Online Mortgage Lender vs. Traditional Lender
You’ve decided to purchase a home and NOW you need to determine your financial lending service. Which option is right for you: Local Lender or Online Lender? As is usually the case, there are pros and cons on both sides of the coin. While local lenders have in-depth knowledge of your city’s housing market, which affords you advice tailored for your area, an online mortgage lender can provide advanced technology that may expedite the process. It’s essential to assess your specific needs and priorities to choose the right type of lender for your home purchase.
Consider the following information regarding the two Choices:
Online Mortgage Lenders
o Applying For a Loan May Be Quicker and Less Time-Consuming
o The preapproval process may be faster.
o Depending on the service, you may be able to upload documents (W-2’s, tax returns, bank statements, etc.) directly to the lender.
o Apply From the Convenience of Your Home or Office
o The scope of the process can be done online, decreasing in-person visits.
o Potential for Lower Interest Rates and fees
o Due to lower overhead costs, an online lender may pass along savings to their customers.
o Larry Phillips – The Mortgage Reports states, ‘Mortgage rates and fees always vary by lender. And unlike online banking — where the lack of branch overhead means lower fees for customers — digital mortgage lenders aren’t necessarily cheaper by default. Online mortgage lenders aren’t always cheaper than traditional mortgage lenders…you might pay slightly more for that convenience. Quicken and Rocket’s interest rates tend to be higher than the industry average.’
o Wide Range of Loan Options
o According to Joanne Ahn – Mortgage Broker, ‘Online lenders often offer a variety of loan products and terms, allowing borrowers to choose the option that best suits their financial situation and goals.’
o Less Personal Engagement and Challenges Getting Assistance
o There will be no direct personal touch interactions in a face-to-face setting. It could be harder to reach someone by phone when you need help.
o Online lending can present the possibility for miscommunication issues, resulting in delays, etc.
o Challenges and Difficulties for Special Credit Considerations
o Stringent standards may make it difficult to get financing for those that have low credit/high debt, have recently changed jobs, are self-employed, or have other unique financial situations.
o Less Understanding of the Local Market
o Depending on the market, this may prove a significant disadvantage to the borrower.
o Home Seller May Be Resistant to Accepting an Online Lender Offer
o When faced with two or more competing offers, sellers oftentimes choose the offer secured by a local lender rather than those using an online lender.
BOTTOM LINE – DIGITAL IS GOOD, BUT NOT ALWAYS BETTER – Larry Phillips
Traditional Lenders
o Personalized Service and Interaction with a Live Person
o Borrowers have access by phone or in person during regular business hours.
o Traditional lenders will invest the time to understand your unique financial situation and needs, providing personalized advice.
o Local Market Knowledge
o They understand the area’s trends, regulations, and procedures and can offer their expertise in steering their clients to meet these specific issues.
o Due to the lender’s involvement in the community, they may be more inclined to accommodate the borrower’s financial needs.
o Flexibility in Decision Making
o Ashley Maready – fool.com says, ‘Local lenders may also have more flexibility in their lending criteria and decision-making processes versus national lenders. They might be more willing to consider unique borrower situations and local market conditions when making loan decisions. For instance, for borrowers with limited credit history, a local lender might consider non-traditional forms of credit, including utility payments, rent, or other regular payments. In some cases, these types of payments can serve a similar role in demonstrating financial responsibility as a strong credit report.’
o Quick Response for Problem-Solving
o Issue resolution is likely to be quicker and less complex by dealing directly with a lender or local lending office rather than managing matters through a national help desk.
o Less Convenient
o Dealing with a local lender may require working around the hours of operation of the lending institution. While most documents can now be signed electronically, you could have occasions where you will need to work with the schedule of others.
In conclusion, whether you opt for an online mortgage lender or a traditional lender, consider your personal preferences and unique financial situation before deciding. Do you like dealing with an online support person or speaking with someone in person? Do you prefer the convenience of processing things online or having face-to-face interactions? Are you comfortable with the complexities of processing documentation by using a computer or do you feel more comfortable with someone handling that for you? Both options have advantages and disadvantages, and hopefully this article can be a springboard for further research in making the choice that is right for you.
Sandi Downing Real Estate/Keller Williams
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