What Is an Online Mortgage and Why Should I Get One?

An online mortgage allows you to complete the home loan application and approval process digitally. Getting an online mortgage makes sense if you’re comfortable providing your personal information electronically and you have good credit, a stable income and a straightforward financial situation.

Online mortgage companies have become more common as current and aspiring homeowners turn to the ease of a digital mortgage experience. However, not all borrowers are a fit for the online mortgage approval process.

What is an online mortgage?

An online mortgage is a home loan you can obtain from a lender without stepping foot in a physical office. Also called a digital mortgage, the entire experience — from loan application to closing — can be completed electronically. In 2019, more than 95,000 borrowers got an online mortgage — an increase of more than 500% over the previous year. These online mortgage transactions included signing closing documents and the promissory note digitally.

Most lenders, including local banks and credit unions, offer an online option to apply for a mortgage. Others, such as Better.com or Guaranteed Rate, for example, bill themselves as online mortgage lenders — that means they may be able to fund your loan entirely online, without a single phone call or meeting.

Is getting an online mortgage cheaper?

Many people believe getting an online mortgage is less expensive because online mortgage companies spend less in overhead costs for buildings and advertising. However, an institutional bank can choose to compete based on how much money you keep in the bank, while a retail mortgage bank has the ability to cut their rates and costs to gain market share for a particular loan program, such as an FHA loan.

Ultimately, all lenders still spend money to market, process and close loans. Online mortgage lenders, though, have some operating advantages that may help their borrowers save money.

One major advantage is the automation of the loan process and some underwriting operations, which reduces the time it takes to approve and close a loan. A quicker loan closing, especially in a lower interest rate environment, means online lending customers enjoy the financial benefits of a refinance sooner than customers working with traditional mortgage lenders.

Why should I get an online mortgage?

• You need a fast online mortgage approval. A 2018 study by the New York Federal Reserve found that online lending technology reduced loan processing times by 10 days on mortgages originated from 2010 to 2016. A faster online mortgage approval may help you compete against other offers if you wind up in a bidding war. Another bonus: The shorter the interest rate lock period, the better your rate, which may make your online mortgage rate quote more competitive than a traditional bank quote.
• You don’t want the hassle of providing as much financial paperwork. Depending on your credit scores and the type of loan you’re applying for, online mortgage lenders may be able to collect your earnings, checking and savings information using an automated process. That could significantly reduce the number of items needed on your mortgage documentation checklist.
• You may be able to sign your closing documents electronically. Some online mortgage lenders offer virtual signings, which means you can sign closing paperwork from the comfort of your home, or any place that’s convenient for you.

Pros and cons of getting an online mortgage

Pros

• Faster approval process for highly qualified borrowers
• Ability to check the status of your loan on a mobile app or laptop whenever you want
• Closing paperwork can be signed electronically at some lenders
• May be able to complete the process with little to no paperwork

Cons

• Unable to meet with your loan team in-person
• Could have multiple people involved in your loan throughout the process
• May be harder to get an online mortgage approval if you have a spotty job history or poor credit
• Might put your personal and financial information at risk of being stolen or hacked

How the online mortgage approval process works

Although the process may be different from lender to lender, getting an online mortgage approval usually means you’ll:

1. Shop around for online mortgage lenders. To start your search for the best online mortgage companies for you, ask for recommendations from relatives and friends or search for lenders online. The general rule of thumb is to shop for mortgage rates and loan terms with three to five lenders to make sure you’re getting your best deal.
2. Apply online for a mortgage. You’ll need to have your Social Security number, along with basic financial information like your last two years of employment history and a reasonable estimate of your current asset balances and monthly debts. The more accurate your online application, the more solid your online mortgage approval will be. Lenders are usually notified immediately after you complete an online loan application, and some may be able to issue an automated approval decision within minutes of reviewing your information.
3. Review and e-sign your loan disclosures. Online lenders must issue a loan estimate along with the rest of your initial loan disclosures within three business days of your application. Be sure to check the figures to make sure they match up to your initial shopping quotes. If everything looks good, you’ll e-sign the disclosures and the lender will officially start processing your application for final approval.
4. Follow the lender’s requests in the online lending portal. After you apply for a mortgage online, you’ll be asked to upload all of your financial documents and provide information so an online mortgage lender can underwrite and, ultimately, approve your loan. Some lenders offer digital apps that allow you to track your loan’s progress on a mobile device at any time.
5. Find out what information can be verified online. In this step, your lender will ask for permission to check your income directly with your employer. They may also ask for your checking and savings account information to view your balances.
6. Close your loan digitally. Some lenders offer the option to do an eClosing, or electronic closing. Some online mortgage companies conduct eClosings in one of three ways:
   • Remote online notary signing. You’ll join a video conference, then review and sign your documents electronically.
   • Wet sign and eClosing. This involves a combination of in-person wet signing (with a pen) and electronic signatures on some documents.
   • In-person electronic notary signing. Called IPEN for short, you’ll sign all of your loan documents electronically in person, usually using a tablet or another mobile device.