If you’re eyeing a refinance to take advantage of record-low mortgage rates but want to keep your distance from a bank branch or closing table, you can refinance online. Changes prompted by the coronavirus pandemic, coupled with recent technological advances, have pushed much of the mortgage refinance process online.
Although online refinancing isn’t as quick and easy as some other online transactions, such as buying a pair of boots or ordering groceries, you might be surprised how much of it you can handle online.
Here’s a look at how the process works and why you’ll still want to have someone to talk with at your lender’s office.
What Is an Online Mortgage Refinance?
Often, mortgage lenders and brokers will allow you to apply online for refinancing, which can offer time and convenience benefits, says Kristin Nesbitt, vice president of mortgage lending at Wisconsin-based Summit Credit Union.
“They can provide all of the information at a time that is convenient in their schedule and sit in the comfort of their own home while they enter their information into the application,” she says. “During our current unprecedented times of COVID-19, it is also safer than visiting a branch.”
But you’re likely to talk or meet with at least a few people during the process for several reasons, including:
Home appraisal. An appraiser traditionally visits a home in person before determining the appraised value.
Closing. State laws and technological limitations likely require you to sign some, if not all, closing documents in person. This could occur at your home or in your car outside of the closing office because of COVID-19.
Communication. You might not need to meet with anyone from your lender’s office, but you’ll probably have phone conversations about missing documents or last-minute requests from the underwriter.
“It’s not like it’s 100% online,” says Ron Haynie, senior vice president of mortgage finance policy for the Independent Community Bankers of America. “Inevitably, you’re going to end up having a phone call with somebody.”
What’s the Online Refinance Process?
The refinance process starts with an application, which is easily completed online if you know what type of loan you want and have all the necessary personal information.
After you apply, the lender will send you loan disclosure information, including a loan estimate. You’ll also get a list of documents you need to submit for loan approval, including pay stubs, W-2s, tax returns and bank statements.
“Because these items contain personally identifiable information, the lender should provide the consumer with a secure method to submit the paperwork,” Nesbitt says.
The next step is an appraisal to assess the value of your home. Most lenders order standard, in-person appraisals, and the appraisers follow COVID-19 safety protocols. But a couple of trends tied to the pandemic could make this type of appraisal less likely:
- Appraisal waivers. You could waive the appraisal if Fannie Mae or Freddie Mac owns your loan, and it is eligible for automated underwriting. This could save you hundreds of dollars on a home appraisal, plus the stress and the hassle during the pandemic.
- Drive-by or desktop appraisals. Since the coronavirus pandemic hit, more appraisers have been given leeway to conduct appraisals that don’t require in-person visits. An appraiser could view a property’s exterior and see the surrounding neighborhood, or just analyze online data. Homeowners can help by providing information on recent interior upgrades, including photos and cost details.
Lastly, you can expect to receive a closing disclosure at least three days before you close to confirm the details of the transaction. The document will include your loan amount and interest rate as well as closing costs.
Can a Closing Be Virtual?
Closings for mortgage refinances are more flexible than closings for home purchases. They can take place in your home, your car or, in some cases, virtually.
“There are a wide variety of options lenders provide for closing,” Nesbitt says.
Some lenders will require all documents to be signed in ink, others will allow electronic signatures and others might choose both.
Even if your state permits e-signatures, your lender may not be ready for remote notarizations. Most likely, you will need to go to a title company and sign documents, Haynie says.
When Should You Call or Visit the Bank?
Regardless if you are refinancing online, you can typically receive support in person at a bank branch or by phone if needed.
“There’s no such thing as a perfect transaction,” Haynie says. “It’s good to have someone who you want to pick up the phone and call, and can get you through it.”
Situations that might require some communication during the online refinancing process include:
Choosing a loan. If you have paid down several years of your 30-year mortgage and have quite a bit of equity, you might select a 15-year loan. Or if you’re moving soon, an adjustable-rate mortgage might be ideal. Discussing your options with a loan officer, who can give you the pros and cons of each approach, may be helpful.
Locking in an interest rate. You’ll want to decide not only whether to lock in a rate right away but also how long the lock should be. The timing of a rate lock is important for refinances because historically low interest rates have caused a surge in mortgage applications, and home purchases can be prioritized ahead of refinances, Nesbitt says.
Advises Haynie: You’ll probably want to aim for a 60-day lock.
Facing mortgage challenges. Qualifying for a mortgage has become more difficult in the wake of the coronavirus. Mortgage lenders have tightened some underwriting requirements, including credit and income guidelines. Talk directly with your lender about your options if you have income or credit challenges.
Asking appraisal and closing questions. If you’re going to ask for an appraisal waiver or figure out whether an appraisal will take place in person, you will likely need to discuss your options with a lending officer. Also, you might have questions and concerns about the closing process, which may be better for a phone call than emails.
What Should You Watch Out for With Online Refinancing?
Before you refinance online, make sure you are working with a trustworthy lender. Check Better Business Bureau ratings and online reviews, and ask your real estate agent.
If you’re applying with a local lender and have an account at the bank, that personal connection can help you, Haynie says.
With a lender you’ve never heard of before, “you really need to be careful,” he says. “You should know who you’re doing business with. If you’re shopping around and looking at an online lender, do some research on them and see what kind of track record they have.”