Digital mortgages are becoming increasingly popular. From Gen Z to baby boomers, borrowers of all age groups are seeking digital options not only for convenience but also for the cost and time savings that digital mortgages provide.
Nevertheless, certain barriers to entry might threaten to keep potential homebuyers on the sidelines. Believing in online mortgage myths could prevent you from experiencing all the benefits this automated process has to offer.
In this article, we’ll debunk the five most common online mortgage myths and arm you with the facts so you can make an informed decision.
Myth #1: Online Mortgages Are Too Risky
One of the advantages of online mortgages is a faster home buying process. Myths floating around suggest that online mortgages are riskier because they are faster. However, this couldn’t be further from the truth.
In reality, the facts largely favor fintech lenders, according to a 2010-2016 study by the U.S. Federal Reserve.
The Fed’s data suggests that fintech lenders slash the lending time by about “10 days or 20% of the average processing time.” Digital refinancings are even faster.
Contrary to the myths, a faster turnaround time doesn’t translate to a riskier mortgage. The Fed states that “default rates on fintech mortgages are about 25% lower than those for traditional lenders.”
When it comes to refinancing, online lenders tend to get it better. The Fed reveals that Americans are notorious for refinancing their mortgages at the wrong times or for too small an amount.
According to the study, the digital process lends itself to speedier and smoother processes, which “may encourage more efficient refinancing.”
Myth #2: Credit Standards Are Lax
Digital lenders have a great deal to offer compared to banks — faster turnaround times, more attractive interest rates, and lower costs thanks to automation.
Considering that online mortgages are faster than traditional counterparts, you might think that the standards are more relaxed. This myth couldn’t be further from the truth.
Online mortgage lenders tend to have more stringent credit requirements than you would find elsewhere. With a digital loan, the process is more cut and dry, and there is less gray area.
To take advantage of lower rates offered by online lenders, make sure your credit is as shiny as possible. Even though fintech lenders consider your overall credit profile, they expect you to have a credit score of at least 620 for a conventional loan.
At RateCloud, it’s more like 680.
Myth #3: Online Verification Is Difficult
If you’ve heard that you have to jump through dozens of hoops to prove your identity to an online mortgage provider, think again.
Thanks to technology, digital lenders can prove who you are and how much you earn pretty easily.
With the help of algorithms and automated systems, they can crosscheck data and access outside information from employers, payroll companies, credit agencies, tax documents, and more.
Myth #4: Limited Options
Online lenders have helped to bridge the gap between people who are underbanked and homeownership. On the surface, it might seem like turning to the internet for a mortgage will be more of the same – a lack of options for underserved communities.
You will be pleased to know that this myth couldn’t be further from the truth.
Online mortgage providers offer more options where it counts, not fewer. If you depend on a local bank for a mortgage, you are beholden to their rates and risk the possibility of falling victim to a predatory lender.
By turning to digital lenders, your options open up. You can set your own criteria and find a provider that checks most of your boxes based on the features that matter to you.
If anything, you can do more comparisons online rather than relying on local banks.
Myth #5: Prequalification is a Slam Dunk
One of the perks of using an online mortgage provider is a faster turnaround. Processes that take days or weeks can be completed in minutes, including the preapproval letter.
However, just because you could have a preapproval letter in your hands with the click of a button doesn’t mean that you should crack open the champagne just yet.
While getting prequalified for a mortgage is a step forward, your online mortgage is not a done deal at this stage. The lender has the final say and must verify that all your t’s are crossed and i’s are dotted.
Online lenders put more power in the hands of the borrower. This is the case largely because third-party service providers are mostly removed from the process. The lender might require you to upload more documentation before you can sign on the dotted line.
Take the Next Step
With the most common online mortgage myths out of the way, you should have a better idea of what to expect from a fintech. Make sure to set realistic expectations so that the pendulum does not swing too far in either direction.
If you are thinking about refinancing your mortgage or buying a new home, you are one decision away from realizing your dreams. Take the next step and learn more about RateCloud’s digital offerings today!
