By Brad Walker, CEO and Co-founder of Income&
Over the past several years, the impact of technology on financial services has become increasingly significant. It’s now possible to conduct complex transactions like buying a home completely online. Firms like Quicken’s Rocket Mortgage — which rose to prominence after a controversial ad during the 2016 Super Bowl — even offer loan approvals in as little as 10 minutes. Though critics of Rocket Mortgage claim it promotes lax lending standards like those that contributed to the 2008 housing crisis, the fintech revolution is in the process of radically reshaping the residential real estate sector.
Applying for a Mortgage Online
Conducting the mortgage application process online saves time and effort. Though it requires the same documentation as obtaining a traditional mortgage, entering your credit, residence, and employment history in an online form is far easier and less time-consuming than acquiring hard copies of the necessary documents and then forwarding them by mail to your mortgage provider. Additionally, with an online mortgage provider, you can grant digital access to your pay stubs, bank information, tax returns, and other financial information from your bank and the IRS.
The process is relatively simple: You create an online account with your mortgage provider, fill out the required documents, authorize your lender to access your pay records, bank statements, and tax returns and get a credit report. With a solid profile, you can be approved for a mortgage in as little as 10 to 30 minutes.
However, there are a number of limitations that come with completing the mortgage application process entirely online. You likely won’t be able to complete the process online if you’re applying for a jumbo mortgage (for which the limit is $417,000 in most of the United States); if you’re self-employed with various sources of income; if you or a tax advisor manually prepared your taxes; or if you don’t have online accounts with all of your financial institutions. In these cases, you are going to have to take some additional offline steps to provide the documentation your mortgage lender requires to complete your application.
Should I Really Sell / Buy a Home 100% Online?
Prospective buyers have been able to locate and view photos of homes they may be interested in online for quite some time now. However, in the last few years, a number of forward-thinking residential real estate firms have developed web-based platforms where the entire home buying or selling process can be conducted online.
Buying a home 100% online is not for everyone. Many homebuyers today still want the hands-on experience of actually seeing the home and getting a feel for the neighborhood. Some less-experienced buyers may feel more comfortable working with a traditional real estate agent to serve as a knowledgeable advocate in the buying process.
Still, the option to purchase real estate quickly and easily online is very attractive for foreign buyers, investors, and modern, web-savvy homebuyers. Although completely online real estate transactions only represent a small fraction of the more than $2 trillion in annual real estate transactions worldwide today, the demand is growing, and it seems likely that a substantial percentage of homes will be purchased completely online within just a few years.
Selling a home online offers a number of notable advantages. Perhaps most importantly, you avoid using a real estate agent so you don’t have to pay the usual 3% to 6% commission. Additionally, taking care of the search and financial qualification process online saves a lot of time and energy for both sellers and buyers.
The key disadvantage of a fully online transaction, of course, is the possibility of making some kind of mistake during the process that could cost you a chunk of money, or even the chance to purchase your dream home. Unless you’re getting advice from someone with experience in buying or selling a home, a completely online transaction may not be the best idea for first-time homebuyers.
Fintech startups such as SideDoor, Door, Trelora, and House Simple (based in the U.K.) have all developed their own online process for real estate transactions, including qualification, detailed individual listings of properties for sale (with 3-D video viewings available for many homes), and even contract negotiation and closing services. Other firms, such as Auction.com, use an auction-style model to sell both residential and commercial real estate, and also offer related financial services to both buyers and sellers.
The Internet really has changed everything, including how we buy and sell our homes. Although online real estate transactions are not for everyone, a growing number of people are already embracing the efficient and lower-cost web-based model for real estate transactions. That said, online transactions still require due diligence before making what likely will be the most significant purchase of your life.