Shelter-in-place orders haven't been enough to put a damper on the dream of homeownership, but it has complicated the process for many. As a result, an increasing number of homebuyers are turning to the internet to close on their mortgages remotely.
According to Ellie Mae's 2019 Borrower Insights survey, 50% of borrowers opted for lenders that offered digital tools. And 66% of borrowers preferred online applications because they lead to quicker closing.
The Federal Reserve Bank of New York found that digitally-based mortgage lenders reduce mortgage processing times by about 20% compared to traditional lenders. And from 2010 to 2016, online lenders shortened processing time by an average of 10 days. If you're refinancing your mortgage, applying online can cut down your transaction time by an average of 14.6 days.
Online mortgage lending tools not only speed up and simplify the application process for consumers, but also reduce bottlenecks that plague traditional lending. According to the Federal Reserve Bank of New York, digitally-based mortgage lenders have helped ease capacity constraints and broadened lenders' ability to reach more borrowers and avoid human error.
The Best Online Lenders of 2020
In light of current events and increasing public demand for a fully online mortgage application, we've reviewed the best online mortgage lenders that prioritize customer experience and offer ongoing support from application to closing.
Rocket Mortgage is one of the largest mortgage lenders by volume in the U.S. The company has also received the highest customer satisfaction scores in J.D. Power's Primary Mortgage Servicers Study for ten consecutive years.
Rocket Mortgage is a good bet for tech-savvy borrowers who want an online, mobile-friendly application experience with live support. The company claims you can apply and be approved for a mortgage in less than 10 minutes, but borrowers can complete their mortgage or refinance applications at their own pace.
Rocket Mortgage's online application is simple. You'll be asked whether you want to purchase a home or refinance. Should you opt for a refinance, you'll be asked to enter the property address, and the platform will pull public data to fill out the required information automatically.
During the application process, you should be ready to enter personal information about your assets and employment. But Rocket Mortgage also speeds up this step by collecting data directly from your bank, so you don't have to waste time manually inputting information from your account statements. The company can also pull information such as pay stubs if your bank has access to them.
If you're self-employed, you'll need to verify and document your income to prove your financial stability. And Rocket Mortgage may require you to have a lower DTI and higher credit score than other applicants.
Once it gathers your information, Rocket Mortgage offers customized quotes that fit your needs and financial goals.
Should you prefer a flexible loan length and a fixed interest rate, the YOURgage program allows qualified borrowers to customize their loan terms from 8 to 29 years. To be eligible, borrowers must have a minimum FICO score of 620, a minimum 3% down payment, and a debt-to-income ratio no greater than 50%, as well as enough money saved to cover closing costs. Most lenders won't go higher than 45% DTI for borrowers seeking a 30-year term.
If you have questions, mortgage experts are available via online chat or phone seven days a week to assist you.
Better Mortgage is a digital mortgage lender that offers a variety of purchase and refinance loans. While Better.com is 100% digital, it personalizes your experience by assigning a loan officer that you can contact at any time throughout the process. Additional support is available via phone, email, and chat during most hours of the week.
Since it doesn't have any brick-and-mortar offices, this lender is ideal for borrowers who prefer an online-only experience. According to the company, its automated process can offer rate quotes within seconds and a pre-approval letter within three minutes. Additionally, Better.com services its own loans and doesn't charge any lender fees, including application, commission (underwriting), and origination fees, which can save borrowers thousands of dollars.
Better.com also sets itself apart from its competitors by offering its Better Real Estate discount program, available only in select states. If you choose a real estate agent from Better Real Estate and get a mortgage through the company, you could be eligible for up to $2,000 in lender credits.
Closing with Better.com can take 21 days, and rate locks are available on demand.
It must be noted, however, that Better.com does not offer VA loans, USDA loans, home equity loans, or home equity lines of credit (HELOCs).
Paramount Bank is a regional bank that serves residents of 11 states in the Midwest, South, and West, but its online services have expanded its reach to all 50 states. The company is a HUD-approved lender that provides a wide array of mortgage and refinancing products, including federally-backed loans, jumbo loans, 203K loans (for home rehabilitations), and conventional mortgages.
There is little information about Paramount's loan process on its website besides the standard steps to an online loan application.
Once you complete a basic form that requires some introductory information about your credit, employment, and current assets, you'll receive a phone call from a Paramount loan officer to go over your options.
Based on the information you provide online, the loan officer will go over the steps needed to meet your goals — whether that requires temporarily delaying your home purchase plans and enrolling in a credit repair program, or continuing the home purchase or refinance process.
You will only be required to provide further information and go through a hard credit pull if you decide to move forward with the loan application. After your application is approved, the closing can be completed online via e-signing, so there's no human contact necessary.
It's also worth noting that while several competitors have tightened their loan eligibility requirements due to the novel coronavirus pandemic, Paramount hasn't changed their standard qualification requirements. You can qualify for a conforming loan with a 680 credit score or an FHA or VA loan with a credit score of at least 620. Paramount also offers a 3% down payment program for first-time homebuyers.
As a veteran-owned company, Paramount is especially committed to helping veteran families and doesn't charge lender fees for its VA Home loan program.
To learn more about their loan products, you would have to contact the company directly, and the only way to do that is by creating an account.
New American Funding
New American Funding has quickly grown to become one of the largest family-owned mortgage lenders in the US since its launch in 2003. The non-bank offers conventional and government loans, as well as the opportunity to refinance or reverse your existing mortgage at fixed- or adjustable-rates.
New American Funding follows credit score requirements set by Fannie Mae and Freddie Mac, that’s 620 FICO score for conventional loans, and at least 580 for government loans (FHA, USDA, and VA loans). If your credit score is low, New American Funding claims to take into account payment history as an alternative credit scoring to evaluate your creditworthiness.
You can apply for a mortgage loan directly online. The company implements manual underwriting, providing attention to detail and better loan options as they assess your profile.
The California-based lender is available in most states except New York and Hawaii as of 2021. If you’re shopping for quotes, borrowers claim you won’t get an estimate upfront. Instead you have to apply directly for their prices to be disclosed.
How We Chose The Best Online Mortgage Lenders
To find the best online lenders, we reviewed the products and services that make these providers stand out. We spoke to industry experts from mortgage brokers and economists to realtors and financial advisors with decades of experience to get a better understanding of the elements that consumers are looking for in a mortgage lender. We selected our top companies based on the following factors.
Types of Loans
To accommodate each borrower's needs, we valued lenders that offered a large selection of loans from conventional to government-sponsored loans. We also took into consideration any special loan programs, minimum FICO scores, discounts, waivers, as well as debt-to-income ratios.
While navigating a mortgage application from start to finish can be complicated, technology has significantly simplified the process. From prequalifying and estimating how much you can borrow to comparing lenders and home values, the right digital tools can save you time and money.
Our top picks include lenders that offer an ideal balance between digital resources as well as consumer education and support. We valued companies that provide accessible online tools such as mobile apps, mortgage learning centers, and calculators for a well-rounded experience.
When it comes to online mortgages, we prioritized companies with high customer service standards. An all-digital loan experience should offer as much support as an in-person loan application. Studies also show that consumers value human involvement during the application process and that getting the right balance of tech and staff support can speed up the loan process and help borrowers feel more secure. To evaluate consumer satisfaction, we took into account J.D. Power's 2019 Mortgage Customer Satisfaction survey.
"Consumers do have a voice in what happens to their digital experience," said John Cabell, director of financial services in the Global Business Team at J.D. Power in a statement. "Customers are telling us they want shrinking timelines for funding. Younger customers, in particular, are looking at the reputation of the lender through reviews and the convenience of the online platform."
When evaluating each lender, we looked at the number of complaints filed against them with the Consumer Financial Protection Bureau (CFPB). The CFPB is a government agency that sets rules for companies to safeguard borrowers from unfair, abusive, or deceptive practices. We also considered the number of regulatory actions listed for each lender by the Nationwide Mortgage Licensing System and Registry (NMLS).
Applying for a Mortgage
If it's your first time applying for a mortgage, here are some of the most important steps you'll need to take:
Get Pre Approved
If you're serious about purchasing a home, start by getting a prequalification or preapproval letter from your lender. When you prequalify for a home loan, lenders will give you an estimate of how much you can borrow based on self-reported information about your finances, such as your income, monthly debts, and credit score. This simple step can give you a ballpark estimate of how much house you can afford and help you determine which type of mortgage fits your long-term goals.
When you're ready, you can request a pre-approval letter. Unlike a pre-qualification, which is self-reported, a pre-approval letter requires proof of income, assets, and debt, as well as a formal credit check. Keep in mind that pre-qualification doesn't guarantee pre-approval.
A pre-approval letter will, on average, knock off less than five points off your credit score, and it may take a few days for your lender to verify it thoroughly. You'll receive a final loan approval once your new property is appraised.
Getting pre-approved can give you an advantage over cash buyers in high-demand markets and even room to negotiate the price of a home, as sellers will consider you a more serious buyer. In fact, according to experts, most sellers and agents won't even consider an offer from someone that isn't pre-approved.
Due to the coronavirus pandemic and its effect on the economy, most home sellers require a pre-approval letter to confirm that you have a stable source of income. Some are even requesting an extra letter from your employer to verify that your income won't be affected by the Covid-19 crisis.
Have Your Documents Ready
The exact forms you need for a home loan may vary depending on your situation. For example, if you're self-employed, you will be required to provide more documentation than someone that is employed by a company. Due to Covid-19, some lenders have increased their usual requirements for new borrowers and will request further documentation to assess whether you have a stable income and employment.
- Pay stubs (30 days or more)
- Copy of homeowners' insurance policy
- Federal tax returns (last two years)
- W2s (previous two years)
- Credit history
- Photo ID
- Bank statements and other assets
- Bankruptcy records (if applicable, last seven years)
- Alimony or child support documents (if applicable)
- Mortgage statements (for refinancing)
- Gift letters
- Home appraisal
Check Your Credit
Before starting your journey to homeownership, experts recommend that you check your credit reports for errors or outdated accounts.
Your credit history will determine whether you qualify for a loan and what interest rate your lender can offer you. If there are any errors in your report, you may have trouble qualifying for a new loan.
Review your credit report carefully and check for any accounts you don't recognize, incorrect current balances, incorrect negative account information, addresses of places where you haven't lived, or names of employers you don't recognize. The smallest of errors could have a significant impact on your credit score health, according to the Consumer Financial Protection Bureau.
These errors can be disputed online directly with the three major credit reporting bureaus: Equifax, Experian, and TransUnion. You can also submit a dispute over inaccurate information or fraudulent activity on your report by phone or postal mail.
You can evaluate your credit report for free once every 12 months from each of the three main credit bureaus by visiting AnnualCreditReport.com.
Whether it's purchasing your first home or refinancing your mortgage to get some extra cash for remodeling your space, experts suggest you should always take time to compare lenders to find the best financing deal for your needs. According to the Federal Trade Commission, merely knowing your estimated rate and monthly payment isn't enough. Shopping, comparing, and negotiating fees, points, down payments, and available quotes could save you thousands in the long-run.
Whether it's a commercial bank, traditional mortgage company, credit union, or independent mortgage broker, home loans and quotes may vary depending on your lender. That's why the FTC recommends you know your budget and request lenders provide you with a detailed quote listing all of the costs involved in the loan, including added or hidden fees, rates, and terms.
Schedule a Home Inspection
Whether you're buying, refinancing, or selling your home, a home appraisal is a necessary step to determine your property's fair market value. During this process, a home value expert or appraiser will conduct a visual inspection of your home and compare the property to others in the neighborhood to give you an official estimate of what the home is worth.
When determining the value of the home, the appraiser will take into account current market trends and any amenities the home possesses, such as square footage and recent renovations. An appraisal report can help you identify any upgrades to the house and the overall condition of the property.
Due to the coronavirus pandemic, lenders are taking extraordinary measures to ensure the safety of their clients and employees and minimize the risk of contagion. Some lenders are finding alternative ways to complete appraisals and mortgage closings to comply with CDC guidelines, which may or may not delay the closing process. Some lenders are offering temporary waivers for appraisals.
Should it be necessary to conduct a physical site inspection, appraisers are to follow CDC guidelines to ensure the safety of all involved. These include maintaining a distance of at least 6 feet and not shaking your hand. If you are unable to receive an agent in your home, you should contact your lender to verify if they have other options in place during this public health crisis.