Most people don’t have buckets of cash, so if you buy a house, you have a mortgage. And in today’s housing market, buyers can’t make offers without first being pre-qualified by a lender, so getting your financing lined up is the first step in your home search. Choosing the right mortgage lender seems easy, right? Simply find the lender with the best interest rates and … voila! But, if you focus on interest rates alone, you miss the larger picture and it could cost you dearly in the end — you could lose your earnest money or even the house of your dreams. We council our buyers to do their research and to compare rates, fees and the customer service of several lenders before choosing “the one.”
Of particular importance, is the location of the lender’s underwriting department. Is the underwriter in the office next to your loan officer or across the country? You want to work with a lender with LOCAL underwriting. This way, when your loan hits a snag (and it very well might!) your loan officer can walk down the hall and talk to his underwriter about your loan. Why is this important? It can mean the difference between closing on time and not closing at all! Further is the issue of time differences — if your underwriting is in New York and you are buying a home in Arizona, this time difference can be a huge factor in getting things done or not done in the last hours to close your deal.
We strongly suggest that our buyers stay away from big banks like Chase and Wells Fargo. Many borrowers go to them first because they do their banking there and it’s convenient to walk in and talk to a banker about a mortgage loan. However, their size is their Achilles Heel. No matter how well you know the people at your bank branch, when it comes to processing a loan, you are simply another name on a file in some anonymous processor’s inbox. Most often the underwriters are located across the country, so there is no personal connection between the person processing your loan and the loan officer who sold you on the loan in the first place.
Another important point is that big bank loan originators do not have to be licensed. What does that mean to you? A licensed mortgage loan originator must have 20 hours of education, pass a state and national licensing test, have a background check, submit finger prints, show financial responsibility, take 8 hours of continuing education classes each year and have no history of having a license revoked. Loan originators who work with large banks must only have a background check and submit finger prints. Which would you rather have handling the largest loan you’re probably ever going to have?
Small is Better
We encourage buyers to go with a local mortgage broker* or mortgage banker* who is licensed and has direct access to their underwriting and closing departments. They should also have a good track record of closing on time. A good lender will proactively and regularly communicate with you and both agents in the transaction. They will send out weekly Loan Status Updates (LSUs), keep you and the agents informed about your loan’s progress throughout the process and let you and the agents know if they have hit any snags. Ask potential lenders what their communication process is for keeping all parties informed.
Rest Easy on Our Recommendations
We refer our clients to lenders that we have a history with, that can close a loan on time, with excellent service and, in many cases, handle particular loans that big banks don’t handle. However, some buyers shy away from lenders or other service professionals their agents refer because they believe agents get kickbacks from them. This is absolutely NOT TRUE. We have a fiduciary duty to YOU to protect your best interests at all times. The Realtor® Code of Ethics, Article 6 states:
Realtors® shall not accept any commission, rebate, or profit on expenditures made for their client, without the client’s knowledge and consent.
When recommending real estate products or services (e.g., homeowner’s insurance, warranty programs, mortgage financing, title insurance, etc.), Realtors® shall disclose to the client or customer to whom the recommendation is made any financial benefits or fees, other than real estate referral fees, the Realtor® or Realtor®’s firm may receive as a direct result of such recommendation.
In conclusion, we just want to say that when you hire an agent, let that agent help you, listen to your agent’s expertise and wisdom. We do this all day, every day and we do know a thing or two about real estate, believe it or not! As agents who care, we want your experience to be excellent so what we offer you are solid relationships with lenders that we’ve done a multitude of business with and we know will service you well! You should also do your own research to understand the mortgage process. The Consumer Financial Protection Bureau (CFPB) has great resources to help you make the right choice. (http://www.consumerfinance.gov)
* There are some key differences between mortgage brokers and bankers. Brokers work for a company that brokers other lenders’ loan products. The benefit of working with a mortgage broker is that they have access to many different programs from a variety of lenders. This can be very helpful if you have special circumstances or are looking for a specialty loan product. The downside of working with a broker is that they are not in direct control of the lending process, which could lead to the problems we discussed above. A mortgage banker is a direct lender and likely has a limited number of programs. However, they are usually smaller, more agile and can bend the rules slightly to accommodate buyer’s needs.