Purchasing a home is one of the biggest financial decisions that you can make. Since the average person cannot afford to buy a home in cash, they must apply for a loan to finance the purchase.
Unfortunately, the mortgage application process is rather complex, as it involves extensive paperwork, background checks, credit checks, identity checks, and financial documentation to see if you are qualified for the loan. On top of that, there are multiple interactions between the various stakeholders involved in the purchase of the home, such as the real estate professionals (realtors), lenders, and borrowers.
The traditional preapproval process for a mortgage can take anywhere from 1 to 3 business days for the average person. First-time homebuyers will find the entire process complex and nerve-racking to wait to see if their mortgage application was approved or not. If only there were a way to make this process faster and easier for all stakeholders involved.
AI is Now Streamlining the Mortgage Application Process
We have all experienced or heard about the advancements in artificial intelligence (AI) technology over the last decade. It seems like AI has been integrated into virtually every industry in the marketplace. Now it has been integrated into the mortgage application process for individuals seeking financing to buy a home.
As you may know, AI technology has the ability to scan through massive volumes of data very quickly. Lenders are now using this same technology to streamline the mortgage application process through automated document collection, identity verification, and faster prequalification for a mortgage.
Borrowers no longer need to navigate a complex mortgage application and prequalification process. AI can accelerate the steps involved by immediately analyzing and verifying all applicant information for the lender. That doesn’t mean the AI makes the final decision as to whether to approve the loan. The lender is the one who still makes this decision, but they can now use AI to streamline past all the preliminary background checks, ID verification, and financial assessments.
Phast Funding is one example of a lender that uses AI to streamline the mortgage application process for applicants. The firm’s owner, Emin Hakobian, wanted to create an AI-powered funding platform to provide homebuyers with a fast and stress-free way to find the best mortgage solution that fits their budget. Everyone, from first-time homebuyers to seasoned investors, has found quick and flexible home loan solutions at the most competitive interest rates, thanks to the power of AI technology.
The Role of AI in Mortgage Underwriting
Traditional mortgage underwriting has always been a lengthy process because the lender must evaluate all kinds of personal information of the applicant, such as their current assets, income, employment status, credit history, and collateral. Lenders look at this information because they want to have a clear idea as to whether the applicant will have the financial ability to make their monthly payments on the loan.
As you can see, lenders must evaluate a wide range of financial information when assessing an applicant’s ability to repay a loan. Even though they are trained to recognize discrepancies or red flags in this information, human loan professionals are bound to overlook signs of potential problems in repaying the loan. That is where AI comes into play.
Lenders can now use AI-powered tools to help analyze an applicant’s income, assets, credit history, and other financial details to identify patterns of potential issues or red flags that human professionals may have missed. Again, AI is not replacing human loan professionals. It is simply there to assist them in evaluating home loan applications.
In the end, the human loan professional will always make the final decision to approve or deny the loan.
The Ways AI Can Simplify the Complex Lending Process
AI creates opportunities for different classes of home buyers by improving loan accessibility and increasing the chances of loan approval. First-time homebuyers are a great example.
Imagine how difficult it is for someone who has never purchased a home before to navigate the lending process. They have to try to understand complex mortgage terminology and documentation requirements that are all new to them. AI-powered tools can guide first-time homebuyers as they navigate through this process. They can explain difficult terminology in layperson’s terms and help identify the information the applicants need to complete their applications.
Most importantly, AI can scan through all the home loan solutions available from a variety of different lenders to find ones with the lowest monthly premiums and interest rates. That way, first-time homebuyers don’t have to submit their information to dozens of different lenders to see if they prequalify for a loan or not. The AI will automatically take care of this process for them.
Self-employed borrowers and real estate investors can benefit even more because they go through even more complex lending processes. For instance, self-employed borrowers have no traditional employment history, which means it is more difficult for them to improve their income and financial capabilities of paying back a loan. AI can help lenders organize and analyze a self-employed borrower’s financial data to determine their true eligibility for a loan.
Real estate investors usually seek financing to buy and invest in multiple properties. Because of this, lenders are much stricter about issuing loans to investors because of all the different outstanding loans they already have. Investors must have different sources of income, such as multiple rental properties, before a lender would even consider issuing another loan to them.
AI can help lenders conduct a more detailed analysis of an investor’s various sources of income and the value of their multiple properties to determine if they can afford to take out another loan or not. Lenders are less likely to make a bad decision if they have AI helping them analyze all this data from different sources.
The Challenges and Risks of AI in Mortgage Lending
Of course, AI in mortgage lending still comes with some risks for lenders and home buyers. Some of the common challenges to watch for include:
- Algorithmic Bias – AI operates on algorithms trained to learn from data. Because of this, its decisions are bound to contain biases unless they are identified quickly.
- Data Privacy – AI must scan through massive volumes of personal and financial information. Some applicants might not feel comfortable allowing AI to access all this information due to the increased risk of cybercriminals stealing it for their own purposes.
- Regulatory Compliance – Mortgage lenders are legally required to comply with strict regulatory requirements, which include all the technologies they use to help make loan approval decisions. That means they must ensure that all their AI systems also comply with the same regulations as well.
- Human Oversight Needed – At the end of the day, human oversight is still needed if a lender uses AI technology. Lenders can use AI to analyze information quickly, but they cannot use it to make approval decisions. A human lender is still required to review and decipher the AI results to ensure they are fair and honest.
What the Future of AI-Powered Home Lending Looks Like
Despite some of the risks, AI-powered home lending is in our future. We will likely see future AI-powered applications offering everything from personalized loan recommendations to predictive analytics and digital closings for smarter and faster borrower experiences. Lenders and borrowers will both benefit because they can close deals faster and increase their chances of a better outcome.
