Using Your Agent's Recommended Mortgage Lender
Realtors Refer Competent Mortgage Lenders
Even new real estate agents hand out a list of recommended mortgage lenders. An agent can't survive in the real estate business without a good mortgage lender or two to refer. When it comes to choosing a mortgage lender, buyers often don't know which they should do first:
- select a mortgage lender
- or hire a real estate agent.
On the one hand, if they hire a real estate agent to start showing them homes without getting preapproved by a mortgage lender, they might not know whether they are qualified. Not to mention, if they should be so lucky as to stumble across the perfect home their first day out touring, they won't be able to make a valid offer on that home without a preapproval letter.
Still, being a REALTOR, my advice is to first hire a real estate agent before selecting a mortgage lender. Your real estate agent will be with you from start to finish and involved in all facets of your home buying experience. The mortgage lender handles only the financing. In case you are wondering what's in it for the REALTOR to recommend a mortgage broker -- because I know how some minds work, and being suspicious of ulterior motives is not unusual -- the answer is there is zero financial incentive to the REALTOR from the mortgage lender for the recommendation.
Can a REALTOR Receive a Kickback for Recommending a Mortgage Lender?
It is against RESPA to receive a kickback for a referral to a mortgage lender. A mortgage lender cannot reward a real estate agent for sending business to that mortgage lender. Section 8 of the RESPA prohibits anyone from receiving compensation or some sort of payment in exchange for a referral on a federal mortgage loan. Since almost all conventional loans are sold to government-sponsored entities such as Fannie Mae or Freddie Mac and the remainder are either federal FHA loans or VA, RESPA applies to just about every mortgage loan.
Should Borrowers Choose a Mortgage Lender Based on Rates and Fees?
The most important factor to consider when choosing a mortgage lender recommended by an agent is not the interest rate, and it's not the loan fees. Yes, that is not a misprint. Throw out everything you think you know about mortgage lenders and shopping for a loan because it is not all about the fees charged. Popular banking websites know that consumers believe otherwise, though, which is why they treat you like you're a 5-year-old by dangling sparkly interest rates and APR rates in your face.
The bottom line is most lenders charge about the same rate. They have access to pretty much the same bags of money. All national institutional lenders compete against other institutional lenders, and their rates are highly competitive. They are also limited in the types of loans and terms they can offer, often quoting only in-house rates.
Whereas a mortgage broker, for example, might have access to larger pools of money from a wider variety of sources. Until your loan rate is locked, that interest rate can also vary because rates change more than once daily. A rate promised in the morning could be higher by the afternoon. Don't get lured by 1/8 percentage points that swing up or down.
A mortgage lender might also advertise special deals such as free appraisals but the cost of that appraisal might be buried elsewhere. Or, a mortgage lender might offer you a so-called free home security system, the cost of which is absorbed into the monthly fee you are required to pay to the home security company. When your mother told you there is no free lunch, believe her, there is no free lunch. Don't get suckered by slick websites and fast-talking sales pitches. Saving yourself $300 on a $300,000 loan, for example, is minuscule, it is .001 and pretty much worthless if the loan doesn't fund due to ineptness.
The most important things a mortgage lender can do for you is process your loan quickly, efficiently, without errors, and close on time.
Why a Home Buyer Should Consider a Realtor Recommended Mortgage Lender
Your real estate agent wants your transaction to close smoothly, without hiccups or surprises, and one of the biggest factors of buying a home is the financing end of the arrangement. It's a place where many things can go wrong, from a mortgage lender being careless when scrutinizing the loan application, to misplacing documents, not asking for the right documents, overlooking potential trouble spots and red flags, to forgetting to order an appraisal and ultimately not being able to close the file on time.
The lender depends on a team of individuals to process a loan, including the final say in the matter, the underwriter. If your mortgage lender is not detail oriented, inexperienced or otherwise not exceptionally organized, a home buyer can needlessly suffer through the closing.
Real estate agents who routinely close a lot of business have experience working with a variety of mortgage lenders, and they know which lenders under promise and over deliver. They know which lenders outshine all the rest. You can rely on your agent's intimate knowledge by choosing to use the mortgage lender your agent recommends. These types of mortgage lenders also realize that if they fail to perform to an agent's expectations, that agent will stop referring business. A referral from a real estate agent to a mortgage lender is earned business; it can't be bought. Your agent has a relationship with that mortgage lender, and it's partly that relationship that will ensure a stress-free transaction. You owe it to yourself to at least talk to the agent's recommended mortgage lender.
Think about your relationship with an unknown banking department where you are nothing more than a small number to that person who clocks out every day at 5 PM. Instead, wouldn't you prefer to be the lifeline of business to the mortgage lender who burns the midnight oil to ensure your file closes on time? Think about this as you picture yourself sitting on top of your boxes and waiting for the movers. You can't afford a snafu. Most home buyers want their new home purchase to be handled thoughtfully and to close within the contract period. Odds are if you use your agent's mortgage lender, that scenario is more likely to happen.
Closing thoughts: Many mortgage loans are sold after closing. Don't assume that if you choose a bank where you maintain accounts because you feel a misplaced loyalty that your loan will remain at that bank.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.