By Hal M. Bundrick, CFP
Comparison shopping for most stuff is easy. You can shop prices and get buyer reviews online for just about everything. Mortgages, though? Different deal.
The internet is changing the home loan industry, for sure. It's getting easier to apply and complete the mortgage process all online -- but shopping real-life mortgage rates and home loan lenders online is harder than it looks.
Not all mortgage rates are created equal
Released in late 2015, Fannie Mae's National Housing Survey found that 70% of recent homebuyers would like to obtain a mortgage quote online -- and nearly as many (69%) would like to fill out a mortgage application online. Handling the mortgage process online was even more of a priority for recent homebuyers who had graduated from college, had a higher income or were younger.
But getting a mortgage rate quote online can be tricky.
First off, you have to sort through quotes that are simple interest rates versus real-life rates, called APR. The annual percentage rate includes an estimate of fees and expenses that will be rolled into your mortgage. A plain old interest rate doesn't.
What good is an interest rate quote if it doesn't include at least a ballpark of lender fees? Not much.
You've got some work to do to get a 'real mortgage rate'
So it may be easy to find mortgage rates online, even APR quotes, but they don't really mean much until a lender has some detailed information on you. That includes:
- Your income.
- Debt you owe.
- Your credit score and history.
- The amount of the loan you're seeking.
- And the value of the house that you're buying or refinancing.
Without all that, you're getting little more than a sales pitch and a promise. Getting an interest rate that truly applies to you requires filling out an application.
Your mortgage application process will vary
This is where things can get complicated. What's involved in applying for a mortgage loan online will vary widely among lenders. Some have nearly seamless processes. You can authorize them to grab your pay stubs, bank statements and tax returns all online, rather than having to get all of that together yourself.
Others will prefer to get you on the phone to start the application. All of the verification paperwork will be either uploaded to a lender's website or exchanged via encrypted email. And then there are lenders with fancy websites but little online functionality at all. In that case, you'll probably have to bring all the paperwork with you for an office visit.
It's hard to know who/what you're dealing with
Online searches have always had a high level of noise. A search for online mortgage lenders will reveal (besides a bunch of ads) some how-to articles of varying usefulness, lender reviews -- some of which are little more than paid endorsements -- and, ultimately, four types of lenders:
Actual online mortgage lenders like Quicken, Lenda and SoFi -- These are companies that underwrite their own loans. You'll apply and, if approved, be issued a loan directly from them.
Mortgage loan marketplaces like LendingTree, E-Loan and Zillow -- Marketplaces are paid a referral fee for generating leads to lenders. Be prepared for a bunch of phone calls and emails from numerous lenders working these leads. And because some lenders pay for top placement on a results page, the best rates aren't always the first ones you see.
Mortgage brokers, perhaps some local, as well as national players such as Sindeo -- Brokers are middlemen, matching you to lenders that they work with. It's very similar to a marketplace connection but with a more hands-on experience.
And eventually, you'll find more traditional lenders like CitiMortgage and Wells Fargo as well as banks and mortgage companies in your area. These depository lenders are increasingly moving their mortgage processes online with portals that track a loan's progress and provide secure uploads and downloads of confidential documents. Electronic signatures are becoming more popular as well.
What to look for in an online mortgage lender
Admittedly it's hard to tell the difference between the different types of online services seeking to offer you a mortgage.
One thing you want to look for is that you're dealing with a real-deal mortgage lender. You'll know if you see a Nationwide Mortgage Licensing System lender number somewhere near the company's name. Or you can search the NMLS database to verify if an online lender is legit.
And it's a good idea to read "About" pages and dig a little deeper than simply browsing a home page or mortgage rate roundup. Look for terms such as "direct lender," "broker" or "marketplace" to get a sense of just how close to the actual lender you really are.
Hal Bundrick is a staff writer at NerdWallet, a personal finance website. Email: email@example.com. Twitter: @halmbundrick
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