Realty Times November 5, 2002

10 Tips for Shopping for an Online Mortgage Loan
by Michele Dawson

Americans are buying homes and refinancing existing mortgage loans in record numbers. With the heavy activity, many are turning to the Internet to shop for and apply for mortgages. While this route may involve fewer hassles, you still need to educate yourself on the process - and protect your privacy and get the best deal you can.

Last year about 25 percent of those who applied for a mortgage used the Internet to search or actually obtain a loan, according to Forrester Research, a firm in Massachusetts. The rate is climbing to close to 1 in 3 this year.

And while the Mortgage Bankers Association of America expects gradual overall mortgage rate increases into 2003, it still expects high volume, in part from 2002 spillover - and the role technology is playing in the mortgage process.

"While technology has helped to limit the incidence of bottlenecking, it is expected that this and low rates will cause spillover of 2002 refinance volume into the first half of 2003," said Doug Duncan, MBA senior vice president and chief economist.

The online mortgage shopping activity is expected to continue to mount.

"I am confident in the numbers continuing to climb, and not level off for some time yet," said Phil Colling, an MBA economist.

As reported earlier this month on Realty Times, an annual survey of more than 600 mortgage companies and 500 consumers, "Myers Annual Internet Mortgage Survey," finds that 76 percent of mortgage shoppers now use the Internet to check rates and research mortgages. And the survey also reveals that 75 percent of consumers are willing to complete the entire mortgage process online once digital signatures become widespread.

So what should you know if you're shopping for a mortgage online? Freddie Mac offers the following tips:

  • Check out the web site's security. Make sure the site has security measures in place that protect your financial information.

  • Know who will have access to your information. To find out, review the site's privacy policy.

  • Understand how the lenders determine rates. Some rates will be based on your credit history and score; others may be determined by how much of a down payment you have. You might have to actually to through the application process before you get a rate. Be sure to compare various lenders.

  • Once you're ready, go ahead and apply online. It's typically the easiest and most convenient way.

  • Inquire about timing. Find out how long it will take to know whether you're approved. And be ready - some decisions come in just minutes.

  • Compare application fees. Check out online fees vs. local lenders. Many web sites let you fill out the online application form and receive an answer before you have to pay the application fee.

  • Scrutinize the closing costs. Make sure they're realistic. Closing costs, transfer taxes and property taxes vary widely across the country. You should ask a real estate agent to get you your local information.

  • Ask about documentation. You'll need to ask the lender what you'll need to provide in the way of your credit report, earnings, and employment history.

  • Know about the online company's customer service. Find out when representatives are available.

  • Find out about closing arrangements. You'll need to sign paperwork and likely have it witnessed by a notary, so you'll want to know how that will be handled.

    In addition, follow the steps you would take if you were shopping for a mortgage without the help of the Internet.

    That means get information from a variety of lenders - thrift institutions, commercial banks, mortgage companies, credit unions, and mortgage brokers. They may quote you different prices.

    Compare the interest rates, making sure you're comparing apples with apples and oranges with oranges by asking each institution their fixed rates and their adjustable rates. You'll also want to compare points and the fees - loan origination and underwriting fees, broker fees, and transaction, settlement, and closing costs.

    The Federal Trade Commission offers a worksheet to help you in your mortgage shopping, whether it's on or offline. You'll want to be especially diligent in shopping around if you've had a shaky credit history. Specifically ask how the rate is determined and what you can do to get a better price.

    And, don't forget, price and terms are sometimes negotiable, so roll up your sleeves and get ready to negotiate for the best price possible.


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