When searching for a residential mortgage lender, should you use an online lender or rate comparison service?
I say a resounding NO for these 13 very important reasons:
1. Local lenders are familiar with your community’s mortgage services companies, such as HOAs (Home Owner Associations), escrow companies, property inspectors, notary and other services. These businesses are familiar with the local processes and regulations, which can be very useful if you need to have documents approved or if you need to comply with specific state, county or city requirements.
2. If something goes wrong within an online loan or home-buying service company, you won’t to be able to meet the person responsible face to face to resolve the issue. Across a desk is much more effective than through a monitor or maybe even across oceans.
3. Even before something goes wrong, it is better to meet service providers in person and judge their honesty and professionalism. When you can visit their office building, you are less likely for them to commit fraud or back out of their promise or commitment. Too often online salesmen are slick talkers, but don’t follow through.
4. Rates and fees seem fairly easily compared on websites such as Lending Tree, but usually their lenders pay them a fee for the lead. SO: PLEASE Do not “click through” to apply! There is no loyalty. The lender may have been added to the list yesterday, with no track record of completing loans. This is not the way to get a loan done, but it’s okay to use these sites for reference.
5. The online comparisons do not always include all lender types, including mortgage companies, big banks, credit unions, community banks, brokers, etc. You could miss some key players and real benefits from local lenders.
6. Building a good relationship with your lender is important, because you are giving them all of your financial information as well as personal information. Don’t you want to share that information with someone you can shake hands with?
7. Online lenders may charge fees too early in the process. Many lenders may ask up front for an application fee that covers the appraisal, credit check, and other expenses. These fees should not be paid until further into the process.
8. It’s common, but illegal: Some online lenders advertise very low rates in order to entice borrowers to complete an application. Once they have all your information and credit report, they will inform you that the best rate you saw is no longer available. This is called bait and switch. I have friends that have experienced this. Don’t fall for it.
9. You may be tempted by the fact that online lenders may approve applications for people with lower credit scores, while big banks and brokers may have denied these loans. Beware — the interest rates are usually much higher.
10. Mortgage lending is complicated and you may have lots of questions; however, online lenders may be difficult to reach by phone. Getting answers to your questions can be critical to understanding the loan you need and will be paying on for the next 30 years! It is too easy to misunderstand or misinterpret the question or information. And vagueness can be a sales tactic, or simply an untrained person in the online loan company. It’s a big decision and a lot of money. Know as much as you can.
11. Are you reading all the online fine print? If you don’t, it could result in higher fees or a problem with your approval later on. One of my clients’ online lender fees increased $14,000 in the middle of the process, for no reason. In addition, you especially need good communication from the lender once you’re in escrow.
12. Is the online lender open during weekends or on holidays? What if they are in a different time zone or a different country? If there is an issue with the home appraisal, documents, loan funding, etc., the online lender or call center may be closed and it could kill the whole deal.