While buying a home is one of life’s biggest milestones, it no longer must qualify as one of the most stressful events ever. This is largely thanks to the rise of digital mortgages, which have given borrowers more options to find the lowest mortgage rates. Fees used to be the elephant in the room when it came to buying a home, but times have changed. The rise of technology and algorithms has replaced the need for layers of service providers and dozens of touchpoints, all of which has streamlined the mortgage process and led to cost savings.
While the wheels of change in traditional real estate tend to turn more slowly than other areas of e-commerce, the pendulum in the housing market has already begun to swing online. As a result of the shift to digital, the industry is poised to shave off at least $1 billion in costs, savings that trickle down to borrowers looking for low-cost mortgage loans. If you are in the market for a low-fee mortgage, keep reading.
Why Are There So Many Fees Associated with A Traditional Mortgage?
Before we dive into the cost savings, let’s explore why there are traditionally so many layers of fees, to begin with. Let’s say you’ve negotiated a deal with the seller, and you are on your way to buying your first home or townhome. Congratulations! While the process was no doubt an adventure, that is not where the surprises always end. Before you sign on the dotted line, you are looking at closing costs of 2-5% of the principal amount of the loan.
The process as your parents or grandparents came to know it was not always the most transparent, with hidden fees and expenses that didn’t rear their head until it’s too late. And while these costs can be tucked away into the mortgage and paid over time, that doesn’t change the fact that the borrower is generally paying thousands of dollars on top of the mortgage amount in fees. This can really be a downer, especially if you’re wondering where you can find the lowest mortgage rates.
The more the mortgage industry moves online, the greater the savings that can be realized by the industry and borrowers alike. Fees can be drilled down into a trio of buckets, all of which can vary depending on the bank, including:
- Lender fees: These include an origination fee, a fee to process your application, a potential fee for finding you the best interest rate (which seems counterintuitive when you are hunting low-cost mortgage loans), and prepaid interest for the days left in the billing period. The later in the month your closing date is, the lower this fee will be and vice versa.
- Third-party fees: These can pile on quickly and include fees to pay the attorney and home inspector, to name a couple. More specifically, these fees go toward the appraiser of your new home, running your credit, a tax service to check that you’re paying Uncle Sam each year and mortgage insurance.
- Taxes and Prepaid funds: Here you’re looking at 1.) property taxes; 2.) homeowner’s insurance; 3.) possible homeowner’s association dues, depending on where you’re planning to move; 4.) fees to create an escrow account on your behalf.
As you can see, the fees can quickly escalate by the time your closing rolls around, running you anywhere from the low thousands of dollars to the double-digit thousand-dollar range on the high end.
How Can A Digital Mortgage Save You Money?
Something to remember is this is not your father’s mortgage. The emergence of digital mortgages has paved the way for transparent and low-cost mortgage loans for the next generation. To appreciate how far the industry has come, it helps to compare traditional loans with digital mortgages. Not only is the online lending process more efficient today, but it’s also more accurate.
Mistakes happen, especially when there is a human component involved. Whether it’s a typo on a loan approval, too much/too few funds in an escrow account, missing documents or sending the wrong borrower files altogether, any setback can cost time and money, leading to delays in the home buying process.
There are more kinks in the armor of traditional mortgages than you might think. Shockingly, close to 20% of banks that oversee less than $1 billion in AUM direct between $100K and $1 million-plus toward compliance processing mistakes annually, as per Independent Banker data cited by Notarize.com.
This is where digital mortgages come into play. Gone are the days when a borrower must visit a local bank branch to find a low-fee mortgage. Now that mortgages are digital, the entire process from soup to nuts can be completed online, leading to a transformation in the home buying process. The benefits of a digital mortgage for both lenders and borrowers are undeniable and include:
- Slashing costs per loan by 10%
- Speeding up the loan processing time by 15-40%
- A 75% jump in sales productivity for lenders
- Up to a 25% increase in the pull-through rate for lenders, or the chance that the loans will be funded.
- Between 25-50% savings in loan origination expenses
- Between 25-40% savings in loan servicing costs
Much of the charm surrounding digital mortgages is that instead of having to fill out mounds of paperwork at a desk, the documents can be completed online. This not only reduces the chances for error, but it saves time and money. The alternative is an industry that doles out millions of dollars in mailing costs alone and a loan approval process that can take 46 days, give or take. Digital mortgages can capture those savings and pass them along to the industry including borrowers, increasing your chances of securing a low-fee mortgage.
As a bonus, given that there is no need for face-to-face meetings between the borrower and lender, the costs associated with overhead are low or zero, bolstering the savings potential for borrowers looking for no-fee mortgage loans.
Learn More About Ratecloud’s Mortgage Options
Ratecloud specializes in the two things that make the home buying process better — mortgages and technology. Their mission involves creating cost savings for the borrower via a streamlined mortgage experience that cuts out the middleman — the loan officer — to create the equivalent of a decentralized mortgage marketplace but with tools to guide you along the way. Learn how Ratecloud can help you find your lowest mortgage rate by getting started on your digital mortgage application.
