In the market to purchase a home? Then you’ve likely done some legwork regarding how much and what type of mortgage you might qualify for. There are several different types of mortgages, from traditional mortgages to jumbo mortgages, government-backed mortgages, fixed-rate or adjustable-rate mortgages. But did you know you can get most of these types of mortgages online?
Read on to learn the basics of traditional and online mortgages, how they compare, and which one may be right for you.
A mortgage is a type of loan that allows you to purchase or refinance a home. Mortgages are also called mortgage loans. You can either get a mortgage to purchase a new home or take out a mortgage on a home you already own. Most mortgages have a 30-year payoff term, though some have a 15-year payoff term. If you don’t make your mortgage payments, your lender has the legal right to take back your property.
What type of mortgage you qualify for depends on your financial situation. For example, you might qualify for a traditional mortgage if you have good credit and a debt-to-income ratio of 50% or less. You may qualify for an FHA loan (which is government-backed) if you have less-than-stellar credit or a bit more debt. If you’ve served in the armed forces, you can qualify for a VA mortgage.
Jumbo mortgages are loans that are greater than the Federal Housing Finance Agency’s limits, so you’ll need great credit, a low debt-to-income ratio, and cash reserves. Fixed-rate mortgages also require a better financial picture, like good credit, higher income, and lower debt-to-income ratio, while adjustable-rate mortgages often have looser requirements, since their interest rates are subject to change throughout the life of the loan.
While there are many different types of mortgages, these are the primary ones. And most types of mortgages can be obtained either via a traditional application or an online application.
Traditional Mortgages vs. Online Mortgages
Anyone who has ever gotten a traditional mortgage knows what a headache it can be, from the necessary paperwork to the credit checks to the long calls with your loan officer, to the many, many signatures required.
Online mortgages take that process and streamline it. Whether it’s through a traditional bank that offers online applications or an online-only mortgage lender like Rocket Mortgage or Better.com, you’ll apply in a similar way as you would with a traditional mortgage. You’ll get a mortgage pre-approval so you can begin the home search with a number in mind, then you’ll submit the necessary documentation. Next is loan processing, then, finally, closing.
It’s important to note that while online mortgage applications are generally more streamlined, you’ll still have to submit all the same documentation as with a traditional mortgage. This includes verification of income, tax returns, bank statements, and information on your debt and any other assets. You’ll still have to go through a credit check as well.
And if you’re worried about the validity of applying for an online mortgage, don’t be. Both are federally regulated. Though, with anything that’s completely digital, there’s always the chance of fraud.
Pros and Cons
More personal experience
Easy access to a loan officer for questions
Good for first-time homebuyers
Process can be longer
Interest rates can be higher
More competitive interest rates
Easier, more streamlined process
Process can be quicker
Preapproval can sometimes be instantaneous
Less one-on-one help
Chance of fraud since the entire process is digital
Not for those who aren’t tech-savvy
How are online and traditional mortgage lenders the same?
Both offer the primary types of mortgages (traditional, government, ARM, fixed-rate mortgages, jumbo mortgages). They also both require the same types of documentation, such as proof of income, tax returns, and information on assets and debt, though the process is a bit different.
Who can qualify for an online mortgage?
Anyone, as long as your credit and other aspects of your financial situation meets a lender’s requirements. Those with lower credit may be better off working directly with a loan officer on a traditional mortgage application.
Are online mortgages safe?
Yes, both online and traditional mortgages are federally regulated.
Are online mortgage applications quicker than traditional mortgage applications?
Usually, yes. Sometimes online mortgages can submit instantaneous pre-approval, and also offer real-time updates of your loan, another plus.
While traditional mortgages and online mortgages can achieve a similar end, there are some important differences to note. For example, online mortgage applications tend to have better rates and the process is more streamlined, while traditional mortgage applications offer a more personalized experience, though the rates can be higher. But both application types support the major types of mortgages - FHA, VA, traditional, fixed-rate, adjustable-rate - so which you opt for largely depends on preference.