Finding Reliable Sources for Preapprovals in Real Estate (Plus: A Cautionary Tale)

Regardless of whether you’re a loan officer or real estate agent, we should all keep an eye out for bad preapprovals and sloppy fee sheets from disreputable lenders. Failure to catch these red flags early on could cost the buyers dearly, and they could even kill the entire sale—ruining the transaction for the buyers, sellers, agents, and lenders!?

I recently watched something similar happen firsthand.?

I’d been working with a couple who were excited about buying a home, and I delivered their fee sheet and preapproval. After a little more hunting, though, they found they could get a better rate from a competitor I hadn’t expected them to work with: a bulk retailer who is now in the mortgage space. They left me (and my relatively competitive rate) to go with the new contender.

Now, I don’t blame anyone for chasing a lower rate on their mortgage payments. As they say, cash is a commodity! But I was worried for this couple. The bulk retailer’s mortgage partner isn’t local, and transfer rates are complicated, especially in Pittsburgh.

Unfortunately for this couple, my concerns were justified when the mortgage partner butchered their transfer rate. As I learned from their real estate agent, by the time the clients realized the mistake, they were facing an additional $4,400 in closing costs that they wouldn’t have had if they stayed with me.?

The couple confessed to the realtor that they were too embarrassed by their mistake to come back to me. Instead, they allowed their pride to push them into paying an extra $4,400 for their home.?

The Value of Local Expertise

That $4,400 overpayment is exactly why it’s so important to work with a lender who’s familiar with the region where you’d like to buy a home. When you’re talking about a $250,000 home (or any other home, for that matter), every single percentage point matters.?

But as we’ve seen, it’s not unusual for national or out-of-town lenders to have outdated or insufficient data on important line items like transfer rates.?

These inaccuracies are incredibly frustrating for everyone involved.?

For the buyers, the inaccuracies lead to unpleasant surprises often late in the transaction. For realtors, the inaccuracies could lead to fumbled sales and even the loss of a client. For local lenders, the inaccuracies are just one more reminder of why local expertise is so important.?

That local expertise is critical, especially in regions like Pittsburgh, where transfer rates can be dramatically different only a few miles apart.

Here’s a perfect example: Over in Swissvale, the transfer rate is 1%. Seven miles away, the Downtown Pittsburgh transfer rate is 2.5%. If a lender wrongfully lists the Swissvale rate for a Downtown sale, they’re a full 1.5% off. On a $200,000 house, that’s a $3,000 difference, which could be the deciding factor between getting the house and not getting the house!

A 1.5% rate difference across a few miles is tricky enough, but now consider how quickly things can change when you start comparing Pittsburgh to Philadelphia or Reading to Scranton. As you start competing in bigger and bigger regions, the rates fluctuate more and more. That can become especially challenging for the bulk retailers of the world, as they’re responsible for maintaining accurate records for hundreds and hundreds of jurisdictions.?

Coaching Clients to Better Decisions

As we’ve already discussed, clients chase the lowest prices. Even when they’re promised better service and attention with another lender, the impact on their wallet is the ultimate deciding factor.?

This problem becomes even more complicated when we factor in the advertisements in the mail, social media, and TV that these buyers are bombarded with on a daily basis.?

The challenge here for realtors is especially complicated because they can’t legally push their clients into using their own in-house lenders. But freely allowing clients to use national lenders could become problematic, and they could even blow the entire sale!?

Fortunately, realtors can help prevent issues by at least introducing their clients to a couple of trusted industry partners who understand the market and are capable of covering their own butts by checking and double-checking all documentation!?

This is especially challenging when we know clients are bombarded with ads from all over, with everyone offering better prices or better deals. And realtors can’t exactly push them into using their own in-house lenders because of laws. They can, however, help to prevent these issues by introducing clients to trusted partners who understand the market and are capable of covering their own butts by checking and double-checking all documentation!

Creating Better Outcomes Through Better Mortgage Options

Buying a home should be a celebration, not an embarrassment or a frustrating transaction! I would have gladly worked with the couple who left me for the national lender after they realized their mistake. After all, I couldn’t blame them for chasing the lower rate (though I could have warned them about the potential issues in their pre-approval).?

When in doubt about a loan officer, check where they most frequently do business. If they’re intimately familiar with your region, you’re less likely to uncover those disappointing surprises!

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