Can I get a mortgage online?

The online lending environment has become increasingly sophisticated, thanks to Web sites like LendingTree.com, Interest.com, Eloan.com, and 4LowRates.com, all of which serve as sales channels for the originating lenders, who subsequently lend you the money and to whom you will make your mortgage payments. Most of the major lenders (Wells Fargo, Countrywide, etc.) also offer an online application process, homebuyer educational information, and other resources online.
Whether you’re using a traditional lender or an online marketplace, the loan process is fairly simple. I recently applied for and obtained a home equity line of credit from GMAC Financing. The process took about forty minutes: five minutes to fill out the online application; five minutes on the phone with a loan officer to guarantee that I was who I said I was; and about thirty minutes of gathering necessary paperwork, such as proof of homeowners insurance, and faxing it to GMAC. For a first mortgage, that means entering the required information and/or providing necessary documentation from the comfort of your own keyboard, then letting the online lender use that information to track down the right mortgage for you. After completing the application form, LendingTree.com guarantees that you will receive up to four ‘‘real’’ loan offers within hours. The company says it’s unique in that it spurs lenders to ‘‘compete’’ for your business, rather than your having to track down the lenders individually. Whether you choose to work with one of those lenders is up to you, but the process will give you a good idea of what type of mortgage product will be best for you.
With online security issues like credit card fraud and identity theft at the forefront of consumers’ minds right now, it would be wise to inquire about the online lending firm’s information protection and security processes before sending sensitive financial data (particularly social security numbers, driver’s license numbers, and other personal information) through cyberspace. Lending Tree, for example, has reserved a Web page for explaining its security process, information protection, and other privacy issues at www.lendingtree.com/stm/aboutlt/privacy/security.asp. Interest .com has a similar site at www.interest.com/privacystatement.html. Make sure your online lender has taken similar measures, and ask questions if you have any specific concerns about these issues.

How can I reduce my closing costs?

Closing costs are pretty straightforward, but there are certain ways that you can reduce your out-of-pocket expenses. You can ask the home seller to cover some of the costs, for example, since lenders allow the seller to credit the buyer up to 5 percent of the purchase price for nonrecurring closing costs. These are costs that are paid on a onetime basis such as escrow, title, and transfer fees. Bear in mind that you may have to pay a bit more for the home to compensate the seller for paying your closing costs, particularly in a ‘‘hot’’ market, where the seller could easily find buyers who can cover their own closing costs.
Here are a few other strategies for reducing and/or eliminating your upfront closing costs:
❑ Ask your lender to pay your closing costs: Because lenders make a fee on each loan they make, your willingness to take out a loan at higher-than-market interest rates could convince the lender to make extra up-front fees. Those fees can be used to pay your closing costs.
❑ Finance your closing costs: Some lenders will allow you to finance (via a credit card, or by rolling them into the loan). Ask your lender up front if either or both strategies are acceptable.
❑ Secure a no-point, no-fee loan: The lower the points (see glossary), the higher the interest rate—and subsequently, the higher the payments—on a mortgage. Securing a no-point, no-fee loan will lower your closing costs, but realize that there is always a trade-off between points paid and the mortgage’s interest rate.
❑ Negotiate with the service providers: Most buyers won’t argue with a $300 title search, but what they don’t realize is that they have choices of appraiser, escrow company, and title company. Check that each of these providers’ fees are competitive before doing business with them.
❑ Defer closing costs by closing late in the month: Opt for a closing date around the end of the month and you’ll save money on upfront interest. When you close, lenders collect interest for the remainder of the month. With only a few days left in the month, you’ll end up paying just a few days of interest up front. To best educate yourself on closing costs and what’s required of you financially at settlement, check out the HUD settlement statement online at www.hud.gov/offices/hsg/sfh/res/sfhrestc.cfm (click on ‘‘Specific Settlement Costs’’). Here, HUD gives home buyers a comprehensive look at settlement costs and goes through an actual closing statement line by line. Familiarize yourself with the form, which is used on all mortgage transactions, and you’ll be well prepared when you get to the closing table.

What are closing costs?

Closing costs (also known as settlement costs) are expenses above and beyond the price of the property that the buyers and sellers have to pay when transferring ownership of a property. That includes a loan origination fee, the cost of the title search (‘‘title’’ is the legal term for one’s ownership interest in land), notary fees, attorney’s fee (if applicable), taxes, and the cost of the property survey. Your total closing costs will vary depending on your location, and either the lender or the real estate agent can provide estimates of closing costs on your mortgage.
When your mortgage is finalized, you as the buyer will have to pay closing costs. Most lenders will not roll the costs into the mortgage, so they’re essentially ‘‘out-of-pocket’’ or ‘‘up-front’’ fees that will need to be covered. Along with the basic title, service, and lender fees, closing costs include payments in advance for such items as taxes, property insurance, and interest to the end of the month.
Certain closing costs, such as recording fees and taxes, title examination, and credit reports, may be paid by the seller, or they may be shared between the borrower and the seller, depending on the terms of the sales contract. The Real Estate Settlement Procedures Act (RESPA) requires that your lender give you an information booklet and a good-faith estimate on your closing costs within three days of receiving your written loan application. RESPA also requires that at closing or shortly afterward, you must receive a uniform settlement statement (USS), which is a permanent record of all the final settlement charges. You are entitled to review the settlement statement one business day before you close on your loan. Read more about RESPA in Chapter 8: The Home Buyer’s Legal Rights.