Best Online Mortgage Lenders: Everything You Need to Know

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Buying your first home is a big deal. It can be a nerve-racking and time-consuming experience. In the past, homebuyers had to drive from place to place, spending countless hours in meetings with different lenders in search of the right one. But with advances in digital technology, it has made applying for and getting approved for a mortgage much easier for borrowers.

With online mortgage lenders, you can search for lenders and compare mortgage rates right from your favorite chair. Applying online and submitting documents online will save you both time and money, and this guide will help kickstart you into the online home-buying process.

A comparison of interest rates, down payment requirements, credit score minimums, and loan terms can help you find out which lender is the best fit for you. We have handpicked a few and added some information about each to help get you started.

Best Overall Online Mortgage Companies

Rocket Mortgage

Our top overall pick is Rocket Mortgage because of its ease of use and the convenience it provides online customers. Rocket Mortgage is a leader in online-only home mortgage lending companies. The site provides tools to help you quickly access your documents and include your assets. It also can access the required information directly from most financial institutions. It provides options for purchasing a home and refinancing a home. With a FICO score of at least 680 and a debt-to-income ratio lower than 45%, Rocket Mortgage offers a 1% down payment option. Additional features include the following:

  • It offers FHA loans, USDA loans, VA loans, jumbo loans, fixed-rate loans, and adjustable-rate loans
  • A minimum credit score of 620 is required
  • A minimum down payment of 3% is required

Guaranteed Rate

Guaranteed Rate is licensed in all 50 states and Washington D.C. They provide an online service with additional options to meet with loan officers at any of their 200 locations. It can be more challenging to qualify for a loan with them, but they offer lender credits that can help reduce your closing costs. They offer refinancing loans as well as purchase loans. Additional details:

  • It offers FHA loans, USDA loans, VA loans, jumbo loans, fixed-rate loans, and adjustable-rate loans 
  • A minimum credit score of 620 is required
  • A minimum down payment of 3% is required

Best Online Mortgage Companies for First-Time Homebuyers

Quicken Loans 

Quicken Loans provides a fully online application process with the option to speak with mortgage advisors. It provides opportunities for both purchasing and refinancing a home. Here are a few more details:

  • It offers FHA loans, USDA loans, jumbo loans, fixed-rate loans, and adjustable-rate loans
  • Freddie Mac and Fannie Mae products are available
  • A minimum credit score of 620 is required
  • A minimum down payment of 3% is required

New American Funding 

New American Funding allows you to complete your mortgage application online, by phone, in person, or through email. Because they have an underwriting model, they can look at each borrower’s financial history more closely, making them an excellent option for first-time homebuyers. Additional details:

  • It offers FHA loans, VA loans, jumbo loans, home equity loans, fixed-rate loans, and adjustable-rate loans
  • A minimum credit score of 620 is required
  • A minimum down payment of 3% is required

Best Online Mortgage Lender for VA loans

Veterans United Home Loans

Veterans United Home Loans is not an online-only lender, but it does have an online mortgage application and pre-qualification process. Where it stands out is its dedication to helping veterans who have less than stellar credit. They provide a free credit counseling service with no time constraints and 24/7 customer service. Additional details:

  • It offers FHA loans, USDA loans, VA loans, jumbo loans, fixed-rate loans, and adjustable-rate loans
  • A minimum credit score of 620 is required
  • 0% minimum down payment required

Navy Federal Credit Union

Navy Federal Credit Union provides an online mortgage application with a quick mortgage pre-approval decision. They also will consider additional credit data for the evaluation of certain products. There are two main loan options for military members. They are the Homebuyers Choice Mortgage, designed for first-time homebuyers, and the Military Choice Mortgage, which provides special pricing and interest rates. Additional details:

  • It offers FHA loans, VA loans, jumbo loans, interest-only loans, fixed-rate loans, and adjustable-rate loans
  • No application fee or origination fee
  • 0% minimum down payment required

Best Online Mortgage Lender for Low Credit Scores

J.G. Wentworth Home Lending

J.G. Wentworth provides a digital-only application process with the delivery of pre-approval letters via email. It offers several loan options for low-income and moderate-income buyers. There are no hidden fees. Additional details:

  • It offers FHA loans, FHA 206K loans, VA loans, jumbo loans, fixed-rate loans, and adjustable-rate loans
  • A minimum credit score of 580 is required
  • A minimum down payment of 3% is required
Best Online Mortgage Lenders

Best Online Mortgage Lender for Low Down Payment Mortgage Options

NBKC Bank 

NBKC Bank allows you to complete your mortgage application online and provides free rate locks. Instead of charging a percentage for loan origination fees, NBKC charges a flat rate, which means you pay less upfront. It provides options for both purchasing and refinancing a home. Additional details:

  • It offers FHA loans, VA loans, home equity loans, jumbo loans, fixed-rate loans, and adjustable-rate loans
  • A minimum credit score of 620 is required
  • A minimum down payment of 3% is required

Choosing the Right Mortgage Lender

Buying a home is a significant investment. Choosing the right mortgage lender can make all the difference in your home-buying experience. You will want to find a lender who can offer you the best deal for your financial situation.

There are online comparison tools that can help you find the right mortgage lender for you. To begin your search, you will need to know your credit score, what you can afford to pay, and what types of loans best fit your budget.

Your Credit Score

The first thing you need to know before applying online is your credit score. Your credit score will largely determine if you can get approved for a home mortgage. 

How Much Can You Afford?

Knowing how much you can afford to pay for a mortgage is also crucial. Your income minus your expenses will show you how much money you have each month. Another key indicator of what you can afford is your debt to income ratio. To calculate your debt-to-income ratio, add all of your monthly obligations together, then divide them by your gross monthly income. Most lenders prefer a debt-to-income ratio at or below 36%, but some will consider loans for people who have up to 43%. 

Choose a Lender That Meets Your Needs

You will then need to make sure to choose a lender who meets your needs. Some lenders specialize in different types of mortgage loans. If you are hoping to refinance your home, you will need someone who has excellent mortgage refinancing options and experience. For first-time homebuyers, some lenders specialize in first-time homebuyer loans and approvals. Some lenders specialize in government loans like those offered by Veteran’s Affairs.

Compare Offers

Once you have narrowed down the type of loan specialist you need, you should compare loan offers. To get loan offers, you will need pre-approval with lenders. Don’t worry; only your first credit check will count as a hard inquiry on your credit report. As long as you apply with other lending companies within thirty days, the additional credit checks will only be soft inquiries. 

For more info on finding the best mortgage lenders, check out this article.

How To Get Mortgage Pre-Approval

First, understand that a pre-qualification is not a pre-approval. A pre-qualification is issued before any verifications and may give you a loan estimate. A pre-approval is only issued after everything is verified, including income, employment history, assets, and other loan-qualifying information. 

Getting preapproved is the first step toward homeownership. Lenders will approve you for loans based on your income, credit, and assets. Here is a list of information you will need to start applying for pre-approval:

  • Social security numbers for anyone who you will list on the loan
  • Income records
  • Tax records
  • Down payment amount
  • Employer information and annual income
  • All bank account information
  • A listing of all investment accounts
  • A list of debt

If you are preapproved with an online lender, you will receive a mortgage pre-approval online that you can show to real estate agents before looking at homes. The pre-approval letter will state what type and amount of loan you qualify for, which will keep you from wasting time looking at homes you can’t afford. No one wants to fall in love with a home only to find out that it’s out of their budget. The letter also doubles as proof to the seller that you can afford the property. With this snapshot of your home loan qualifications, you can determine which loans may be best for you.

Also Read: Tips for Financing Your Dream Vacation

Types of Mortgage Loans

There are several different types of mortgage loans that provide different repayment terms, different mortgage rates, and different lender requirements. The most common type is a fixed-rate mortgage, which has the same interest rate for the life of the loan. Let’s take a look at each loan type more in-depth.

Fixed-Rate Mortgages

A fixed-rate mortgage is a home loan offered in a 15-year term, 20-year term, or 30-year term. It has an interest rate that is guaranteed to stay the same for the life of the term. Fixed-rate mortgages have advantages and disadvantages. Your principal and interest will remain the same from month to month, making it easy to budget your payments. But longer loan terms tend to have higher interest rates. 

Adjustable-Rate Mortgages

An adjustable-rate mortgage has fluctuating interest rates that change according to market conditions. They often have a fixed-rate for the first few years, and then the loan resets for the remainder of the term. There are adjustable-rate mortgages available that have caps set on how high the interest rate can rise. While these can save you money in the beginning with a lower-fixed rate, they can balloon to large amounts. The loan can become unaffordable and result in you losing your home. 

Jumbo Mortgages

Jumbo mortgages are for large home loans that exceed federal loan limits. For 2019, the maximum conforming loan limit set by the Federal Housing Finance Agency (FHFA) IS $484,350. They require more information for approval, and people generally use them in high-cost areas. You will need a debt-to-income ratio below 45% and at least 10% of the loan in assets. The interest rates are usually competitive.

Government-Insured Mortgages

Government-insured mortgages are government-backed loans that have lower credit requirements and require smaller down payments. These loans are recommended for people with few assets and lower credit scores. The three types of government loans are FHA loans, VA loans, and USDA loans.

  1. Federal Housing Administration (FHA loans) provides a loan option for homebuyers who do not have a large amount of money to put down. The debt-to-income ratio has to be below 43%, the home must be a primary residence, and the borrower must have a steady income. An FHA 203K loan is an option provided to finance a home that needs renovating and includes the cost of renovation in the purchase cost.
  2. VA loans are low-interest mortgages available to active duty personnel and veterans of the U.S. military. They do not require a down payment, and there is usually a cap on closing costs. There is generally a funding fee charged as a percentage of the loan amount.
  3. USDA loans are mortgages for people looking to buy a home in some rural regions. Income eligibility and requirements vary by state. Some may not require a down payment depending on the eligibility of the buyer. 

Also Read: How to Get Scholarships for College

Banks vs. Mortgage Companies

Applying for an online mortgage can save you the hassle of driving around to meet with mortgage brokers or bank lenders. Online mortgage companies are very competitive and aim to beat each other with lower rates, which can save you money. They have more flexibility with lenders and can get approvals that some banks and mortgage brokers cannot. 

An online lender may not be suitable for you if you need to improve your score. Meeting with a lender in person could be more beneficial. Some lenders can give you tips to improve your credit report so that you can get the best rate possible. Holding off on your home purchase while you grow your credit will be worth it in the end. An in-person mortgage lender may also be necessary for homebuyers who are business owners or who don’t receive standard W-2 forms.

Brokers & Bank Lenders

Also, if you prefer one-on-one attention from a lender, a broker or bank lender may be a better option for you. A mortgage broker works as an intermediary between you and the lenders. Because brokers are paid by commission, there can be conflicts of interest. A higher sell means a higher fee, and the costs associated with a broker will be higher than an online lender.

On the other hand, bank lenders work directly for banks and mortgage lenders. They can only get approvals from the lender for which they work. That means their approval options may not be the best deal for you. Both brokers and bank lenders can help you prepare your loan application and required documents. They will also provide you with a pre-approval letter if you qualify.

Average Interest Rate on a Mortgage

Interest rates on mortgages continuously change. You may even get several different interest rates in one day! As of September 24, 2019, the average interest rate for a mortgage ranges from 3.19% to 4.24%, depending on the type of loan. A 15-year fixed-rate mortgage will get you the least of these interest rates, while you can expect to pay on the higher end for a 30-year fixed-rate jumbo mortgage. Higher credit scores and lower debt-to-income ratios qualify buyers for the best interest rates.

Also, interest rates vary by state, though usually not by very much. Factors that affect rates from state to state include the average cost of living, foreclosure rates, and lender competition in the area. For example, in New Jersey, the average home costs well over $500,000. The higher cost of living and more expensive home cost results in higher interest rates.

Best Online Mortgage Lenders

Required Credit Score

The credit score required to qualify for a mortgage varies by loan type and by the lender. Your credit score is critical to lenders because it is what they use to determine if you will be able to pay back your loan. If you have a low credit score or high debt-to-income ratio, lending to you is considered risky. On average, online mortgage lenders require a credit score of 620 or higher. With an FHA loan, you may get approved for a mortgage with a score as low as 500. Government-insured loans have minimum requirements set by the government. 

Let’s take a look at the minimum score by loan type:

  • FHA Loan 500 – 569 with 10% down payment; 580 with 3.5% down payment
  • FHA 203K – 620
  • Conventional loan – 620
  • VA Loan – 620
  • USDA Loan – 640
  • Jumbo Loan – 700

When applying for a mortgage, you will see two numbers that reflect your mortgage cost: the interest rate and the annual percentage rate (APR). The interest rate is a percentage that reflects the price you are paying for borrowing money and can be variable or fixed. The APR is your interest rate plus additional costs like broker fees, discount points, and closing costs. It is also a percentage. Both your interest rate and APR are based on your credit score and the current mortgage rates. The lender determines the APR because it includes their fees and costs. 

Using the Loan Savings Calculator provided on myFICO.com, you can find the average APR you can expect to pay on a home loan. Here is a chart showing the results for a 30-year fixed-rate mortgage on a $200,000 home. You will notice that the difference between the lowest FICO score range and the highest is over $57,000.

Fico ScoreAPRTotal Interest Paid
760-8503.427%$120,385
700-7593.649%$129,330
680-6993.826%$136,556
660-6794.04%$145,401
640-6594.47%$163,531
620-6395.016%$187,216

Discount Points for Mortgages

Discount points, or mortgage points, are fees paid to a lender at closing for a reduction of the mortgage interest rate. When you buy mortgage points, you are essentially “buying down the rate” to lower your monthly payments. The cost per point is 1% or your total mortgage amount, which equates to $2,000 for a $200,000 mortgage. 

Origination points are a type of fee paid by borrowers for lenders’ fees. They, too, are typically 1% of the mortgage amount but can vary per lender. 

Purchasing mortgage points or origination points will lower the monthly payment and can save borrowers money over time. If you do not plan on staying in a home for an extended period, then you will likely not want to spend the extra money upfront. Also, the higher upfront costs aren’t a good option for anyone who can only afford a low down payment. 

Refinancing Your Home

The same general rules apply for credit score and debt-to-income ratio requirements. Most refinancing lenders will require a minimum credit score of 620 and a debt-to-income ratio somewhere between 36% and 43%. The higher the credit score and lower your debt owed, the better mortgage interest rates you will find. As a rule, you will need at least 20% equity in your home for refinancing. The main goal of refinancing your home is to lower your interest rate. 

Can you refinance your mortgage with no closing costs?

You can refinance your mortgage with no upfront closing costs, but you will not get out of paying closing costs altogether. Closing costs are made up of processing fees, appraisal costs, title and mortgage insurance fees, underwriter fees, and credit check fees. When you opt-out of paying the closing costs upfront, they are added into the rate given to you by the lender or into the loan amount offered by the bank. The result is an increase in your interest rate and loan balance. On average, closing costs range from 3% to 6% of your mortgage loan amount. For a $200,000 home, that averages between $6,000 and $12,000. 

Closing costs vary significantly by the lender, loan amount and type, and when you close. You can also pay for discount points like those mentioned above, but remember that it will increase your upfront costs. To avoid paying the fees upfront, you can agree to exchange the upfront closing costs for a higher interest rate. 

Also Read: How to Find the Best Debt Consolidation Rate

Reducing Your Closing Costs

There are a few ways you can reduce your closing costs. 

Waive off your appraisal

With a Fannie Mae-approved loan, you can request a waiver of your appraisal fees, which could save you around $600. To qualify, you will need to have a loan-to-value ratio no higher than 90% for primary and secondary homes if you are refinancing to lower your rate. 

Ask for a reissue rate

A reissue rate will provide you a discount on an owner’s title insurance policy. To qualify, you have to have your original title insurance policy. There is also a cut-off date in most states, so check your state to make sure you are within the window of time. 

Close at the end of the month

Closing at the end of the month can reduce the per diem interest that you will be required to pay. Per diem is a per-day cost that you pay between the day you close and the first day your mortgage is due. 

Buying a Home With Bad Credit

Buying a home with bad credit can be difficult. Online lenders provide electronic mortgage applications that don’t consider what difficulties you have faced in life. They make a decision based only on your credit score and debt. But some online companies provide opportunities to speak with mortgage specialists who can help you prepare for the mortgage process. 

Apply for an FHA Loan

The FHA backs FHA loans, and so they have different conditions for approval. While individual lenders can set their own standards for approval, they do have to adhere to the requirements. FHA loans have lower minimums for required credit scores. If you have filed a Chapter 13 bankruptcy, you will need to wait at least a year before you can apply. For Chapter 7 bankruptcy, you will have to wait two years. Borrowers can be approved with a credit score as low as 500 with a 10% down payment. 

Increase Your Down Payment Amount

With a large down payment, you may be able to buy your way into a new home with less than stellar credit. Lenders will still consider your credit score; if it’s too low, you may need to improve your score before you can get approved. 

Have a Family Member Co-sign

If you are responsible but hit a few rough patches in life, you may be able to convince a family member to co-sign on a mortgage loan with you. A co-signer can be helpful for first-time homebuyers and people who have little to no credit. The co-signer will be required to sign all loan documents and will be responsible if you default on the loan. However, they will not be on the title of the property or the deed. Only family members can co-sign with borrowers.

What’s Next?

It may seem overwhelming at first to acquire a mortgage, but there are plenty of online mortgage lenders that can make this process easier for you. Using the information in this article, you can now move forward confidently in choosing the best mortgage lender for your circumstances.

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