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.
Currently, 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.
While this won’t appeal to everyone, as some homebuyers will still feel more comfortable with person-to-person interactions or mortgage brokers, ideally, all-digital mortgages will both speed up and simplify the mortgage application process for those who prefer virtual methods.
However, numerous technological advances have already been applied to mortgage borrowing. Below are a few examples we’ve come across:
Currently, some lenders offer preapproval applications online, which take about 10-15 minutes to complete. If you actually want to move forward with the loan, you’ll go through the full underwriting process.
(Pssst — a 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 offer apps that let you apply for the loan and continue to follow the status of your application as it moves through the approval and closing process, allowing you to easily touch base with your loan officer and file bank statements or other documents.
Estimates and disclosures
As you’re shopping around to compare offers from lenders, they will send you loan estimates, typically through e-signature programs in an email or an app.
These estimates will outline the loan application costs, along with approximations for your interest rate and monthly payment. They also send over federal and state disclosure forms letting you know 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, but nowadays, it’s being transitioned to texts and emails, or messages in an app.
Another aspect of the mortgage application process is an appraisal, which is an unbiased, professional opinion of the amount of money the home you’re looking to buy is worth.
Due to concerns about exposure to the Coronavirus, some lenders are allowing desktop and drive-by appraisals. For more on this topic, check out our post on home appraisals during COVID-19.
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.
Like all of the other digital processes, lenders are offering digital versions of title work that you can review and sign online.
All this paperwork and processes are moving you closer to closing on your loan. This is when you’ll become the official owner and receive the keys to your new home.
While closings traditionally took place with all the vested parties sitting around a table, remote closings and closings-by-mail are increasingly common, especially recently. We covered this in our post on home closings during COVID-19.
Despite the ongoing setbacks and inconveniences associated with COVID-19, the mortgage industry is finding creative ways to power through. Creativity is paving the way for a contact-free loan application process.