Several years ago, real estate agents feared the worst when they heard the buyer was using an online lender. In many cases, the agents were not overreacting. Often mortgages originated online closed late, and this can wreak havoc with a home-purchase transaction. Some online loans never did close.
One home buyer who used an online lender e-mailed his lender daily and did everything he could to stay on top of the loan process. Despite all his efforts, the transaction closed one week late.
A big problem with online lending was the lack of accountability. There is often no one to complain to when things go wrong. A good mortgage broker can usually grease a squeaky wheel. Without an advocate working on your behalf, it’s difficult to get the job done.
Anecdotal evidence suggests that the world of online lending has improved. Recently, well-qualified buyers with a large cash down payment had no trouble closing the purchase of their new home on time using an online lender. However, there were a few hiccups along the way. Fortunately, they were hooked up with a good real estate agent who helped the process along.
The buyers’ agent knew that the seller of the property was a stickler for detail and unforgiving by nature. So, the agent encouraged her clients to submit a second application with a local mortgage broker. That way, if the online lender failed to perform at the last minute, the buyers could proceed with their second option and close the purchase.
The appraiser sent by the online lender was from out of the area and knew nothing about the local market. The agent provided the appraiser with comparable sales information that was appropriate for the property in question. Armed with this information, the appraiser was able to turn out a finished report in 2 days.
HOUSE HUNTING: You may be able to find a lower interest rate or fees with an online lender. But, there is likely to be a tradeoff in terms of service. The above buyer received a written loan commitment from his online lender. But, it was hard for him to get a closing cost estimate, which, by the way, is required by law. When the estimate did come, it was off by thousands of dollars because the out-of-state lender missed a hefty local transfer tax.
Some online lenders don’t routinely do business in every state. Consequently, you should anticipate that an online lender might not be up to speed on lending practices or customary closing cost allocation in your state or region.
One online lender assumed that the seller would pay for the title insurance policy when he calculated the buyer’s closing cost estimate. However, in the area where the buyer was purchasing, the buyer customarily paid that cost. This blunder caused the estimate to be low by over $1,000.
Another online lender sent the closing funds one week early. This seemed like a blessing except for the fact that the buyer had to pay an extra week’s interest. This was not insignificant because the loan amount was so high. The extra interest charge wiped out the savings on loan fees that the buyer was counting on.
Online lending will work better for some buyers than others. If you have a large cash down and a straightforward, easily verifiable income stream, you’re less likely to have a problem. Still, you must be willing to put in the time it takes to carefully monitor the transaction.
THE CLOSING: Buyers whose loan qualification is marginal, or buyers who are trying to buy in a competitive real estate market, will probably have better success working with a local mortgage professional.
Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.
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