aren’t usually local and may not understand that market. “I’ve seen lenders using taxes from Fredericksburg for a property in Reston,” she says. When the numbers don’t match, borrowers may be left with a higher-than-expected mortgage payment. To gauge the lender’s familiarity with the area, borrowers should inquire about the number of mortgages financed in the community and where appraisers are based.
Choose a reputable lender. Buying a home is no time to experiment with financial institutions you’ve never heard of. When a client came to her with a letter of approval from an online lender McIntyre didn’t recognize, she helped him find another mortgage. Consumer groups also recommend checking with the Better Business Bureau for any complaints about the lender.
Get it in writing. All lenders are supposed to provide a good-faith estimate, which is their best guess for the total costs associated with the loan, including fees and points. While getting a written estimate is a good idea for any borrower, it’s especially important if you’re working with an online lender, which won’t be able to go over all the details with you in person — and you don’t want to be surprised by unexpected fees at settlement. “It’s much easier to spot a potential problem when it’s in writing,” Beck says.
