Many first time home buyers we encounter in Scranton Pa use the internet for all their needs. The internet is either a blessing or a curse.
Recently we had a couple come to us who had been pre-approved by two lenders. One was a local bank and one lender they found on the internet.
There was a big spread between the two lenders. The bank was $60,000 less than the internet lender. Naturally the couple wanted to use the lender who gave them the higher qualification amount. The spread raised our concern that something was wrong.
As buyers agents we have to know exactly what the pre-qualification is for, and what the costs or fees are. We want to be sure when you sign an offer you can actually afford the home and the costs. No one likes surprises and certainly no one wants to find out a week before closing they can't get the loan.
Because there was such a spread between qualification amounts we recommended that they speak to a third lender who was local.
The couple complained to us that their credit score had dropped by more than 15 points when they went to the second lender. Under normal circumstances that should not happen. If you have only gone to 2 lenders in a short period of time your score should not be impacted.
It is imperative you know something about the lender you are trusting your credit information to. Fancy websites and flashy promises does not guarantee you are getting what you expect.
What happens when you use an internet lender? The first thing to understand is you are not contacting a bank or direct lender. You are more than likely contacting a broker who takes your information and does a mass mailing to multiple banks to see who will come back and offer a loan.
When our couple examined their credit report they found there were 7 pulls on their credit – not the two they expected. One broker – the internet broker shopped their credit information 6 times. Each bank they contacted pulled the buyers credit.
Not only did that cause the score to go down – it showed a lot of inquires in a short period of time. That can also adversely impact your creditworthiness going forward.
When you contact a lender be sure you ask – are you going to “Shop” my information to various banks you do business with? How many credit pulls will happen if I give my information to you?
More than likely you won't get a solid answer from an internet lender.
Look for a mortgage broker close to where you live. The brokers we recommend only need to pull your credit one time. Even if they have more than one bank they do business with – those banks accept the credit report the broker pulled. That saves your credit score. Don't be afraid to ask the Broker “what are you going to do with my information?”
When my local lender looked at the application it became apparent the internet lender had not completed a proper investigation before they gave out the pre-qualification. If you look closely at a pre-qualification you will notice all kinds of “escape” language the broker inserts. The pre-qualifiction is subject to further investigation.
As a buyer you want all the background work done before you get your heart set on a home.
As a first time home buyer in Scranton Pa you should find an experienced buyers real estate agent. Talk to the agent and ask for recommendations to trusted lenders.
Local banks can also be a source for a mortgage. Some are more competitive with their fees than others. Most banks charge origination and other fees that mortgage brokers do not tack on. You need to compare quotes just like you compare quotes for car insurance.
The bottom line for our couple was their debt ratio was too high to qualify for the price of the home they thought they could afford. They need to pay down some debt before they can qualify.
They had already found a home they loved and now experienced a set back. It could have been avoided if they had been guided correctly.
If you are looking for a home in the Scranton Pa area find your real estate agent first. They are professionals who know the industry and can help you avoid all the pitfalls.