What is the biggest threat to home buyers in today’s real estate market? Using the wrong lender. Using the wrong lender can stop you from even get your offer accepted to the worst-case scenario of finding out before closing that your lender cannot approve you for a loan. This doesn’t have to happen to you. Here’s what you can do to avoid becoming a victim of bad lending derailing your home purchase. [Spoiler-alert: USE A LOCAL LENDER.]
Financing your home purchase isn’t easy
You may see these commercials of happy people walking their dog and at the same time are on their phone applying for a six-figure mortgage and getting approved in seconds. It isn’t this simple. The big national firms want to simplify this complicated and detailed process. In the end, all lenders will need you to supply proof of your income and debt and will need to run your credit and will submit your file to their underwriting department. It’s just a matter of when they do this.
The Benefits of Using a Local Lender
You will hear me say over and over again to use a local lender. In fact, my colleagues say the same thing and you can see them in the video at the end. The benefits of a local lender versus an out-of-state lender are huge and as your agent, I want you to be successful. I want you to work with the best. Here are the top benefits of using a local lender instead of an out-of-state lender.
Pre-Qualification vs Pre-Approval vs Underwritten Pre-Approval
As I mentioned earlier, all lenders at some point in the lending process will need you to provide documentation on your income and debt but the good, local, reputable lenders will take it one step further and ask you for these documents at the start of the process so that they can run this through underwriting.
Getting underwritten approval before you start house hunting is the gold standard today. And this is the main reason why I strongly suggest using a local lender. Other lenders don’t underwrite your approval because it takes time, effort, and resources to do this for every potential buyer.
You may have had lenders tell you that once you are under contract, then they will want your pay stubs, banks statements, tax records, etc. This is okay but an underwritten approval is even better.
Local Lenders Know the Local Lingo
One of the bigger reasons why out-of-state lenders cause delays is a gap in terminology and definitions. For example, here in Washington, there is a difference between signing, closing, funding, and recording. These are different activities that can potentially happen on different days. Many out-of-state lenders cause delays because they get our definitions confused and they mix up the dates of these activities, which leads to a delayed closing. Something as simple as terminology can stall your transaction.
Local Lenders Know Local Practices and Requirements
Another common issue that delays closings are requirements that are not needed. For example, here in Washington, termite inspection reports are not automatically required for VA borrowers. I’ve had countless conversations with out-of-state lenders who don’t believe me. What happens next is your file sits on the processor’s desk waiting for this termite report that is never going to come and therefore, your transaction is delayed.
Local Lenders Help Buyers Win the Bidding War
When submitting an offer in this competitive market, it is also important to earn the trust of the listing agent. Local listing agents know the local lenders in town and they, too, know who can close the deal smoothly and who’s preapproval letters they can trust. They will recommend to their sellers to accept your offer because of your lender choice. Choosing the right lender is another step you can take to write a winning offer.
So, What’s the Worst that can Happen?
The worst thing that can happen is you may not be able to buy the home you thought you could. And you may find this out at a very inconvenient time, like right before closing.
The most egregious story I have is a buyer who was told the day before he was to close and move in that he wasn’t qualified. The lender never ran his file through underwriting until the day before and that is when they found out his debt-to-income ratio was too high. This is something that easily could have been figured out in advance but this large, very well-known national lender really caused tremendous harm to the buyer who was a single father of nine children who now had nowhere to move to, and the seller, not only didn’t sell their home, they had to terminate their purchase.
The buyer lost time, effort and wasted money on an inspection and an appraisal. We had a huge fight over the earnest money and emotions on both sides ran high. You may think this can’t happen to you but this is not a unique story.
In today’s lending environment, the more common story is closing is delayed.
You may think, what’s the big deal if we are a day or two late in closing? For one, It impacts your move. If you have arranged for movers, changing the date can be difficult. And don’t expect the seller to allow you to move in before your close date or move your things into the garage, for example.
This impacts the seller and if they are depending upon this sale in order to close on their next purchase, it can have a terrible domino effect.
And if you cannot close on time, you are now relying on the seller to agree to extend your close date. If the seller does not agree to extend your close date, then you are out of contract and you just lost the home. The seller can put the home back on the market and sell it to someone else. Now you may think that is really foolish but real estate is an emotional business. The sellers could be so angry that in spite, they won’t extend and they won’t sell you the house.
Why I Strongly Suggest My Buyers Use a Local Lender
In the end, my priority is for you to be successful. Some buyers are very suspicious when I guide them to use a local lender. Please understand I have worked with a lot of buyers and a lot of lenders and I know the difference between a great lender and a lousy lender. I only want the best for my clients therefore I’m going to share with you the best lenders in town that I know and trust to do a great job.
There are no kickbacks or hidden agendas as some clients have suggested. Local lenders rely on local Realtors to send them business and they work tirelessly to make sure every client is well-taken care of and well-advised. Local lenders have much more on the line as far as their reputation and their business than the out-of-state lenders.
If you are interested in buying a home in the Olympia area and want a smooth transaction, contact me today and I’ll share with you my top local lenders.