By Jill Schlesinger
Tribune Content Agency
Super Bowl commercials rarely create activity in my inbox, but the one for Quicken's Rocket Mortgage earlier this month was an exception. In the middle of the game, people started sending me messages like, "Did you just see that mortgage spot?"
The ad started with a simple premise: "Here's what we were thinking: What if we did for mortgages what the Internet did for buying music and plane tickets and shoes?" It then described how borrowers could get a mortgage with a few clicks on their phones. "If it could be that easy, wouldn't more people buy homes?"
Except it is never that easy. Twitter lit up with Rocket Mortgage haters, accusing the company of taking us back to the bad old days of 2005, when anyone with a heartbeat (and now a phone) could snag a mortgage. If you've refinanced or tried to get a mortgage lately, you know that getting a mortgage in eight minutes is impossible.
That left Quicken Loans President Jay Farner with the task of repeating a simple clarification: Quicken is not using the app to "change the underwriting criteria or guidelines." Prospective borrowers will apply for a loan in a streamlined way and be able to qualify, subject to the outcome of the underwriting process.
So what does the Rocket app do? Once you enter your income and bank details, Quicken communicates directly with lenders to compare loan terms and rates. The app also estimates the amount you can borrow and monthly costs and allows you to lock in a rate. At this point, the loan must go through underwriting, just like any other loan. You may get dinged in the process or you may get approved.
In many respects, the app provides you with a prequalification, which lenders have always used. According to Mike Raimi, a managing director of Luxury Mortgage Corp., a prequalification is "an estimate of buying power provided by the borrower, without the collection of actual documents to substantiate income, assets or a hard credit inquiry. A pre-approval is based on the actual review your financial wherewithal to repay the loan and therefore is considered the stronger, more complete process."
While it has become easier to attain a mortgage in the past couple of years, Bankrate.com said the median credit score of a mortgage applicant is now 753 (out of 850), the highest since 2001, and there is no reason to think that Rocket Mortgage's app will change that fact. So what do you need to know before you start the mortgage or re-fi process? Raimi recommends that you go to AnnualCreditReport.com and correct any errors on your credit report first.
For 30-year conventional mortgages, the best rates are available for those with credit scores above 720. For every 20-point drop in score, the rate edges up an eighth to a quarter of a percentage point. If your credit score is below 620, a conventional loan is generally not an option, although an FHA loan is. Credit scores do not have nearly as much impact on loans with terms of 15 years or shorter.
I still recommend a 20 percent down payment, because you will not be subject to mortgage insurance. Right now, a 30-year fixed rate mortgage for a borrower with excellent credit is just below 4 percent, which is still a historically low rate.
Contact Jill Schlesinger, senior business analyst for CBS News, at askjill@JillonMoney.com.
This article was printed in the March 6, 2016 - March 19, 2016 edition.