A Few Reasons Not To Use An On-Line Lender

Real estate agents often fear the worst when we hear that a buyer is using an online lender. In many cases, we are not overreacting. Often, mortgages that originate online close late, and wreak havoc with a home-purchase transaction. Some online loans never do close.One recent home buyer of mine who used an online lender e-mailed his lender daily and did everything he could to stay on top of the loan process. Despite all his efforts, the transaction closed one week late.

A big problem with online lending is the lack of accountability. There is often no one to complain to when things go wrong. When we can reach someone (you or I), the lender, located who-knows-where, doesn’t real care about you or I, or what we might say about them in the local community. I do not have the “pull” with an online lender that I do with a local lender, in the event that something goes very wrong.

Anecdotal evidence suggests that the world of online lending has improved. I don’t really agree with that, except possibly in the case of a well-qualified buyer with a large cash down payment and perfect credit. Even then, I’m not totally convinced.

Often, the appraiser sent out by online lenders are from out of the area and know nothing about the local market. This can further delay or even squelch your closing.

You may be able to find a lower interest rate or fees (seemingly) with an online lender. But, there is likely to be a tradeoff in terms of service. It is often hard to get a good faith estimate of closing costs, which, by the way, is required by law. A recent good faith estimate of closing costs did finally come in from the lender, but was off by thousands of dollars because the out-of-state lender missed a hefty local transfer tax.

Some online lenders don’t routinely do business in every state. Consequently, you should anticipate that an online lender might not be up to speed on lending practices or customary closing cost allocation in your state or region.

One online lender assumed that the seller would pay certain fees when he calculated the buyer’s closing cost estimate. However, in our area, the buyer customarily paid that cost. This blunder caused the estimate to be low by over $1,000.

Another online lender sent the closing funds one week early. This seemed like a blessing except for the fact that the buyer had to pay an extra week’s interest. This was not insignificant because the loan amount was so high. The extra interest charge wiped out the savings on loan fees that the buyer was counting on.

An online lender may work well for you, but I’m not convinced. And, absolutely, buyers whose loan qualifications are marginal, who do not have a significant (at least 20%) down payment, or who are trying to buy in a competitive real estate market, will have better success working with a local mortgage professional.

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