Two Unchanging Truths about Lenders

Mike Cooke January 24, 2018 Buying Selling

We empathize with consumers

When it comes to mortgage loans for residential real estate. Claims and counterclaims are made by lenders in their ad campaigns. Breathless announcers make it sound like XYZ Lender has some special program or unique service.

In reality, there are just two truths you need to know about lenders and they apply in every geographic location and in any market conditions.

Truth No. 1: Lender advertising claims are often more hype than reality. Let’s take a look at some.

Salary-Based Loan Officers:

Lenders will claim to have salary-based loan officers. The implication is that you are not going to be dealing with a pushy commissioned salesperson that needs to make a sale to keep food on the table next month.

In reality, no lending organization is going to keep a loan officer on staff that doesn’t make sales and close loans. The salary-based loan officer is still under pressure to get customers to sign up and say yes.

Even if the mythical no pressure salaried loan office existed, is that what you want? Which would you rather have pushing your loan through the complicated underwriting process: A guy that gets paid regardless of whether your loan gets approved or a gal that only gets paid by getting your loan approved and closed? Yes … that’s a rhetorical question.

No Closing Costs:

Any lender can provide you a no closing cost loan. However, the no-closing cost option in not cost free. You pay for it with a higher interest rate and higher monthly payments. Over time, that higher payments may easily exceed the closing costs you avoided paying at closing.

Doing a loan with no closing costs can make sense. The shorter the time you expect to be in the house, the better off you are to take the higher payment in exchange for getting rid of up-front closing costs. Or, you may want to conserve cash now even if it will cost you more in the long run. However, always keep in mind that there is a cost associated with any loan where your closing costs are reduced or eliminated.

Skip Two Months Payments:

Any lender can do this for you when you refinance a current loan. Example: Close your new loan on March 1st. You won’t make a March payment on your current loan because it gets paid off that day. New mortgage loans don’t have a payment due for the month of closing or for the following month. Viola … you’ve not made a house payment in March or April on the old loan or the new loan. You’ve skipped two months of payments.

You have not, however, avoided the cost of those two payments. Skipping the March payment on the old loan makes that loan payoff higher than it would have otherwise been. Closing early in the month on the new loan makes the new loan’s closing costs higher. Missing two principal payments in March and April makes the loan balance on the new loan higher. By the time May 1st rolls around, you’ve shelled out just as much money as you’ve saved by skipping two payments.

We are not saying it is bad to skip two mortgage payments when refinancing … we’re just saying it is not free. It can be beneficial for temporary cash flow reasons.

Choosing a lender based on some advertised competitive advantage does not make sense. Any program or technique promoted by one lender is generally available from any lender and the various advertised features may not be all that advantageous anyway.

Truth No. 2: When buying a house, you are best off using a lender your real estate agent knows and trusts. The reason for this universal truth can be summed up in one word: Accountability.

When buying in Colorado, you almost always have a contract with deadlines for appraisal and loan approval. If your lender assures you that everything is fine with your loan and then can’t get the loan closed on time after these deadlines have passed, you risk losing your earnest money and losing the house. Unfortunately, this happens with some regularity.

If you are using a lender that you found online or through advertising of some sort, you are just one deal to that loan officer. The only consequence for poor performance is the loss of just one loan.

Imagine

However, you are using a loan office referred to you by your real estate agent. You represent much more than just one transaction to that loan officer. Your real estate agent is sending a steady stream of customers each year to this loan officer. The loan officer wants you to be happy so as to not to lose the agent’s business. There is more at stake than just a single loan and, thus, more accountability.

Bottom line, you are much more likely to have great customer service and a successful outcome from a lender your agent uses on a regular basis. The lender has proven himself or herself competent over a long period of time and has more incentive to keep you happy.

Using your agent’s lender is not an absolute guarantee that nothing will go wrong. The most competent professional in any field makes mistakes from time to time. If a glitch arises, however, the loan officer regularly used by an agent will go out of his/her way to make it right even if it costs the lender money out of pocket.

You benefit from the higher accountability due to the loan officer wanting to preserve the long-term relationship with the agent.

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