The 'Local Lender' Myth
Real estate is local! Out of area lenders are terrible! Online lenders are the worst! "______(insert lender/bank name here) stinks!". These statements are thrown around pretty often in the real estate arena, and sadly, the perception is in some cases translated to reality. Before I address these specific statements, a quick story:
Once upon a time, in a galaxy far, far away (specifically, the year 2007, in a small town called Chadds Ford, Pennsylvania) there was a lender who helped a home buyer purchase a new home. Just prior to closing, the final documents were generated, and to the home buyers surprise, costs were over $7,000 higher than anticipated. The home buyer was not happy. Their real estate agent, whose happiness more or less coincides with the buyer's happiness, was aligned in their feelings. The title company felt awkward. The listing agent, upon finding out the transaction would still close, was indifferent to the matter. What was very strange about this entire scenario, was that the home being purchased was very close to the lender's office. This was a local lender (I know, you haven't been this shocked since you got the end of 'The Sixth Sense'). How Could This Happen!?. Spoiler alert: the lender was me. I was 22 years old, working in a refinance-focused mortgage broker shop where I was the most experienced and knowledgeable person in the office (I'm including my manager, the guy who ran the office, into this equation) after 3 months of being there. I did business 100% locally. And I was terrible. I was new to the industry, had 0 knowledge on much of anything, and I just graduated college and was living in a 100 square foot loft, often referred to as 'a bedroom in my parents house'. I had never bought a home. Our office had never done a purchase transaction. How the hell was I supposed to know what a transfer tax was? And why were so many months of taxes being collected at closing? But hey...at least I was local!
There are stories like this all over the globe, happening every day! That terrifying, scary bank/lender/broker that everyone says to be wary of, is very likely sitting within - *GASP* - a mile or two of several real estate offices with clients in need of home financing. And they're the most local of local lenders to those offices! Do you think they offer stellar service to the folks within that mile or two radius, and save their worst work for anyone 5 miles or further away? Of course not. Ok, well maybe things don't need to be that local. But out of state lenders? BUYER BEWARE!! Can anyone tell me exactly how wide a state line is? There was a time I lived in Newark, Delaware, and was a 5 minute drive from Pennsylvania, 10 minutes from Maryland, and 20 minutes from New Jersey. So of course, I offered customers in Delaware great service, while all those other folks across that 'no go zone' suffered tremendously under my reign, because no way could an out of state lender do the same type of job they do locally.
I kid, of course. Over 15 years later, sitting here as I type this in California, I can't help but laugh at how "local" is still considered some type of shiny, good word, while "online" and "out of state" are considered blasphemy. The reality is, I can serve borrowers in Pennsylvania today better than I could when my ass was plopped in an office chair in Chadds Ford, PA. I can serve Delaware borrowers today better than I could when I was living in Newark and Wilmington. And I can serve borrowers in every other state in which I carry a license better than the vast majority of loan officers sitting within those state lines. It's why my customer reviews are consistently 5/5 stars, and my most recent 10 transactions all had higher than 4.5 ratings in California, Utah, North Carolina, Georgia, and Pennsylvania - with the lowest score (which, oddly enough, is accompanied by really great feedback in the comments), being the transaction that occurred closest to home.
There are bad lenders & loan officers and there are good lenders & loan officers. That's it. A good loan officer knows how to do business in every state they're licensed - they know the details of transactions within the states, and the areas where things differ (ie attorney state VS title state VS escrow state). They know the difference between 'wet' and 'dry' fundings, they know how transfer taxes differ, when real estate taxes are due (and how they're calculated at closing), and can set the right expectations with borrowers. A lot of 'local' loan officers cannot say the same. One of the biggest differentiators between good loan officers and bad loan officers, is that good loan officers don't have too big an ego to ask questions when they don't know the answers.
To add another spin to help 'bust' these myths - on a recent transaction, a friend in a state I was recently licensed in (Utah) was buying a house. Upon working with them, it was very evident that their real estate agent was...to put it delicately...not great. They knew it, but they had never bought a home before. I knew it immediately, and asked them what they thought. They stated they weren't comfortable with their agent. I happen to know a lot of agents across the US, and in this market (Salt Lake City) I know one of the best - but the one I know doesn't actively help buyers, but I knew he'd know who to talk with. He did, and the buyers were beyond thrilled. From California, I connected a customer from Colorado with a great agent in Salt Lake City to get an offer accepted and closed in under 30 days, in an extremely competitive market. How many "local lenders" are doing that?
I'm not knocking your local lender. They may be great. But they're not great because they're local. There are also a ton of call centers out there hiring people like that idiot from 2007 I described earlier to pose as professionals, but those call centers are 'the local lender' to someone. If you don't know the lender involved in a transaction, you're rolling the dice. But when you do know the lender involved, you're rolling the dice, too - even the best of us make mistakes. When we're good, mistakes happen less and less (and more importantly, we know how to fix them and keep things on track without any major issues), but being local doesn't magically make us smarter, harder working, and more experienced. Actively learning, working hard, and having a long record of successful transactions does that.
Agents advising people that anyone "not local" isn't a good option are limiting options for their customers. They could potentially be costing their customers more (I know an awful lot of loan officers making a killing because their costs are higher and the "local agents" keep sending them "local business"), and worst case, feeding a poison pill to sellers and buyers alike that could cost them, all because of some stupid myth that lenders can't effectively do their jobs outside of a certain radius, behind a state line, or on the other side of a pre-established time zone.
If it's not obvious by now, the "your lender should be local" myth is one that I wish would die a swift death, because we've proven time and time again it's not true. But how can you address the real issues of not knowing a lender, or getting around some vague story about how someone at (insert lender here), somewhere, at some time, screwed up a deal? Here's a quick and easy way to know what you're dealing with:
- Don't be lazy. Ask questions. Interview the lender. A good lender isn't afraid of questions, because they, like you, should have the client's best interests at heart. Do they have experience in the area? Do they know local closing costs, closing process, etc? They should - and you can find out quickly if they do, simply by asking.
- Don't be afraid to "step on toes". Again, when everyone has the client's best interest at heart, it's understandable (and welcome!) from a lender's perspective to gets asked questions, even grilled a little bit.
- Don't assume. Sure, I'm a lender in California. But did you know - I've lived in PA, DE, NC, KS, CT, and of those states I'm licensed in, when I moved away from them, I didn't instantly lose my entire knowledge of how things work there.
- Check online reviews. Can you find the lender online? If not, that's a big ole' giant red flag right off the bat. Are 100% of their reviews from customers in Portland, Oregon and your transaction is in Portland, Maine?? Well Houston, you may have a problem. But if you see positive reviews all over the country, it very likely could mean you've got yourself a great resource and a great lender.
- Check NMLS. It's super easy to dig up dirt, and good loan officers typically don't change companies every 2 months. You can quickly and easily see someone's employment history and where they're licensed. If last month they were whipping up smoothies at Jamba Juice and this month they want your client to trust them with the biggest financial transaction of their lifetime, maybe it's a good time to get a 2nd opinion. But if they've been doing loans consistently for a long time, and the online reviews check out, odds are you (or your client) are in good hands.
There are some amazing national lenders out there. In fact, where I'm not licensed, regardless of the state, I refer clients regularly to a guy in Connecticut. Certainly not because he's local, but because he's great at what he does! There are also some terrible national lenders. But the same is true in your local market. There are very likely some rockstars amongst many dunces. So let's all stop pretending "local" is good and "not local" is bad.