Why Choosing the Right Lender is Important to Getting to Closing from the Real Estate Agent's Perspective So it's time to get serious about buying a house. The buyer has found a real estate agent, found some houses to start looking at, and the agent has reminded the buyer that the next step is to get loan approval so that they can feel comfortable putting in an offer when they find that perfect house.
CHOOSING THE RIGHT LENDER
OK, so the buyer knows that the lender with the best rates is the biggest determining factor in selecting a lender, right? The best way to compare rates is online, right? Certainly the best lender will be the one with the best rates, right?
Sorry, but that's where the process may be taking a wrong turn. There are a couple things that buyers really need to understand when choosing a lender and why the right choice is important to the purchase transaction.
First of all, buyers need to understand rates and the points associated with them. They also need to understand the additional fees associated with the loan that lenders charge that can really add up and make a loan more expensive than it appears based on the points and origination fee quoted with the rate.
A quick definition of a discount point and an origination fee might be helpful here. Rates are typically quoted as "rate", "x" discount points plus "x" origination fee. A discount point equals one percent of the loan amount. It represents the buy down from a par rate. For example, a par rate for a 30 year fixed rate loan may be 5.25%, requiring 0 discount points to be paid by the borrower. A lender may charge 1 discount point to obtain a lower rate, or buy down the rate to 5%, for example. The origination fee is a separate fee charged by some lenders to originate, start processing the loan, which can be expressed as a percentage or as a dollar amount. Lenders may charge additional fees as well, with all fees being required to be disclosed on a Good Faith Estimate and reflected in a Truth in Lending Statement.
Back to finding the best rate. There are a couple very important things to understand here. The rate obtained at 3:00 in the afternoon on Tuesday from one lender can not be compared to a rate compared at 9:00 in the morning on Wednesday from another, or even at 4:30 in the afternoon if the market is volatile and improving or deteriorating rapidly. Rates can change daily with most lenders and cutoff times vary from lender to lender. During volatile markets rates can change several times a day. With this in mind, it becomes very difficult to make a decision based on rate and point quotes alone. A .25% variance could be a function of the lender's pricing OR - and this is a big "or" here - depending on the timing of the rate quote inquiry, can make one lender's rates look better when in fact they have changed since the call was placed or retrieved online.
Another thing buyers need to understand is that rates and points associated with them are also now determined by credit score which is also not easily discerned by generic rate quotes, making comparison on the part of the consumer that much more difficult.
Also to be considered are those too good to be true rates seen in ads - those rates are not necessarily a 30 year fixed rate product. Buyers need to know the product offered - 30 year fixed, 15 year fixed, or in the case of those really low start rates - probably some type of ARM loan - as well as other loan products that a lender may be offering.
CHOOSING THE RIGHT LENDER - more important considerations
But even if the buyer has drilled through this and determined that a lender is actually offering a better rate, there are other important considerations. The rate may be the best, but are they the best lender?
It's extremely important to consider how accessible the loan officer and processing staff will be. Will they be able to get questions answered, will they be answered honestly, will they provide straight answers, how accessible will they be to provide loan processing status, will the loan get processed in a timely manner and keep the buyer in contract? The list goes on and on, but I think it's pretty clear where I'm going with this.
So why is a real estate agent writing this - why is this SO important? Not only is it important that the buyer is satisfied with the level of service of the lender, but it is important that the buyer agent has a comfort level with the lender so that he or she can effectively coordinate the process and get the transaction to settlement.
A further consideration, and a very important one, for the buyer when choosing a lender, is how lender choice may affect the negotiation of the contract. The lender the buyer uses can affect the perception of the seller as to the likelihood the contract will go to settlement - the buyer wants their lender choice to be considered to be a strength in the contract that is presented.
Most real estate agents have a list of preferred lenders that they can provide to buyers. Choosing a good lender is essential to a smooth purchase transaction.
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