Three Things to Consider when selecting a Mortgage Company
Is it time to get approved for a mortgage? (or) Are you about to accept an offer on your house for sale? Three things to consider when selecting a finance company.
When I first meet with buyer or seller clients, they often have many questions about the home acquisition process, and I hope to answer most of those questions in these quick posts. I believe that “knowledge is power” and the more knowledge I can offer clients, the better it will be for all of us when we decide to work together.
Last week, I mentioned I would write a future post about what it means to be a great lender, so here are my thoughts on that subject. Please note, as a Real Estate Agent, this is simply my opinion and I’m absolutely sure there are others who may have differing views on the topic.
The importance of working with a great lender comes into play both on the purchase as well as the selling side of a Real Estate transaction. And when it comes to selecting that great lender, three key points to consider are service, rates and lender type. Let me explain.
1. Service: I know this can sound cliched, but service is paramount when considering which lender to use when buying a home. It is also important when considering which buyer to select when selling your home. For example, if a market is strong and there are multiple buyers, which can be common here in Northern California, often times a seller will select the best buyer but will then place a second buyer in a “back up” position. If the first buyer defaults in any way, the second buyer can step in and take over the purchase. This is good business for a seller, but it puts pressure on a lender to follow timelines and to adhere to the terms of the contract. I’ve seen several situations where a good buyer loses the house during escrow when the lender isn’t able to perform as expected. This is a prime example of how poor service from a lender can cause a buyer to lose out on the home of his/her dreams.
2. Rates: On the purchase side, it is very easy for buyers to focus only on the rates (ie: interest rate of the loan) but there is much more to rates than simply the number quoted by the loan officer. Additionally, there is much more to a great mortgage than finding the absolute lowest possible quoted interest rate. The underlining interest rate is extremely important since that is the amount paid in interest to the lender each month. However, be careful to look closely at closing costs which can vary widely from lender to lender. When closing costs are factored into the equation, the loan may not be as great as originally thought. This can be compounded if the client is planning to refinance in the near future. If the relationship between the interest rate and closing costs isn’t clear, please reach out to me and I can help clarify it for you. Most agents do not get involved in the lending side of a Real Estate transaction, but I believe there is a benefit to working closely with the lender. Working with the lender helps give the clients the best possible experience and ensures the highest level of success in purchasing or in selling.
3. Type of lender: I might argue the type of lender is the most important aspect in selecting a mortgage broker. The reason is based on the value of working with a Direct Lender. By Direct, I mean the lender has its own money and works with programs focused on getting the best value for the client. When it comes time to fund the mortgage, the lender has the funds in hand and doesn’t need to wait for a third party to send the mortgage balance to the Title Company.
Why is working with a direct lender so important? The reasons are a bit complicated, but I will touch on a few of them here. Some examples of direct lenders are Bank of America, Chase Bank, and Homebridge Financial. Although it is tempting to just walk into the local Bank of America branch and ask to see a loan officer – especially if the client has had a bank account there for 20 years, please do not do that! A great loan officer is an important part of the equation and simply asking the representative in the local branch to assist in securing a mortgage is much like going to Las Vegas and placing large bets without ever understanding how the games operate. You might win, but the odds are against you.
A better way to find a lender, in my opinion, is to ask for a referral. Call me and ask for a few names of incredibly good loan brokers or ask someone you trust who recently went through a home purchase, or refinance or sale. Since I work in the Real Estate world every day, I have found some fantastic mortgage professionals and I feel comfortable referring them to every client I meet.
To summarize: find a great referral who is a direct lender.
Getting back to the reasons for working with a direct lender, the most important is based on the location of the Underwriter. Many, but not all direct lenders have the Underwriting department nearby or in the same building. For all mortgages, an Underwriter must review the files to determine the buyer is “credit worthy” and that all of the lending laws have been followed perfectly during the application process. A good Underwriter can greatly improve the mortgage process and bad Underwriter can ruin it. For this reason, I feel it is imperative the loan officer and the underwriter have a good working relationship, so files are completed correctly and approved quickly during escrow. Unfortunately, many loan officers do not have a good working relationship with the Underwriter, which can lead to delays and in the worst case scenario, a last-minute loan denial. For the best mortgage professionals, the underwriting office is often times in the same building, so the flow of the client file is seamless.
I should also make this important observation: Some direct lenders are also mortgage brokers, which means they go out and find the best loan program for a buyer if an outside program is superior to the program offered in-house. However, in this case, the underwriting is still done within the organization and the file can move through the process in the same manner as when the loan is originated in-house.
I’m sure there are loan brokers who will disagree with my opinions stated above, but I believe in getting the best service for my clients and I feel working with quality Direct Lenders is one of the best ways to achieve that goal.
A final comment on the subject relates to selling a property and trying to figure out the best buyer to select, assuming there is more than one buyer interested in the property. The first consideration is to look at the agent representing the buyer. Is that agent good? Some are great, some are not. The second consideration is to look at the lender to figure out if the lender is able to get the loan done within the contract guidelines. Some can and many cannot.
Of course, price and terms are likely to be considered before the agent and loan officer but the value of considering all aspects of a purchase agreement will get the highest return for the seller.
A home purchase is both an emotional and financial transaction. With proper planning and skill, finding the perfect property or selling your home, can be done regardless of the economy and status of the housing market. Good things come to those who work with the best Real Estate agents.
Michael Delehanty – San Francisco Area Real Estate Compass – Walnut Creek Email: [email protected] Phone: 510.697.3900