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If we had to pick one topic in the world of real estate that is most consistently
misunderstood, this would be it. Simply put, there is a LOT more to selecting
a lender than just obtaining the
lowest interest rate and or the lowest mortgage payment. As in most things
in life, you "get what
you pay for" in mortgages just like you do in most professional services. As in real estate, the
sad reality is that there are MANY practitioners in lending that do not provide the level of service
that we would expect of true professionals. Here is why you should select your lender very carefully:
- Because one of the most important things you can do to make your offer attractive to a seller
is to be pre-approved by a reputable lender.
- Because next to the price you are offering, concerns over your financial
wherewithal are paramount in both the eyes of the seller and the listing
agent (offering a great price is somewhat meaningless
if the seller or the listing agent are fearful of dealing with a "fly by night" lender).
- Because using a lesser lender may put you at a competitive disadvantage if you find yourself
competing for a property against another prospective purchaser (and, even in a down market, this
does occasionally happen on the better homes).
- Because we see many transactions made more difficult than necessary because of lender incompetence.
In the last few months, we have seen the following instances of such ineptitude:
- A closing deferred at the very last minute because the lender's funds did not arrive in time
for the closing, AFTER the lender had repeatedly assured all parties involved that this would not
happen that there would be "no problems".
- A purchaser charged dramatically more for closing costs than the lender had disclosed on the
government-mandated "Good Faith Estimate" that every lender is required to provide to every
borrowing client (luckily, given our lack of confidence in this particular lender, we actually
anticipated this occurrence and our client had extra funds with him at closing to cover this
shortage).
- A lender that could not adequately summarize the mortgage-related costs for a client that
needed to bring those funds to a closing that afternoon (we had to do this for the lender).
- Lenders that literally stopped returning phone calls from all parties to a transaction rather
than report his inability to provide financing on the transaction in question.
- Lenders not being able to provide "final numbers" until literally the day of the actual closing
(we see this one frequently; as a result, the already-stressful day of closing is made even MORE
stressful, as you, the buyer, have to wait until the very last minute to obtain your funds for
closing).
- Lenders actually changing the interest rate and not telling the borrower until the closing was
in process.
- Lenders simply forgetting to do their jobs in a timely fashion, resulting in deferrals of otherwise
routine transactions.
- A lender that could not be reached the day of a closing because he was at a professional golf
tournament.
- A lender that jeopardized a transaction by interjecting its title company into a transaction at
the last minute without the consent of the buyer, whom that lender was representing (this was
particularly egregious, as the listing broker was so enraged that the entire transaction was nearly
derailed)!
- "Mega" lenders that turn their clients over to their assistants after one interaction with a
client (just as it is in real estate, this is one of the primary scourges of lending).
- There are no licensing requirements for individual lenders (there are for the companies themselves,
but not for the individuals that originate the loans). Accordingly, there is virtually no barrier
to entry. You or we could literally be selling loans tomorrow if we had the desire to do so. Given
that mortgage origination can be very lucrative, there has been a huge influx of people into this
industry in recent years. The end result is an overall degradation in the quality of service
provided.
- A good lender is "invisible." They go about their business behind the scenes, doing what needs
to be done to ensure a smooth and satisfying experience for all involved in a given transaction. A
bad lender can ruin an otherwise outstanding transaction.
- Because the most common end result of lender incompetency is a deferral of your closing, and this
can put you in an "out-of-contract" situation that could be dangerous for you. What we mean by
this is that virtually every real estate contract has various deadlines that are specifically
negotiated between buyer and seller. The most important one is the deadline for actually
closing the transaction. Usually, this deadline represents the approximate date at which the
purchaser believes they can be in position to close. That decision is based first and foremost
on when the lender says that can have final loan approval. If the lender does not provide that
loan approval in a timely fashion as promised, this can put you in the awkward position of having
to request that the seller agree to defer the closing. The seller is NOT required to grant this
extension. Legally, the seller could literally void the transaction or, worse yet, declare a
forfeiture and attempt to retain your deposit. While we admit that this is extremely unusual,
we believe that it is never wise to tempt fate or take any unnecessary risk of this kind.
By working with a solid, honest, reputable lender from the start, this will never be an issue
to worry about.
- As a company, we've done literally THOUSANDS of transactions and have cumulative sales in
excess of $.7 Billion. You'd think after all that experience, we would have an extensive list of
lenders that we could recommend to our clients. Guess what? WE DON'T! We do have a list of
lenders that we can recommend with confidence, but that list is very short. Much shorter
than you would expect.
We hope this open your eyes a little to this very important matter. We truly do not care who
you use as your lender. We would simply ask that you make a wise decision.
What Kind of Lender?
How Banks and Mortgage Brokers Differ
When you're looking for a home loan, you might work with an officer at a bank or other lending
institution, or you might choose to work with a mortgage broker. The end result is the same,
but the two types of jobs differ as follows:
- Bank Loan Officers - The loan officers at a bank, credit union or other lending
institution are employees who work to sell and process mortgages and other loans originated
by their employer. They often have a wide variety of loan types to draw from, but all originate
from that specific lender. The loan officer takes your application and works to find a loan
product that suits your needs. If your personal credit is approved, the officer moves forward to
process the home purchase transaction.
- Mortgage Brokers - Mortgage brokers are professionals who are paid a fee to bring
together lenders and borrowers. They usually work with dozens or even hundreds of lenders, not
as employees but as freelance agents. Think of mortgage brokers as scouts. They find and evaluate
home buyers, analyzing each person's credit situation to determine which lender is the best fit
for that person's needs. The broker submits the home buyer's application to one or more lenders
in order to sell it, and works with the chosen lender until the loan closes. A good mortgage
broker can find a lender for just about any type of credit. The mortgage broker working to
secure your loan is earning a fee for that transaction. Shop around to make sure the terms are
reasonable. Many of the mortgages advertised online are by mortgage brokers.
What Difference Does it Make?
Maybe none, but you should be aware of the differences between the two positions. A local or
online mortgage broker may find you a lender in another part of the country. An online bank
might not have a local office where employees can help you one-on-one. Some out of town lenders
don't understand the types of heating systems used in specific areas, they aren't familiar with
private septic systems, and they don't immediately understand common classifications and terms
used by local appraisers. Those are just a few examples of problems we've seen that caused
deferrals of loan approvals provided by an out of town lender. Using a local bank can sometimes
be a plus. Their underwriters generally understand the specifics of local properties, but a
geographically remote lender that doesn't may delay their approval until questions are answered.
Mortgage brokers can often find a lender who will make loans that a bank refuses. Problem credit
is one example. Loans for unique or commercial properties might be easier to secure through a
broker. There is no overall "best" solution, as every buyer's financing needs are unique.
Obtain Your Credit Reports
Order your credit reports and scores from all three major credit reporting agencies. Personal
copies of current reports should provide enough detail for a bank or mortgage broker to give
you an opinion of the types of loans they can offer you. The lender you decide to use will
review your credit files, but taking your personal copies to the initial interview avoids
multiple credit report orders that can lower your scores (requesting your own credit reports
does not affect your scores).
Shop Around
All loans are different. Fees and rates vary depending on the lender and you own financial
situation. Look around. Find a lender that's right for you. Ask friends and family for
recommendations. Your Professional One Real Estate agent can also help you. Talk with a few
lenders. Make sure you get all the information about what services they offer and the fees
associated with them. You'll also want to make sure you're getting a decent interest rate, however
don't sacrifice a good rate for bad service and high fees. How's your credit look? Double check
your credit report. This report can weigh heavy on the approval of your loan. Make sure it is
free of errors. It's good to identify and fix any problems before you talk to lenders.
You can obtain your credit report by contacting one of these major credit bureaus.
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