What Internet Only Lenders Won't You: How They Really Operate

Obtaining a home loan requires careful consideration of not only the costs involved, but where your loan is being originated. When people think “mortgages”, they usually think of their local bank or a mortgage broker. Internet only lenders are also in the competitive mix, aggressively promoting ultra-low rates aimed at the masses.

Because an internet only lender’s model is based around price, a consumer ought to make sure prior to applying for the mortgage, they have excellent creditworthiness, have 30% or more equity in their home,  and financing $417,000 or less, otherwise  actual pricing (rate and terms) is subject to change from that enticing to “good to be true” offer.  Assuming for a moment you do meet these credit standards, be aware of the following online only lending faucets.

4 Important Components When Applying For Mortgage With An Internet Only Lender

1. Volume is paramount

Price creates volume for the online lender. Without price, volume drops, when volume drops profitability evaporates, when profitability evaporates, company cuts overhead/service. It would not be uncommon to estimate that for every loan a local mortgage lender originates, an online lender, needs as many as five times as many new loans going onto the books to remain ultra-low priced and still stay profitable.

2. Internet rates/pricing will always appear attractive

In the mortgage industry, rates drive volume, so it stands to reason internet lenders promote very attractive interest rates and fees. As an informed consumer, you’ll want to be smart and pay attention to the possibility of rate lock fees, loan application fees, or any other upfront fee which otherwise commits you to working with them. Pull the plug with an online lender and you could be on the hook for a few hundred dollars. A traditional mortgage company shouldn’t require any upfront fees other than the cost of the appraisal necessary for the consummation of the loan.

3. Loan Qualifying will be more stringent

Putting together a mortgage is no easy task, so if there’s any credit question with regards to your credit, liabilities, income or assets, expect your file to take much longer than anticipated for closing escrow. Put yourself  in the shoes of the internet mortgage company for a moment. You’re focus is creditworthy borrowers because you can be the most profitable and expeditious in customer service in fulfilling credit types. Put another way, should any loan packages with a lower credit score, higher loan-to-value, or a loans exceeding $417,000 come to the mix, this type of file, because it’s not your niche focus, doesn’t get 100% of your attention right? This holds true why the bigger banks and online lenders, can sometimes take well beyond 30 days to successfully close a loan, let alone communicate in a timely manner.

4. Why quality responsive service costs

Service focused businesses cannot provide superior service while at the same time, being the lowest bottom line lender, business models conflict. Superior expert service unfortunately, doesn’t translate to the lowest possible priced lender in the market, despite advertisements/testimonials to the contrary. If price is the sole leading factor in your motivation to get a home loan, and you’re not sure whether or not your loan is being handled the appropriate way, consider the following questions:

  • How long does it take for this lender to call me back?
  • Is this mortgage company providing me figures based on my expectations?
  • Do they think like an underwriter? Like someone who is risk sensitive?
  • Is the person on the other end of the phone effectively communicating all of the details of my loan?

*Mortgage Tip: the old saying you get what you’re pay for, holds true. Price driven lenders, provide price. If you find a lender more responsive, can more accurately describe how the loan will take place, and their rate/fee is higher, might not be such a bad thing to consider, given that, procuring a mortgage today requires someone working on your behalf that thoroughly understands the complexities of mortgage underwriting.

Whether or not, to work with an online mortgage lender or a traditional lender is certainly the choice of the consumer. Given the tight lending standards in place for mortgage loans today, a consumer would be best served asking complex mortgage questions to the mortgage professional of their choice, so they can weed out who is a professional and who will ultimately be their advocate and successfully delivering the goods. While price is important, it shouldn’t be the only factor, when choosing a mortgage professional to handle the largest liability of your life. If you’re looking for, a traditional lender, with an online presence who can provide you with reasonable numbers, start today by getting a complementary rate quote.

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