This week a client was referred to me that wants to buy a house.
During our initial phone conversation, one of the first things I always ask is whether they have a lender and are pre approved for a loan.
He indicated that he did have a lender, that he found online. (Uh-oh). And, that he was preapproved. The Brevard County Real Estate market is considered a distressed market. It is so important for a buyer to have a local lender and a local appraiser that understands our market.
My next question was whether or not he had received a Good Faith Estimate from the lender. He had not. (Uh-oh #2). Every buyer should be provided with a Good Faith Estimate when being Preapproved for a loan. This gives the buyer an estimate of his closing expenses and prepaid expenses. It will also provide an estimate of his monthly mortgage payment amount and his anticipated interest rate.
The buyer gave me his lender's long distance and toll free phone numbers (uh-oh #3) as I always talk to the lender at the beginning of a transaction, before we head out to look at any houses.
I called to get more info from his lender. I called 3 times in 2 days (uh-oh#4) with no response. His voice message said, "I will return your call in the order in which it was received." (uh-oh #5).
I have to know what type of loan he will be financing the house with, so I know what type of home he can buy. I finally found that this buyer is purchasing with an FHA mortgage, with a 3 1/2% down payment. So, he won't be able to purchase a home that requires extensive repairs. The roof has to be "newer" and so does the air conditioning system. There typically can't be broken windows. The house must have heat and a stove and it typically cannot be in some phase of remodeling. If this buyer was getting a conventional loan with 20% down he would be able to look at completely different properties, as there would not be many restrictions on what he could buy. In paying cash, a buyer could purchase any home he wants.
When I was talked to the lender, I received the Good Faith Estimate (as did the buyer). My teeth nearly fell out of my mouth, when I looked at the figures. (uh-oh #6). The fees were some of the highest I had ever seen. The interest rate was too high, the estimate was full of unnecessary junk fees. I couldn't believe my eyes!
I recommended this buyer get additional estimates from LOCAL lenders to compare fees. I know that he can do much better than what he was quoted.
In this market, as Patricia Kennedy pointed out, in a recent post she wrote, not only is it important to come in with a strong offer to purchase a house, but, listing agents also look at the pre approval letter with the lender info to determine whether they will accept the offer.
If a buyer winds up in a multiple offer situation, which many buyers here in the under $125K price range do, the best offer is going to be choosen based on which one has the best chance of getting to closing. Here in our market the listing agent often times wants a local, reputable lender, that knows the market, that has a processing center right here in town. They know if they tell us, upfront, that they can do the deal, then they can do it. They want the smoothest transaction possible, that won't get snagged or delayed. They don't want any surprises.
In our market, a nameless faceless lender, with exorbinant fees and a long distance or toll free number, that doesn't return phone calls, from somewhere across the country, is not going to help your offer along, to get you the house that you want to buy.
If your offer is accepted, will they be able to get you to closing?
All lenders are NOT alike. And, all online lenders are NOT alike.
Get a couple of estimates and talk to a couple of lenders.
Be sure you do your homework BEFORE you head out the door to look at houses.
FOOTNOTE: I later found out, after the buyer talked to a local lender, that he is self employed. The buyer indicated that he had not discussed his employment situation, nor the fact that he had recently opened a new business during his interview with the online lender. So, now, I am waiting to hear whether this buyer will be able to buy a house at all!
I also buy, sell, rent, own and manage Investment Property.