When lenders ushered in modern online banking in the mid-1990s, they envisioned thousands of consumers logging on in their pajamas, coffee cup in hand. The prospect of applying for a mortgage from the comfort of your own home at any hour of the day was supposed to revolutionize lending.
While home loans have taken off–there were a record $3.8 trillion in new loans last year–the process of getting one remains a mystery to some. But the concept is catching on. Roughly 18 million households who are using the Internet have applied for some type of loan online, experts say.
The numbers aren’t huge, but they are significant, particularly considering the process.
“By human behavior, applying for a loan is a negative psychology,” said Jim Bruene, editor of Online Banking Report, a financial-services newsletter based in Seattle. “It’s not something you want to do.”
Lots of us have questions about how it works. Here are some answers.
Q. Is it worth it?
A. It is if you know what you’re doing and what you’re looking for. Hands down the Internet is great for getting a 30-year fixed-rate refinance loan, said Michael Schwarz, regional manager for First Mortgage of Illinois in Bloomingdale. But if you’re a first-time home buyer or a credit-challenged borrower, online sites won’t provide the one-on-one counseling you might need.
Q. Whom am I dealing with?
A. There are several players. There are single lenders such as online arms of existing banks; however, not all of their Web sites may provide a tailored quote over the Internet. There are auction sites, which basically sell leads (your loan request) to other lenders. And there are referral sites that don’t make loans but post rate information from various lenders.
Q. Will I get a better rate online?
A. Conventional wisdom would suggest that a branchless bank with lower overhead costs would pass any savings on to you. That might be true in some instances, but don’t expect to save a lot.
It’s a trivial difference, said Frank Trotter, of Everbank.com in Jacksonville. You may see a difference of only an eighth of a percentage point in the annual rate among all lenders.
Don’t be afraid to start with your bank, said James Van Dyke, founder of Javelin Strategy & Research, an electronic-financial-services consulting firm in Pleasanton, Calif. It might give you a preferential rate for being a customer.
Remember, advertised rates aren’t guaranteed. Fees, points and closing costs can drive up the annual percentage rate, and sneaky lenders will advertise a low rate then run up your monthly payment by tacking on high fees and closing costs.
Q. Which route is safer?
A. It’s a wash. You’ll generate a paper and electronic trail going through either route.
Avoid clicking on a link embedded in an e-mail solicitation. Leave a Web site immediately if there is no contact number or office location.
And guard your personal information until you’ve checked out the lender.
Q. How do I know if the lender is legitimate?
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A. You can check out the financial status of many lenders at the Federal Deposit Insurance Corp.’s Web site, www2.fdic.gov/Call(underscore)TFR(unders core)Rpts/search.asp.
Call state regulators if it’s a broker to see whether the company is approved to do business.
Call the Better Business Bureau to check for complaints. Don’t forget to call the lender as well. If you can’t find a working number you might want to take a pass, regardless of how tempting the offer may be.