5 Ways FinTech is Changing Home Buying Process
Fikri, 30, and his wife, Mariah, 28, are planning to purchase a three-bedroom, townhouse-style condo for about RM500k in Setia Alam, a suburb city in Kuala Lumpur upgrading from the nearby apartment they rented for four years now that they have a child.
The pressure starts where both of them need to spend dozens of hours researching online, visiting property galleries and scouting out neighborhoods. After determining target property, the couple still have to think about securing a home loan. The stringent mortgage requirements aside, they are also uncertain over the intricacies of the home loan application procedure where the application process can get complicated as there are various processes involved.
There are chances for the buyer to face too much trouble to get the loan approved and even now during the lockdown or Movement Control Order (MCO), the processing time for loan applications may experience some delays as certain services that are crucial in the evaluation and approval of loan applications.
As a result, all of their home loan applications were rejected by the bank despite the fact that they are able to serve mortgage installments combining their primary and secondary incomes.
Feeling frustrated, they started to search on the internet for home-buying financing alternatives. There are numerous FinTech companies other than traditional banks all around the world that can offer many of the same products and services as traditional financial institutions yet still hold by heavy regulatory and compliance standards in giving home loans like SoFi, Prosper and many more that are available in the US market only. All these FinTech companies are changing the way to finance, renovate, build, buy, and sell homes.
As FinTech begins to take over more and more functions in the mortgage industry, it should begin to form an integrated system that allows for fully-digitized consumer experience.
1. The Mortgage Origination Process
How does the FinTech business model affect the mortgage origination process in practice? Online applications mean that a borrower can be approved for a loan without talking to a loan officer or visiting a physical location.
- Less Physical Document Needed
The online platform is able to directly access the borrower’s credit record. Other supporting documents can be uploaded electronically, rather than by being sent piecemeal by mail, fax or email. Relevant documents can be signed electronically by the borrower. This allows speeding up the information transfer, and can improve and eliminate transcription errors. The online platform also allows borrowers to customize their mortgage based on current lender underwriting standards and real-time pricing.
- Virtual due-diligence and e-KYC process
Supporting and complementing this online application process, FinTech mortgage lenders have developed “back-end” processes to automatically analyse the information collected during the application.
2. Advanced credit risk algorithms
Borrower information is compared with employment databases, property records, and marriage and divorce records; additionally, algorithms can examine whether recent bank account deposits are consistent with the borrower’s paystubs.
Character recognition and pattern recognition software can be used to process documents uploaded by the borrower and flag missing or inconsistent data. These systems make the mortgage underwriting process more standardized and repeatable, and may help identify fraud.
3. Potential credit impacts
The first step in the P2P loan-approval process gets one or more of your credit scores by a method known as a soft inquiry. Soft inquiry occurs when you check your own credit or you apply for a pre-approval loan application with a bank or fintech company. Soft inquiries have no impact on your credit scores. However, the hard inquiries traditional lenders make when you apply for credit cards or bank loans are reported to the central bank, Bank Negara Malaysia record. They appear on your credit reports, and typically cause temporary credit-score drops of several points.
4. Changing the Customer Experience
FinTech usually focuses on mobile functionality, big data, accessibility, agility, cloud computing, conceptuality, personalisation and convenience. They accelerate and prefer a change in the customer preference around mobiles platforms, smartphones and social media.
FinTech’s communication pattern is more on innovations that promulgates faster transactions, 24×7 permanent access, immediate consultation and remote account opening which gives much more significance to their communication with the customers. FinTech streamlines complex financial processes, making it more accessible to people.
5. Cater the Underserved Market
FinTech products are created by identifying a gap in the marketplace and focus on specific needs. For example, the first Peer-to-Peer (P2P) Mortgage Lending Platform in Malaysia, HomeCrowd is helping underserved target markets which are middle-income millennials, especially if they’re first-time homebuyers.
Due to the higher risk in the property market these few years, traditional banks are getting very selective to approve home loans to the borrowers thus, excluding middle-class income millennials. HomeCrowd provides a solution to this issue via peer-to-peer (P2P) lending platform that connects those looking for funds for a home to lenders who are willing to finance this initiative for an interest.
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22 May 2020 | by HomeCrowd team