Head’s up, real estate agents…two thirds of your millennial buyers, according to NerdWallet, prefer digital mortgages so it’s time for you to develop encyclopedic knowledge about online lenders. Lending Tree, Quicken Loan’s Rocket Mortgages, loanDepot, etc. provide great on-demand convenience and speed. And isn’t on-demand convenience and speed what it’s all about?

Here are some pros and cons of online lending as a place to start.

Pros:

  1. It is definitely easier to comparison shop online for the best loan rates and terms. Guy Cecala, chief financial officer and publisher of Inside Mortgage Finance advises, “It always makes sense to check out a minimum of three lenders. Get good faith estimates that break down terms, fees and interest rates.”
  2. Online lenders offer lower rates and fees. Why? Online lenders have less overhead.
    1. 5% for $100,000 over a 30-year fixed mortgage with a traditional lender would run approximately $93,256
    2. 5% for $100,000 over a 30-year fixed mortgage with an online lender would run approximately $82,407
  3. Speed
    1. Quicken Loan’s Rocket Mortgage says it takes approximately 8 minutes with its mobile app to enable an applicant to scan her driver’s license and W2 form on the phone.
    2. Lending Tree says it takes approximately 7 days to process the entire loan transaction including the funding of the loan.
    3. Be on the safe side…do the specific research here and suggest that your client do the same.

Cons:

  1. There is less personalized service with online lenders. Some people like one-on-one, face-to-face connections. Also, if your client needs a pre-approval for a loan quickly, a human being can likely facilitate the pre-approval process faster.
  2. Online lenders tend to not be ideal for complicated loans. Richard Redmond with All California Mortgages says that, “Online lending is great for conventional scenarios and salaried borrowers who do not have financial or credit complications. It’s also great for properties that are typical for the area in terms of design, lot size, conditions and amenities…however, for ‘out of the box’ scenarios that have more alternatives, I’d suggest going with a local mortgage broker.”
  3. Online lenders are not good if/when applying for FHA loans or if the borrower is self employed,
  4. Online lenders are national entities and may not know the ins and outs of a particular local market and/or local incentive programs for local buyers that can drive down interest rates and/or closing costs.

One last word to the wise…mortgage lending scams are rampant. If any deal on or off line sounds too good to be true, it is. Make sure, at the very least, that whichever lender your client uses is registered with the Better Business Bureau.