Pros and Cons of Digital Mortgage Lenders vs. Traditional Lenders

When shopping for a mortgage loan, you have more options available now than ever before. Should you choose a digital lender or a more traditional mortgage lender?

digital mortage lenders vs. traditional lenders

A digital mortgage is an electronic, paperless process with online applications, uploads, and digital signatures. There’s not much human interaction required, so if you are knowledgeable about the mortgage process, a digital mortgage may be ideal for you. If you need more face-to-face assistance, you may prefer to speak with a traditional lender.

Digital and traditional mortgage lenders offer different products, so consider all options based on your personal wants, needs and circumstances before deciding. Let’s break down some pros and cons of both digital and traditional lending:

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Digital Lending Pros

  • Lower Rates and Fees

    Because digital online mortgage lenders mainly operate with low or no overhead costs, they may be able to pass their savings on to you with lower interest rates, closing costs, and fees.

  • Quicker Application and Processing Times

    Instead of having to print all of the necessary financial documents and meet with the lender face-to-face, you simply upload everything to the lender’s website, saving time and effort. When completed online, you can have an approval letter in hand within minutes. The overall application process is improved with digitized workflow, faster document collection, and a much simpler process for the Loan Officers resulting in faster completion. Most people always have their smart phones on them, which allows access anytime, anywhere to their application status. In minutes, you can complete, review, sign and submit your documents as needed.

  • Easier to Get Approved

    Typically, online lenders are more willing and able to offer loans, even to those that do not have perfect credit scores, while individual lenders sometimes raise their requirements above and beyond loan requirements to make sure you will be able to pay your financial commitment.

  • Convenience

    One of the best advantages of using digital banking for your mortgage has to be the convenience of accessing your lending site from anywhere, at any time. You can complete the process on your time. Because most brick and mortar banks are only open during regular business hours, and digital banks offer 24-hour access, brick and mortar branches sometimes have a hard time keeping up with the speed and convenience of online banking. Digital mortgage lenders offer more of a self-guided experience with the option to reach out to a loan officer when needed.

  • Two-Way Access

    Borrowers are no longer left in the dark about their loan status, as there is now two-way access throughout the entire process. This saves Loan Officers from digging through manual records to provide updates, because everything is submitted electronically for easy reference. Requests from both the lender and the borrower can be submitted digitally for almost immediate responses, allowing the borrower more control in the entire process.

  • Green

    If energy efficiency is important to you, digital lending will compliment your lifestyle as everything is done electronically, leading to less paper waste.

  • Data Collection

    Quality data collection leads to better education and insights around mortgage safety and efficiency. This contributes to constant growth and better record keeping in case of audits.

digital mortage lenders

Digital Lending Cons

  • Support Limited to Phone & Email

    With a digital lender, you may have a harder time reaching someone on the phone for assistance should you need it. Completing the application paperwork remotely, rather than in-person, could make it harder to fill out or easier to make a mistake, which could put your entire application at risk. You may have to settle for email communication, so if you have questions on anything seek clarification before hitting submit. This con, however, is slowly changing as digital mortgage companies offer better customer service practices.

  • Rates Are Not Guaranteed

    Sometimes digital mortgage lenders promise a low rate, but you have to meet certain criteria to be eligible. By the time you find out you are not eligible for that specific rate, you could be weeks into the process and may not want to spend the time to find another lender. If you do not qualify for these great rates due to credit issues, you may get hit with much higher rates. If you know your credit is less than par, it’s important to ask questions from the beginning.

  • Scams

    As technology has made our lives easier, it has also been utilized by hackers to gain access to your personal information. Never pay anything upfront for a quote or preapproval. Take the time to research the lender before filling out any personal information. Check the Better Business Bureau, do a Google search, look for complaints, whatever it takes to get comfortable with your decision to use a digital lender. Be vigilant, your identity may depend on your research.

Traditional Mortgage Pros

  • Physical Locations, More Personal

    Having a branch office to go to can prove beneficial when you have issues or questions throughout the application process. At a bank, personnel are always on hand to assist you when needs arise during normal business hours. They are available to walk you through the entire process if needed, making for a less stressful, more personalized experience.

  • Established

    Banks are typically more established and offer easier ways to track reputation. This also eases fear of fraud.

  • Loyalty and Convenience

    It may prove more convenient to use the same bank where you have your car payment and credit cards. Having all of your loans through the same place may create a situation where you can easily manage your financial commitments.

  • Safety and Security

    The banking and financial sector is highly regulated, and therefore you will find more protection in your financial transactions dealing with traditional banks than with digital lending where there is a higher possibility of scams. Many times, Real Estate Agents refer their trusted mortgage brokers to their clients, offering a deeper sense of dependability and security.

traditional mortgage lenders

Traditional Mortgage Cons

  • Less Flexibility in Lending

    Because of financial regulations in place, those with lower credit scores have a harder time obtaining a loan.

  • Slower Application Process

    Because there are so many rules, regulations, and face-to-face meetings to fill out paperwork and submit documents, the application time is slower and more tedious than with digital lenders. Digital lenders have a more streamlined approach but still follow the same process to identify the most qualified borrowers with the least amount of hassle.

  • Inconvenience

    Banks are typically only open during standard business hours, which makes it hard for many working people, especially on time sensitive banking matters.

Recap

What type of mortgage lending is best for you and your circumstances? As we have discussed, digital lending offers lower rates and fees, faster process times and easier approval rates. They offer 24-hour online access for status updates, greener living, and better record keeping, but offer less face-to-face assistance, a higher chance of scams, and variable rates.

Traditional lending, on the other hand, offers physical locations for a more personal experience, an established reputation with safety regulations in place and the option to manage all your loans through one place.

The downside of traditional lending is inconvenient hours, slower application process, and less flexibility with credit issues while following more stringent rules and regulations.

Take your time considering and researching both digital and traditional mortgage lenders. Both have pros and cons, and both are able to provide you with a mortgage if you qualify. Ultimately, when it comes time to apply for a mortgage, go with the option that you feel most comfortable with. The goal is to save as much money as you can, in the least amount of time and with the least amount of effort and stress.

Want more advice about all things home — including homebuying or selling advice? Nestiny is a great place for homebuyer education and to help you gauge how ready you are to buy a home. Journey Homeward allows you to enter all your wants and needs while the True Affordability Tool will break down your budget, showing what you can comfortably afford. You will also receive a Ready Report that will give you a vital head start in the home buying journey, saving you valuable time and money.

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Ready To Become A Smarter Homebuyer?

By signing up, you agree to Nestiny terms of use .
Are you a real estate professional? Go here .