This installment is part of an ongoing series about the challenges buyers face during COVID-19 and how the homebuying process is adapting to meet their needs.
We can buy just about anything online, even big-ticket items like cars and homes.
So does this mean applying for a mortgage could become as simple as ordering something from Amazon? Dare to dream!
But seriously, the mortgage industry is moving toward what some pros call the “all-digital” mortgage.
“In the strictest sense, a digital mortgage is one that excludes all human interaction (including over the telephone) across all the mortgage steps,” explains Tendayi Kapfidze, chief economist at LendingTree, an online mortgage marketplace.
So far, some lenders have an almost completely digital process, while others have gone partially digital — but ultimately, “the industry as a whole, from the application to underwriting and processing the application, is moving toward a digital structure,” Kapfidze says.
This won’t appeal to everyone, as some homebuyers will still feel more comfortable with person-to-person interactions or mortgage brokers, but ideally, all-digital mortgages both speed up and simplify the mortgage application process.
Numerous technological advances are already being applied to mortgage borrowing. Below are a few examples we’ve come across:
Some lenders offer preapproval applications online, which take about 10-15 minutes to complete. If you want to move forward with the loan, you’ll go through the full underwriting process.
(Preapproval is a lender’s formal, written statement of the maximum amount they’ll loan you, assuming you meet all the conditions of the loan. It’ll give you a rough idea of the budget you’ll have to work with.)
Others developed apps through which you can apply for a loan and follow the status of your application as it moves through the approval and closing process. This allows you to easily touch base with your loan officer and file bank statements or other documents.
Estimates and disclosures
As you shop around to compare offers from lenders, they’ll send you loan estimates, often through e-signature programs in an email or app.
Loan estimates outline the loan application costs, along with rough ideas of what your interest rate and monthly payment will be.
Lenders will also send over federal and state disclosure forms detailing certain facts about the loan.
So long, voicemails!
Quite a bit of communication will occur between you and your lender throughout the mortgage application process as your lender collects all of the documents and information it needs.
Traditionally, much of this back-and-forth took place over the phone and via fax or in-person. Nowadays, it’s being transitioned to texts, emails, or messages in an app.
Lenders require title insurance to protect them (and, ultimately, you) from claims against the property you’re buying — for example, from a roofer who wasn’t paid, or someone who claims to have rights to ownership over your house. The title company will search for any liens against the property so they can be cleared before you become the owner.
(A lein is a claim of money against a home. The value of the home is used as security for repayment of the debt.)
Many lenders now offer digital versions of title work that you can review and sign online.
The above paperwork and processes get you closer to closing on your loan, which is when you’ll become the legal owner of and receive the keys to your new home.
While closings traditionally took place with everyone involved sitting around a table, remote closings and closings-by-mail are increasingly common, especially since the pandemic.
Our post on home closings during COVID-19 has more on this topic.