Back in the Market: How to Get a Mortgage
In our first Back in the Market post, we explored the emergence of technology and how the home buying process has changed in today’s tech and data driven world. Not surprisingly, tech has also changed the way one seeks mortgage financing.
Tech changes mortgage financing as well
Refinancing a mortgage or obtaining a purchase loan 20 years ago was actually a fairly simple process: All it took was a trip to a bank or mortgage broker. There, loan officers bombarded borrowers with questions, did credit checks, and requested a series of documents. That was just the beginning. There were often follow-up questions and more document requests. Weeks might elapse before the loan was approved or turned down. Meanwhile, houses could be lost to other buyers or interest rates could rise before financing was completed.
As the housing boom heated up, getting a loan got easier — too easy. Lenders sought out borrowers and issued mortgages to many borrowers who had little chance of making payments. Anyone, it was said, who could fog a mirror could get a mortgage.
All sorts of questionable loan products took off in popularity and many proved dangerous, so dangerous that they nearly exploded the economy. Lenders approved subprime adjustable rate mortgages (ARMs), interest-only mortgages, negative amortizing loans, liar loans, issued with little or no documentation at all.
Borrowers were often victimized by unscrupulous mortgage professionals. Borrowers were often ignorant and at a disadvantage because they applied for mortgages so rarely. Many took the word of their loan officers, which sometimes landed them in hot water. They got stuck with loans without understanding their true costs.
After these loans began defaulting at a high rate, panicky lenders reacted by upping underwriting standards to the point that loans became very difficult to get. Even well qualified borrowers found themselves shut out of the market or asked for endless proofs before they won approvals.
A stronger economy, rising home prices, and new technology have turned that around, according to Regis Hadiaris, who has led several product development efforts in his 12 years at Quicken Loans. Quicken and other online lenders saw an opportunity to get back to basics using modern tools to simplify, shorten, and clarify things for borrowers.
“We’re seeing tech open up a completely new experience,” he said. “There’s been a shift of information and control to the borrowers.”
Consumers can get advice, access mortgage rates, and calculate payments on line. They can compare mortgage products and aim for the best fit for themselves.
But the biggest recent change is the speed and ease of applying for loans.
A Quicken product, Rocket Mortgage, requires borrowers to create an account by filling out a brief questionnaire and allowing the company to pull financial records such as income statements, bank accounts, and credit rating. It only takes a few minutes and borrowers can do it anytime on any platform — desk-top, lap-top, tablet, or smart phone. Hadiaris said some people get loans approved within 10 minutes.
Buyers can be at an open house, like what they’re seeing, whip out their smart phones, apply for a mortgage, and get approved before they leave the living room.
With all these new tools, real estate agents don’t have to guide their clients through the mortgage system, as they often did in the past, according to San Diego-based, Coldwell Banker Residential Brokerage agent Doug Harwood.
“We don’t really need to give financial advice anymore,” he said. “Everybody knows a mortgage broker.”
Stay tuned for the next post in the series, in which we’ll explore how agents are still necessary despite the volume of resources available online.