Home > Mortgages > How Getting an Online Mortgage Can Save Money

Comments 0 Comments

If you’re like most people, housing costs are your biggest expense. CBS News reported that U.S. rental prices hit a record high in 2018 at an average of $1,405 a month. On the flip side, Lending Tree reported that the average monthly mortgage cost was $1,029 in 2016.

Rent tends to rise with each move and without notice, even if you aren’t moving. But a mortgage on a home of your own stays the same, so you avoid those unexpected increases and avoid fluctuating housing expenses. And while buying a home can seem expensive, it can have advantages over renting, including the absence of fluctuations in housing costs and the potential return on your investment in a home of your own.

While a mortgage can seem daunting, there are ways to keep costs in line. One of those ways, that many people don’t consider is getting your mortgage online, which can actually save you money on your mortgage costs.

Why Get an Online Mortgage?

Managing your finances through your phone was almost unheard of a decade ago, but today it’s common and completing an online loan application is common. Online lender offer flexibility and convenience for home buyers. You can research mortgages, rates and terms when you have time and wherever you are. And comparison shopping helps you save a lot of money over the term of your home loan. You also:

  • Save the time and gas money needed to travel to a lender’s office and meet face-to-face.
  • Can possibly access lower interest rates and closing costs made possible by the competition between online lenders and between online and brick-and-mortar lenders.
  • Take advantage of more lenient underwriting than offered by larger lenders—a particular plus if your credit score is lower than 700 or so.
  • Have greater and more real-time visibility into the process and where you’re at within that process.

Online mortgage companies let you, the home buyer, easily manage your closing process by giving you control. You can watch your application as it goes through the process through the application portal. This lets you catch a problem before it upsets your timeline. When you’re missing a document, the online portal can let you know and even send you an email alert.

Online mortgage applications give you control and power over your mortgage. Mortgage calculators built into a lot of applications let you instantly see how small interest rate changes or different terms affect your mortgage. And because this information is available 24×7, you don’t have to wait to get answers when the lending company to be open during business hours.

Online mortgages also let you shop around for a home loan that fits your needs. Interest rates affect your loan much more than you realize. An interest rate that’s 0.25% lower can save you almost $5,000 over 30 years. Changing the term of the loan to 15 years saves you 50% savings in interest paid over the course of the loan.

Online mortgage lenders also often have less overhead than brick-and-mortar community banks. This lets them pass on savings to their customers through lower interest rates and fees. Applying to online lenders can also be simpler. You can upload digital documents instead of printing out copies to take to the lender’s office.

More Ways to Save on an Online Mortgage and an Offline Mortgage too

While a possible reduced interest rate with an online mortgage can reduce your loan payment, you can do other things to reduce it as well.

Private mortgage insurance (PMI) protects the lender in case you default. When you borrow more than 80% of the value of the home and get a conventional fixed-rate loan through a private lender, you’re required to take out PMI as part of your loan. PMI can add as much as 1% of your loan balance. On a loan balance of $150,000, that’s $1,500 per year or another $125 to your payment each month.

Having a down payment of 20% or more reduces your need for private mortgage insurance. To avoid PMI, choose a home that lets you make a down payment of at least 20%. Take the amount of your down payment and multiply by five to get the highest price you can pay to avoid PMI.

You can also consider these options:

  1. Military perks: Eligible veterans qualify for loans through certain programs with no money down and no monthly PMI. The Veterans Benefits Administration doesn’t provide loans, but it acts like a guarantor for a portion of the loan, which allows the lender to provide favorable terms on VA loans.
  2. Equity gifts: If you’re buying a family-owned property or one that you’ve rented, you may ask the family or landlord to gift you your equity in the home as a way to reduce the purchase price. This can save you money at closing and on PMI. Be prepared to provide documentation about your relationship and the equity gift. Lenders want to ensure that you’re not committing fraud.
  3. The 80/10/10 method: This is an old-school method of allowing the buyer to put down 10% of the purchase price of the home. The lender provides 80% financing through a first mortgage. The same lender, or even another lender, provide another 10% of the mortgage, which goes toward the down payment, eliminating the need for PMI. The method requires a credit score of at least 700.
  4. Negotiate with the seller to get a lower purchase price. Getting pre-qualified can help as it lets the seller know you’re serious. Ask for property discounts that reduce the loan amount, but not the home’s appraised value. This can get you closer to not having to pay for PMI.

If you’ve already purchased your home and are paying PMI, check your balance to see how close you are to getting your balance below 78%. Once you’ve paid down 78% of the home value toward your mortgage, PMI should automatically be canceled. But once you reach 80%, you can ask that it be canceled early. You may want to speed up your payments to get the PMI off your mortgage account. Or you may be able to refinance your home to drop the PMI requirement.

Before accepting a large gift to pay down your loan or make a down payment, check with your lender. Your loan program may regulate the amount of money you can receive from a family member. And, plan to document any large gift of money when buying a home.

Shop Around for Insurance

Home-owners insurance can be a big part of your mortgage payment or a big payment if you don’t have it wrapped into your mortgage amount. A policy that costs $2,000 annually adds about $166 to your monthly loan payment or expenses.

If insurance is part of your mortgage, the lender keeps these payments in an escrow account to pay the bill every year. Your lender may have minimum requirements for your insurance policy. Make sure that your insurance meets its criteria. Where you live will have a lot to do with the cost of your insurance, but saving $500 per year can reduce your mortgage payment by about $40 a month.

Make Extra Payments on Your Mortgage

You can pay your mortgage faster by making extra payments. You can make two payments that add up to the same amount you pay monthly to actually make 13 instead of 12 payments annually. You can make one extra payment a year separately. Or you can pay more than you’re required each month. You can also use a large gift, bonus or tax refund to make an extra payment on your mortgage.

The savings of any of these methods can add up. For example, on an $80,000 loan at 4.5% interest without PMI, making one extra payment each year by paying bi-weekly instead of monthly, the mortgage rate savings are over $11,000. Plus, you can pay off your mortgage about five years faster.

Find the Right Loan

Online mortgages make shopping for a home less stressful. Online mortgages provide more options for your budget. Credit.com offers online mortgage loans and resources to help you find the home of your dreams. If you’re buying your first home or downsizing for the next stage of your life, learn more about programs that will help you when shopping for a mortgage.

Your Credit Score Matters for Any Mortgage

Your credit report is one of the most important aspects of getting a mortgage. Borrowers with higher credit scores get better rates from lenders. And if you have poor credit or your credit score isn’t high enough, you may struggle to get approved for a mortgage.

Before you ever start shopping, know your credit scoreand check your credit reports. If needed, look for ways to clean up your credit file completing a loan application.

  • Correct errors to ensure accuracy.
  • Pay down accounts that are close to the maximum limit and all balances in general.
  • Negotiate old debts by settling them.
  • Maintain a good credit utilization ratio; use no more than 30% of your available credit.
  • Increase your credit card credit limits if possible and without then using any of that new limit.
  • When you apply for a mortgage, don’t open any new credit accounts. Don’t make any big purchases until your mortgage loan closes.
  • Apply for online mortgages from multiple lenders in a few weeks so that all applications are seen as a single hard inquiry.

Happy house hunting!

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team