The “you get approved for your mortgage in one, two, three” commercials aren’t a true reflection of how things actually work in the real world. Although we have many online mortgage platforms that are using high tech to make it easier than ever to apply for your mortgage; in addition to all of that technology, there are still real live humans behind the scenes who have to review & confirm your application, confirm the details are accurate, and ultimately make the decision as to whether you get approved for a loan.
So while technology has definitely made the process of applying for a mortgage easier than ever before; it still doesn’t mean we have magically created an entirely automated process.
This is why using a mortgage professional when you’re buying a home – especially a mortgage broker – is the best way to go!
To help you understand how this all works; let’s imagine that you need a mortgage to purchase a home. You have three options:
- Borrow from a Large Bank (i.e. Chase, Bank of America, etc.)
- Go Online to a National Lender (i.e. Quicken Loans, etc.)
- Use a Mortgage Broker who can help you find the right lender for you.
Each of these three ways will ultimately get you to where you want to be (getting a mortgage to purchase a home). However, each of these three ways is going to experience an entirely different process that leads to your goal of getting a mortgage.
A mortgage broker assists both borrowers and lenders by being an intermediary. The broker has access to many lenders and loan programs, instead of simply being offered one loan from a single bank. The broker will assess your financial health and find a lender that meets your needs.
In other words, brokers process the paperwork as well as help you through all facets related to obtaining a mortgage.
Flexibility is a major difference between working with a broker or traditional institution (bank) loan officer.
When you go to a bank for a loan, the loan officer only has a specific set of loan programs that they can use to approve you. However, if you don’t meet their criteria, your options will be limited as well.
In contrast, brokers can put together options from various lenders, which enables them to find the solution that best meets your needs.
Another difference has to do with compensation. Brokers are usually paid only when they successfully close loans for their clients; therefore, they are incentivized to help clients successfully complete the loan processing timeline.
The mortgage industry has seen an infusion of web-based lenders.
These lenders try to give you quick answers all through a basic web application process (or mobile app) that creates the appearance of immediate feedback to the consumer. Their marketing is generally focused on convenience (e.g., just scan and upload your documents, then click some buttons to order a loan).
However, as with most things in the financial world (and in life), there are people who work behind the scenes to review the information submitted by the consumer before making a final decision on the loan application.
So regardless of how an application is processed through technology (often called ‘front-end processing’), there will still be individuals (in this case mortgage professionals) that will carry out the key component of the lending process—evaluating the file and determining whether it meets the lender’s requirements.
The other noticeable difference with web-based lenders compared to traditional lenders is that there will typically be less availability of guidance provided to the borrower.
Purchasing a home can be an overwhelming and stressful experience, especially for new buyers. The rules for obtaining a mortgage can be cumbersome and complex, and problems with small items (such as proof of income documentation or property valuation requirements) may affect whether or not the loan is processed/approved quickly.
Typically, using a local broker provides you with individual attention, someone who knows about the local real estate market, who will guide you through the entire process, step by step. This is extremely important, as real estate markets can change dramatically based upon the region.
For example, housing trends, seasonality in purchasing, and buyer competition can differ drastically across cities.
A different element of this is how sellers perceive mortgage approvals.
In a competitive housing market, sellers and their agents work with lenders who are known in the area to close quickly more often than not. Sometimes a strong pre-approval letter from a reputable lender in the local area holds more weight than one from a large nationwide lender.
This isn’t to say that larger lenders cannot be counted on, but rather that relationships and reputations can greatly impact real estate transactions.
That being said, there is nothing wrong with using an online lender.
Many times borrowers are able to find competitive interest rates or advantageous terms for loans using online providers and websites. The important part about this option is that the buyer should shop for multiple quotes in order to evaluate all of the options available prior to selecting one of the lenders.
An interesting fact about using this method is that the person who compares different lenders by shopping around usually indicates they are going to get the best deal.
There is a small drawback associated with entering your information into certain online comparison sites, though; some of those sites will sell your information to multiple lenders, resulting in a large amount of unwanted phone calls and emails from competing companies.
So much sales outreach can flood some individuals’ inboxes, to the point of being overkill and overwhelming to them.
Many individuals wonder if mortgage professionals will one day be replaced by great advances in technology.
It is a good question, as the development of digital tools continues to advance. It is also worth noting that there are countless examples of the same claim being made about other industries as technology has continued to change the landscape over time.
For instance, while many thought that online investing platforms would eliminate the need for a financial advisor, they have yet to replace financial advisors altogether. The same holds true for tax preparation software; people still have accountants.
With regard to the mortgage process, the process with straightforward mortgages can be automated and proceed quickly. On the other hand, alternative and more complex financial situations will benefit from the expertise of a mortgage professional. Example(s) of these types of situations would include: being self-employed or owning more than one rental/investment property.
Lastly, for anyone who is wanting to purchase a home for the first time, one of the most important pieces of advice that is given is that you should not make your mortgage decision based solely on the interest rate.
The interest rate is one component of your total loan cost. There are many other factors that add to your loan costs, including fees, closing costs, and discount points, so whatever the advertised ‘mortgage rate’ is; it is only part of your total costs.
A deal that appears to be a great rate may contain hidden fees in the fine print that can significantly raise your total costs.
This is why it’s so important to ask questions, look at your Loan Estimates carefully, and compare several lenders’ offers.
Ultimately, the goal is to have the best combination of rate, fees, service, and reliability. Having someone with experience assist you through this process can ultimately lead to a more enjoyable purchasing experience for many buyers.
