Borrowing Is Now Faster, Easier and More Straightforward with Digital Lenders

By HOM Editor
February 2020

As we usher in the new decade, we can plan on welcoming all the conveniences that follow, many of which involve society’s ever-changing world of technology. Some of the painstaking tasks we used to dread are now easier than ever, and that includes steps towards homeownership.

With dozens of new digital lenders as opposed to just physical banks, it’s now simpler, faster, and cheaper for new homeowners to borrow. In the coming years, potential homebuyers can expect more (affordable) options, full transparency, and even less discrimination with digital lending.

“Paperwork is becoming more and more obsolete with each passing year, and now that you can apply for your mortgage entirely online, you can say goodbye to the 5 lb. stack of paperwork.”

As many Americans are doing away with traditional banks when it comes to taking out loans, smaller, unorthodox tech-forward companies are reaping the benefits while big-name lenders are taking a hit. Paperwork is becoming more and more obsolete with each passing year, and now that you can apply for your mortgage entirely online, you can say goodbye to the 5 lb. stack of paperwork you may have dealt with during your previous homebuying experience, or that you’ve been dreading for your first mortgage.

Recent studies have shown that there are more advantages to digital borrowing than just a speedier process. Not only do companies such as Quicken Loans and LoanDepot offer more control to borrowers and make mortgage applications an easier task, but they also weaken discrimination against minorities, resulting in better interest rates. The National Bureau of Economic Research’s recent study, Consumer-lending Discrimination in the FinTech Era, discovered a direct connection between reduced discrimination in the industry and the amount of developing digital mortgage offerings. This study shows that POC on average see 0.079% higher interest rates than other borrowers and as a result pay around $765 million in additional interest per year.

Alternatively, minority homebuyers pay 0.053% more than others (0.026% less than face-to-face processes) when choosing digital lenders. The study conclusively found that digital lending reduced discrimination by 40% compared to in-person lending options.

Another large factor of digital lending is the ability to explore a variety of lenders and compare interest rates without any bias. This advantage results in more competition among mortgage lenders, which means better prices for the borrower in the end. Both big and small companies are catching on and expanding what they offer to appeal to new borrowers who prefer the quick and easy process of digital lending and mortgage approval.

The American Bankers Association’s recent report, The State of Digital Lending, shares that digital lending offers financial institutions room “to improve productivity, close more loans and increase revenue per loan with cheaper, faster and automated services.” In addition, “customers expect it, non-bank alternative lenders are offering it, but most banks are not there yet.”

In 2015, a study by Bain & Co established that only 7% of bank products were entirely handled digitally. Bain & Co was ahead of the game, advising banks to focus on digital lending to “avoid a material decline in profits and loss in market share.”

“I probably could have gone from filling out the documentation with them to closing on the loan in less than two weeks. It was just that fast.”

We aren’t saying our final goodbye to the traditional mortgage application processes, as many lenders still provide conventional, face-to-face loan applications. The chief economist at LendingTree, Tendayi Kapfidze, speaks of the variety of lenders to choose from today, “There are some lenders that have an almost completely digital process, and some lenders who have a partial digital process. But, ultimately, the industry as a whole, from application to underwriting and processing the application, is moving toward a digital structure.” This trend isn’t slowing down, so lenders are forced to offer digital options to fight off competitors and keep up with consumer demand. Considering consumers today handle the majority of their purchases online — at least 70% — the thought of being able to add mortgage applications to that list is very exciting. As Kapfidze explains, “It also creates for a faster process, so typically with digital mortgages, you get a quicker closing date, which is something that is appealing to a lot of consumers.”

“Although technology has automated the loan process, human interaction remains a robust feature of transactions.”

If you’re very familiar with the standard in-person mortgage application process and uncomfortable switching to a digital method, or you’re a first-time homebuyer and are hesitant to handle something so important online, you’re certainly not alone. A now proud owner of four homes, Sammie Jones of Hampton GA was able to obtain a mortgage for his fourth house through an online lender for the first time and doesn’t plan on revisiting the grueling traditional process again. He shares the speedy process with The Washington Post, explaining that if he already had a desired home picked out, “…I probably could have gone from filling out the documentation with them to closing on the loan in less than two weeks. It was just that fast. It was actually a little frenzied fast.” Believe it or not, Jones says that the profound difference of digital lending even made the mortgage process kind of enjoyable!

Quicken Loans chief executive Jay Farner notices that hesitancy and addresses it by stating, “although technology has automated the loan process, human interaction remains a robust feature of transactions.” Farner tries to take the best of both worlds at Quicken Loans, the parent company of Rocket Mortgage, and doesn’t believe that people should have to choose one way or the other, explaining “what we’ve done is both: leveraged technology when it makes sense, and applied that human touch when that’s needed, as well.”

In November of 2019, a couple made the move from California to Austin with the help of Redfin and their digital offerings. Redfin real estate agent Art Cisneros shared his excitement of their first digital closing, “For our clients who were in California at the time, the closing seemed pretty seamless. This was a situation where they could handle the closing from home before heading off to work…It took about 30 minutes. They were just happy with the convenience of it all.”

With all these benefits, it’s no surprise that we’ve seen a huge growth in mortgage lenders digitally offering loan origination. Of the thousands of lenders analyzed in the aforementioned National Bureau of Economic Research’s study, 45% offer a digital mortgage process. Rocket Mortgage, for example, was responsible for two-thirds of their $32 billion in originations last year. With this growth, you can find a slew of online mortgage lenders and take the first step towards homeownership — even from the comfort of your own home!


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