How Does Online Mortgage Approval Work?
© 2009, Brandon Cornett. All rights reserved.
Reader Question: I have seen a ton of lender websites that tell me to apply online. Is online mortgage approval legitimate or just a way to lure people into a website?
Actually, it’s a little of both. You can get pre-qualified online, but that’s not the same as being approved for a loan. Pre-qualification and pre-approval are two different things. The online process is generally used to pre-qualify you for a certain loan amount, based on a quick review of your financial situation (debt, income and credit score).
Later on, after you’ve received an initial qualification from the lender, you would proceed on to the pre-approval process. This generally involves a more thorough review of your finances — much more detailed than the initial pre-qual process. So it’s more accurate to say that the mortgage approval process only begins online.
Mortgage Approval - By the Numbers
This will make a lot more sense if I explain the steps involved. Here’s what usually happens when you request mortgage approval online through a lender’s website. I say “usually” because the process varies from one lender to the next, and from one borrower to the next. But this is the most common sequence of events.
- You submit an online mortgage application through the lender website. This is a relatively short form, and it’s designed to gather the minimum information needed so the lender can pre-qualify you for a loan. Keep in mind this is not the mortgage approval … not yet anyway. That comes later.
- Based on this information provided online, the lender will typically give you a maximum loan amount that you’re qualified for, and they may give you an estimated interest rate as well. You won’t know the actual rate until later on, when you get approved for a loan to buy a house.
- After this initial contact, a representative will probably contact you by phone or email. They will then collect the paperwork needed to conduct a more thorough review of your finances. You’ll have to provide W-2 tax forms from the last two years, bank statements, income verification, etc.
- Based on the review process mentioned above, you will (hopefully) get pre-approved for a certain loan amount. Now you have a more solid idea of what you can spend. Sellers will take you seriously when you are pre-approved, because it means you’re pretty likely to get the loan when the time comes.
- Eventually, you’ll find a house you want and put in an offer. The lender will send a home appraiser out to make sure it’s worth the amount you have agreed to pay. If it is, then you should get final approval for the mortgage loan … and you’re nearly home free!
This is usually how it works when you seek mortgage approval online through a lender site. I’ve hit you with a lot of information here, so let’s recap the basic steps involved:
First, you would fill out a form on the lender’s website. This will help them pre-qualify you (informal review) for a certain size and type of mortgage loan. After that, you will follow up with document submission so they can conduct a more formal review of your finances (pre-approval). Once you get pre-approved, you can start house hunting. When you find a place you like and make a successful offer on it, the lender will send an appraiser out to evaluate the home’s value. If it “meets appraisal” then you will probably get the final approval for the mortgage. Hooray!
This blog post explains the online mortgage approval process. If you would like to move forward with your own approval process, you can get started on the quotes page of our website. You may also wish to read the article below, which offers more information on this subject.