Consumers used to be somewhat restricted just a few years ago when it came to finding mortgage lenders, especially when compared with today's standards. Back then, a borrower would be able to compare interest rates in a newspaper advertisement or spend the day on the phone "dialing for rates."

Comparing lenders from loan program to loan program could be quite a chore, and getting information from ten different lenders would be more than enough to make a loan choice.

Now, the consumer has choices only dreamed about just a few years ago. With the Internet, the consumer can find interest rate quotes not only from local lenders, but from mortgage bankers and brokers nationwide. Log onto most any financial website and mortgage offerings abound, giving the consumer more choices for mortgage lenders than ever before.

But should you consider using an online lender?

First, why not? Businesses offering mortgage loans realize that to compete in an area where they're not recognized or known they'll need to provide some additional incentive to get the consumer to make the initial contact. I call this additional incentive a "compelling reason" to use one lender and not another.

What compelling reason would there be for a consumer use an online lender? I can name two: better interest rates or a better loan program.

Let's say your financial situation just doesn't fit the usual financial norm. If your local lender can't offer the specific mortgage you need at a competitive price, then that could be a compelling reason to use an online lender. Maybe you need a zero down, non-government loan with no mortgage insurance. If your local lender doesn't have that product, perhaps the web might be a good place to look. Or, you want to get a better interest rate than someone locally is offering. Log onto the Internet and see what's out there.

As with any lender, you'll need to check out the company offering the mortgage at a better rate. Are they licensed to do business in your state? Most states -- but not all -- have specific licensing requirements for mortgage brokers and bankers. If the company is placing mortgage loans in your area, make certain they have the legal authority to do so.

When you visit the website of an online lender, pay attention to several items.

• Are you visiting a quality website? True, you can't always judge a lender by site design, but an attractive design with easy navigation and working links seems reasonable to expect.

• What about the company? Click the "About Us" area or an equivalent section of the website. If you can't find anything about the company, don't apply. Good information includes locations, states where licensed, and reasonable background information.

Local lenders rely heavily on reputation and repeat business; when a loan goes bad it reflects poorly on the company. If things go bad too often a local firm will fail.

But what happens if an online lender handles a loan poorly? The consumer loses, but what about the online lender, how are they penalized? If there's a problem, where do you file a complaint if the mortgage broker is in California and you're in Maryland? Where can you get assistance or recourse?

There's a great big ocean of consumers out there, and one borrower is an insignificant drop of water. If an online loan goes bad, will the next consumer know?

People who use the Internet can find good deals, but a little extra homework is needed to make certain that what's offered online can be delivered -- and delivered in a timely manner. Compare local, regional, national, and online lenders. See who has the best deal for your situation -- but be wary if you hear of deals that are somehow "too good."

Online lenders, like lenders in the real world, are pretty much like the rest of us: decent people trying to offer a product or service and make a profit in the process. There are some bad apples online, but there are also unfair lenders off-line. The Internet provides another way to find loan options, to "meet" lenders, and to consider alternatives. Compared with a few years ago, consumers are plainly ahead -- but don't let the dazzle of the Internet dim your sense of caution.

For more articles by David Reed, please press here.

Published: April 5, 2001

Use of this article without permission is a violation of federal copyright laws.

, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.