Tuesday, January 31, 2017

Committing to a lender

 I have written before about the importance of working with a reputable, local lender.  We are still in a seller’s market, and who your lender is can affect whether or not your offer is accepted.  A local lender understands the mores of our real estate market, knows the ins and outs of buried oil tanks, party sewers and radon. 

Many buyers really want to shop for a lender and a loan.  The Consumer Financial Protection Bureau has taken steps to make comparing loan programs and lenders more approachable. 

If you are planning to start the home buying process, talking with a Realtor and getting started on the loan process are good first steps.  These days, sellers and their agents expect an offer to purchase be accompanied by a pre-approval letter.  This letter states the buyer has submitted the necessary paperwork, the file has been through underwriting and has been approved for a loan at a certain amount.

In the past, some buyers have gotten pre-approved, but waited to really shop for a loan until their offer has been accepted.  As the lending process has become more complicated, and closing timelines have lengthened, it has become important for the actual loan file for a buyer, on a specific house, to be started right away.  The buyer really doesn’t have a few days to talk to potential lenders, submit paperwork to a variety of places and make a choice.

The time to shop for a loan is BEFORE your offer is accepted.  In Oregon, the standard forms Realtors use now bind the buyer to the lender who provided the pre-approval letter that got the offer accepted.  Switching lenders requires seller approval, and can put the transaction in jeopardy.  Switching lenders or loan programs in the middle of a transaction makes the buyer look flakey and causes the seller and listing agent to question the buyer’s ability to perform. 

A real estate transaction is a complicated process with various stages of negotiation.  Any delays put the buyer at risk of not performing by the close date, leaving the buyer at the seller’s mercy when asking for an extension of a close date.  Delays can also cause a buyer to lose their loan lock, and perhaps push them to a higher interest rate.

So, shop for your lender and loan program before you start making offers.  Compare, not only, interest rates, but also fees.  A good lender will help you evaluate different packages; does it make financial sense for your situation to buy down the rate?  Is minimizing the down payment a priority, or is keeping the monthly payment low more important?  Is the lender familiar with the market in which you are buying?  What are their strategies for getting the appraisal back in a timely manner?  Where is the underwriting done?   That on line lender may look like a great deal, but if they can’t get the loan closed, and you lose the house, that great deal isn’t so great any more.

I'm glad to answer questions about lenders and the loan process, along with queries about the real estate market in general.