The decision to purchase a home is one of the biggest — and most terrifying — you’ll ever make. Between the amount of the investment and the responsibility of caring for a place of your own, it can feel as if you’re signing your life away. Nevermind the stress of the process itself, not the least of which is finding, applying for, and getting approved for a mortgage.
As it tends to do, technology and the internet can simplify the process — and remove some of the stress — by allowing you to secure a mortgage online. That means that instead of awkward in-person meetings with lenders, you can take care of the whole process from the comfort of your home. It’s true! Even in your pajamas, you can get the loan you need to buy the house you want. Just follow these simple steps.
You can also contact an online mortgage broker near you:
| New York City Los Angeles Chicago Denver Seattle |
San Diego San Francisco San Antonio Sacramento Dallas |
| Minneapolis Missoula Boise Spokane Portland |
Honolulu Jackson Salt Lake City Jacksonville Madison |
Check Your Credit Score
If you aren’t already monitoring your credit, now is the time to begin. Your credit report will be a key factor in determining whether you qualify for a loan, for how much, and at what interest rate. A credit score of at least 620 is required for most loans, but a score of 720 or better will get you the best terms.
In addition to your score, you’ll want to take a close look at your credit history to make sure it’s accurate. If you do find any inaccuracies due to fraud or erroneous reporting, it’s important to contact the creditor and reporting agency right away to correct it. In some cases, it can take weeks or months to make things right. That’s why most experts advise you begin monitoring your credit a year before you plan to apply for a mortgage.
Contrary to popular belief, you don’t have to pay for your credit report. Free sites like Credit Karma allow you unlimited access to your credit report, refreshing the data as frequently as every few weeks, including:
- Payment history – Late payments on accounts that report to credit bureaus can negatively impact your score and ability to obtain a loan.
- Credit usage – How much you owe compared to how much credit you have available has a high impact on your credit. Lenders will also use your debt to calculate your debt-to-income ratio (DTI) and determine how much they will let you borrow.
- Number of accounts – Generally speaking, more accounts are better, as long as those accounts are in good standing. A mix of different account types is preferable.
- Credit age – Banks like a history of using credit responsibly.
- Derogatory marks – When an account goes into collections or when you experience tax liens, bankruptcy, or civil settlements, it negatively impacts your credit.
- Hard inquiries – Too many inquiries from credit card companies and loan agencies can reduce your score, so you should minimize your credit applications leading up to applying for a mortgage.
Know Your Home Loan Options
Whether you’re a first-time buyer or you’ve done this before, it’s important to do your research. There are several different types of mortgage loans to choose from, and they all have different qualification requirements. The best type of loan for you will depend on a variety of factors, such as where you want to buy, how much you want to borrow, and how much you have to put down.
Online lenders will typically ask you to fill out a survey that, along with your personal and financial information, will allow them to determine which loan will best fit your needs. It doesn’t hurt, however, to have an idea of what is available to you in advance. Here are a few of the most common loan types available to buyers:
- Conventional mortgages are the most common. They are available in a variety of terms, but the most common are 15 and 30 years. You can place as little as 3% down on these loans, but a down payment of 20% or more will get you the best rates and lowest monthly payments because you won’t have to pay private mortgage insurance (PMI).
- Government-insured mortgages are loans backed by federal agencies: the Federal Housing Administration (FHA), the US Department of Agriculture (USDA), and the US Department of Veterans Affairs (VA). Because these loans are federally-backed, lenders can be more lenient with credit and down payment requirements. However, there are additional criteria that homebuyers must meet. For example, FHA loans require private mortgage insurance with less than a 10% down payment, only properties in rural communities are eligible for USDA loans, and only veterans or active-duty members of the military are eligible for VA loans.
- Rehabilitation loans, another type of loan backed by the FHA, will allow you to buy a home in need of repairs and finance those repairs as part of your mortgage. These loans accommodate lower credit scores and lower down payments, and you can use them for both minor cosmetic work and major structural repairs. There is a lending limit, and some loans will require the oversight of a qualified consultant.
Compare Loan Offers
Perhaps the most important (and difficult) aspect of finding and purchasing a mortgage online is finding a reputable lender you can trust to lead you through the process. Without personal interactions to help you read your prospective lenders, you can use other indicators to determine which lenders are worth your time, such as:
- Knowing which lenders offer the types of loans you need. If you want a rehab loan, but your lender doesn’t offer it, they are obviously not the right lender for you.
- Testing out the company’s customer service — via web chat, over the phone, via email, and in person. Even online, the process will not be totally hands off. Communicating with your lender before you need them will ensure it will be seamless when you do.
- Getting preapproved for a mortgage will help you determine which lenders you like best — and who will offer you the best deals — while trying out their platforms.
When shopping around, remember to go with your gut. Like with any major life decision, your intuition deserves a place at the table with your logic and intelligence. Furthermore, don’t be afraid to ask for help throughout the process. Family, friends, and even trusted colleagues who have been through the process before can talk you through their experiences. Of course, in the end, your experience will be your own, unlike any other — and only you can decide which lender, which home, and which version of the future is right for you.