| Sep 9, 2021

Almost Digital: What’s Keeping the Mortgage Process Analog?

The mortgage process continues to be a challenge for most potential homeowners. Digital transformation should not be far away, but what do we need to do to get there?
By Bill Packer |

3 minutes

For most of us, buying a house means going through the mortgage process, where you go to a lender and take out a loan for the property. That process has remained largely analog, but it doesn’t have to be. 

Understanding the Steps of the Standard Mortgage Process

As we begin the home-buying journey, our excitement is usually tempered by the realization that although we desire a home, almost all of us lack the financial resources to buy the home outright.  Our path to homeownership and our dream house leads through the somewhat mysterious mortgage-lending process. The next step in this journey is to figure out which mortgage product fits your financial situation.    Fixed or variable?  What term?  How much of a down payment?  How many points to pay?  Conventional, government, or private lender?   It’s essential to do your research to find the best fit.

Next, you generally fill out the formal application (the so-called UnUniversal Residential Loan Application). Completing your application then triggers a variety of state and federal disclosures intended to help people make sure you understand the product terms of the mortgage you are applying for, as well as to assist you in comparing offers across various lenders.

After you fill out your application and give your formal “intent to proceed,” the processing and underwriting begin. This process verifies the information on your application, such as your employment, credit, and income. The lender then determines whether you’re eligible for the product you applied for based on the validation of that information.

As the underwriting proceeds, a simultaneous collateral approval/appraisal is taking place. This is where the lender validates the value of the home – that is, independently validates that the purchase price for the home is supported by its condition and recent sales.

Next comes a title search.  A title insurer uses a variety of methods to make sure that the title can pass to you and identifying any easements or restrictions that may impact the title (or ownership) of the property.  This includes a title insurance quote.   

The final two steps are the ones most people get excited about – you close on the house and sign all your paperwork, and then you actually exchange funds so the property becomes yours.

The Reasons for a Turtle-Paced Shift

As you can see from the summary above, the mortgage process is not a snap-your-fingers affair. No single component is hindering the shift to digitalization, but rather the overall complexity involved. 

Let’s review some of these.  

  • Income and employment verification – not all employers have payroll providers that are online
  • Assets verification – not all banks participate and not everyone is comfortable with the various online systems
  • Appraisal waivers – many homes are still not eligible for an appraisal waiver, which means a physical appraisal must be done, either because an investor like FHA doesn’t allow it or because the property isn’t in the investors’ database yet.
  • E-signatures – here there are myriad barriers, including investor acceptance, local jurisdictions (e.g., county recorders) reluctance, and even the lack of court cases, meaning a lack of judicial precedence adds to the reluctance

That said, there are ways to bring the mortgage process more online and improve its efficiency. The industry is beginning to confront digital barriers throughout the process. 

For instance, before the pandemic, many states didn’t permit remote notarization of mortgage documents. But during the crisis, most states adopted emergency measures to allow it. Many states have seen the benefits to their citizens and are making those measures permanent.   

And there’s nothing, technologically, to stop investors like FHA from starting to accept appraisal waivers; such a change speeds up the mortgage process, often by weeks, and reduces costs to the consumer, by several hundred dollars.

MORE FOR YOU

The Mortgage Process Can Move Forward Online if You Take the Helm With Due Diligence

Given the current need for homes, taking mortgages virtual could play a role in helping consumers find the right home and the right mortgage product for them. We have access to many new resources, such as the ability to conduct online research on mortgage definitions and the myriad of calculators and explanatory videos to help educate homebuyers. 

Mortgages can go digital, making it easier for you to buy your ideal home. But as a consumer, remember that the market will take a cue from you about how to operate. Do your part and make the demand for digital clear. Be willing to put in the time, energy, and effort to seek out information because it is at your fingertips. With that willingness and clarity, you can help point the industry in a new direction, make an educated decision you have no regrets about, and quickly get into your ideal home.

By Bill Packer
Executive Author

EVP & COO, American Financial Resources, Inc.

Bill is a partner of American Financial Resources, where he serves as the firm’s Chief Operating Officer responsible for Operations, Technology, Project Management, New Product Development. view profile

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