The internet has given us countless innovations over the last several years. And these days, you can buy just about anything online, including your next home.
With an eMortgage (also known as an electronic mortgage), borrowers can potentially move through the entire home buying process, including closing, without ever getting off their couch. Given the benefits, an eMortgage may be preferable to the traditional approach for many home buyers.
This guide provides more information about eMortgages, including their advantages and disadvantages. Keep reading to see if an eMortgage is right for you.
How Does an eMortgage Differ From a Traditional Mortgage?
With an eMortgage, the whole mortgage process – from beginning to end – happens on the web through a secure digital portal (as long as your state permits it). This includes signing and closing as well as using secure online portals to store, access and transfer all necessary documents.
Imagine there’s a couple living in Ohio who are planning a move to Florida. They found the house of their dreams, made an offer and it was accepted. If they proceed with a traditional mortgage, they’ll have to figure out the logistics of signing documents using notaries or attorneys for the closing.
If the couple opts for an eMortgage, the process can happen online. They can apply for their mortgage and sign and close on their new home without ever leaving Ohio. When they get on the plane, it’ll be to walk through the front door of their new house in Florida.
An eMortgage isn’t different from a conventional mortgage. It’s just a change in process from paper to digital. Everything you know about traditional and conventional mortgages still applies to eMortgages.
What Are the Advantages and Disadvantages of an eMortgage?
There are plenty of benefits and very few downsides to an eMortgage. Some advantages of an eMortgage include its:
- Convenience: Taking out an eMortgage can eliminate the inconvenience of in-person meetings with lenders. With a fully digital eMortgage, you can sign and close on your new home from your couch or your favorite coffee shop.
- Efficiency: Typically everything is digital, you can review and sign electronic documents without all the back and forth that happens with a conventional mortgage as long as the process is legal in your state.
- Sustainability: From beginning to end, buying a home comes with a lot of paperwork. Going digital eliminates paper waste. As long as your state allows eMortgages, you’ll also save money on fuel since you can usually complete the entire process without ever having to travel to a brick-and-mortar location.
- Security: When almost everything is digital, it’s less likely that an error or missing signature will get through. You also don’t have to worry about anyone misplacing paperwork. Plus, a reputable mortgage lender will have secure systems in place for each step of the eMortgage process.
Now that you know the advantages of eMortgages, it’s time to discuss the drawbacks. Some disadvantages include that they are:
- Not offered by every lender: The biggest drawback to eMortgages is that everyone needs to be on the same digital page. Not every lender has adopted a fully digital mortgage experience.
- Not available in all states: Some states don’t allow eMortgages yet.
- Not infallible: When hard copies of your electronic documents don’t exist, there’s nothing to tuck away in a filing cabinet or safety deposit box. While rules and regulations are in place to protect your online documents, it’s always a good idea to have backups.
The good news is that digital lending is becoming more and more popular, so it might well be the norm in the coming years.
How Does Digital Closing (or eClosing) Work?
With a traditional mortgage, closing on a new home means meeting with your lender in-person to review and sign reams of documents. It’s not a speedy process, and the chance of a bad case of writer’s cramp looms over the closing.
The eClosing process (digital closing) is much easier. You can access all your documents through a secure portal and review them wherever it’s convenient for you. Once you’ve reviewed them, you can sign the documents electronically using a variety of approaches. Depending on the lender and location, you may be able to close online using video conferencing software.
Once the eClosing is completed, you’ll receive a digital note called an eNote. An eNote legally functions as a promissory note. Not having a physical note to your home might sound scary, but it’s actually more secure.
Lenders have to create, store and assign eNotes in very specific ways to make sure they’re legally enforceable. As such, eNotes are checked and rechecked, and lenders have security measures in place to ensure they can be stored and transferred safely.
That said, an eClosing may or may not be part of your eMortgage depending on where you live or where the home you’re buying is located.
Not all lenders offer a fully digital experience due to notarization restrictions in each state. If you plan on closing digitally, check with your lender to see if it’s an available option in your state.
Many lenders are inching toward eClosings by taking a hybrid approach. So, depending on where you’re buying, you may be able to complete some or all of the eMortgage closing process digitally.
A hybrid approach to closing
Some lenders offer a hybrid approach, allowing you to complete some portions of the loan process electronically and others physically. As it stands, fully digital and remote closings are allowed in several states, and many other states are introducing legislation to legalize eClosings. If you live in one of the states where eClosings aren’t permissible, you’ll likely move through some form of hybrid closing.
A hybrid closing is a middle-of-the-road approach to an eClosing. For example, you might need to physically sign and notarize certain documents, while other documents can be signed digitally. Again, this is usually to accommodate local laws, but it also depends on the lender.
For those fortunate enough to live in a state that allows it, there are a few ways to sign and close.
Digital signing process
Like eMortgages, the method used to sign and close digitally will vary from lender to lender. If you’re considering a lender that offers eClosings, it’s a good idea to ask them about their process so you aren’t surprised when it’s time to sign.
For fully remote closings, lenders often use a remote online notarization process. In this scenario, both you and the lender sign electronically while a notary sits in via a live video feed. You’ll also provide documents to verify your identity over the feed. Once you’re done signing, the notary finalizes the process.
Another approach involves the same process but with physical documents. You and the lender sign while the notary watches over a live video feed, then you and the lender mail the documents to the notary to finalize everything.
Other methods for signing digitally include:
- Using an online system that allows you to create and validate a digital signature
- Uploading an image of your signature to the portal and applying it to each document
Once everything is signed and notarized, the process is complete. You now digitally hold a shiny new eNote to your new home.
Is There Anything You CAN’T Buy Online?
If you’re gearing up to buy a new house, ask your lender about an eMortgage. It’s an efficient way to sign and close on a new home, especially if you’re moving to a different state.
Just remember to find out what the process looks like beforehand since it varies by lender and by state.