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The traditional mortgage process—from application to closing—typically involves a lot of face-to-face contact, from filling out an application at a lender’s office to gathering in a conference room to review and sign a stack of documents before being handed the house keys.
Online lending has grown so much over the last decade that it is now commonplace to win mortgage approval without meeting with a live person. But with changes spurred by the coronavirus pandemic, it’s more likely that even your closing will be at least partly virtual.
Here is a look at how you can make each step of the mortgage process as contactless as possible.
Step 1: Mortgage Application and Approval
Mortgage application and approval has largely moved online, in large part because it’s easier and there are more lenders offering online applications than a decade ago.
Almost 75% of borrowers applied for their most recent mortgage online, according to the 2019 Borrower Insights Survey by Ellie Mae, a software company that works with the mortgage finance industry. Online lenders have pushed this trend, as well as large banks.
The majority of community banks across the country also have set up at least the start of the mortgage application process online, says Ron Haynie, senior vice president of mortgage finance policy at the Independent Community Bankers of America.
Credit unions have adjusted, as well. For example, Alliant Credit Union, which is based in the Chicago area and handles about $500 million in mortgage loans each year, focuses almost completely on digital banking, says Jerry Anderson, vice president of residential lending at Alliant.
Real estate professionals encourage prospective homebuyers to know how much house they can afford before they look, which makes prequalification—where you provide basic information about income and assets to a lender—an important first step.
You’ll also want to get preapproved before you make an offer on a home. You will need to share documents that verify income and assets, provide your Social Security number for a credit check and share your likely down payment amount before you can be preapproved.
While the prequalification and preapproval processes can be completed online, it’s likely you’ll want to keep in touch with a loan officer so you can learn more about the types of loans that might be best for you and the next steps in the process.
Step 2: Signing and Submitting Documents
E-signature programs and online portals have made it easy and safe to sign and upload key mortgage documents without leaving your desk. These secure digital tools have become commonplace in the mortgage process, as about 80% of recent mortgage applicants used an online portal for uploading and signing documents, according to the Ellie Mae study.
A lender will set up an online portal once you’ve started the mortgage application process, to allow for the uploading of sensitive documents—such as tax records and pay stubs—and to facilitate review and signatures of documents. E-signatures have been widely accepted by the mortgage industry for many years as a way to get a verified signature on a document electronically.
Setting up a portal or other protective measures might seem like overkill, but the goal is to make this process quick and secure. If a hacker accessed your email and saw the W-2 you sent to a bank, vital information such as your name, address and Social Security number could be compromised.
“You never want to email anything with personal information,” Anderson says.
Some lenders take efficiency a step further by partnering with companies that can provide electronic reviews of applicants’ income and assets, instead of asking you to upload documents to the portal. To do this, you’ll have to allow third-party access to your banking and investment account information, for example, and that company would then produce a report for the lender that verifies your account holdings. Separately, a vendor working with the lender may contact your company directly for W-2 information.
“In some cases, there is very little a borrower has to upload for review,” Anderson says.
Step 3: Getting the Home Appraisal
During a home appraisal—which is required by a lender before your loan can be approved—an appraiser usually has to enter the home you wish to purchase to verify its size, number of rooms and other details. But alternative appraisals, approved—at least temporarily—by the Federal Housing Finance Agency because of the coronavirus pandemic, opened the door to several new ways to get an appraisal.
Whether you’re allowed to use alternative appraisal options depends on the type of loan you’re seeking. For example, you’re more likely to get an alternative appraisal approved for a home purchase with at least a 20% down payment than for a cash-out refinance, which is riskier for lenders and investors.
Alternative appraisal options include:
Online search. An appraiser would research the area and neighborhood market as well as sales of comparative homes in lieu of visiting the property.
Exterior. In addition to research about the market and recent sales, the appraiser would supply clear, descriptive photos of the outside of the home. This could also be considered a “drive-by” appraisal, as the appraiser could get a sense of the neighborhood’s homes at the same time.
Assisted. The appraiser could work with a real estate agent and/or homeowner to get a video tour of the interior—such as through FaceTime—and photos inside the home. This would go along with exterior photos and inspection and research.
“We’ve used that a few times,” Anderson says. “Either the appraiser didn’t want to go into the home or a borrower didn’t want them to go into the home. It works very well.”
Step 4: The Closing
In a growing number of states, a contactless closing is possible if state laws allow (and as long as lenders and title companies have the technology and willingness), changing the long-established practice of signing mortgage documents in person.
Remote online notarization (RON), which would allow you to sign your documents in your home while the notary is in a different office or home, was addressed in legislation by more than two dozen states as of June 2020. The National Notary Association has put together an updated list of temporary changes in RON legislation.
“Some banks or title companies have allowed customers to sign papers from their car or have had a notary visit them at their home to facilitate contactless closings,” Haynie says. “Still others are doing virtual closings that combine the use of e-sign technology, video conferencing like Zoom, and an E-notary to notarize documents from a remote location. Not all states allow this yet, but most are moving in that direction. COVID-19 will really push all of this forward.”
At the closing, a notary has to either be there in person to verify who you are or find a way to confirm you’re the correct person electronically and through two-way video and audio. The specifics of the verification methods are determined by each state.
Other potential closing methods that can limit person-to-person contact include:
- Garage closings. You could set up a table in the garage where you can leave your ID for the notary to confirm. Then, the notary can leave the stack of papers for you to sign. You could either have the notary review the documents with you at an acceptable distance or do it by phone while you’re in the house. This might be easiest for a refinance, as you would likely need to include a lawyer and others for the closing of a home purchase.
- Drive-through closings. The title company could allow you to drive up to pick up the documents, review by phone and complete the sale without leaving the car.
The closing also might be expedited by allowing most of the documents to be signed electronically.
Applying, processing and even closing on your loan online doesn’t mean you’re on your own, though. For lenders and mortgage brokers, ongoing communication is still an essential part of the mortgage application process, especially for first-time homebuyers. As noted in the Ellie Mae study, mortgage applicants frequently kept in touch with loan officers, whether by phone, text, email or online chat.
“There’s a lot of consulting going on with the loan officer,” Anderson says.
