Importance Of Choosing the Right Lender
A Realtor Partner of ours recently told us, “You are the only ones who are thorough enough to gather all of the facts before making promises.” That really stuck with us!
We pride ourselves on our thorough pre-approvals, loan options, in-house underwriting, and shorter closing times, (we go into a little more detail about all of the ways we stand out in our “Working with RMN is Like a Breath Of Fresh Air” blog), but for a realtor to tell us that we are the only ones who gather facts before making promises makes us worry about how many lenders must not be doing that!
Today we want to talk more about choosing the right lender, why it is important, and how you can spot a red-flag lender.
Common Situations We’ve Seen
Sometimes, people come to us for a second opinion, usually referred by a family member or Realtor. Often, those seeking a second opinion from us are in situations that could be easily mishandled by lenders unfamiliar with specific loans or programs, such as FHA loans, VA loans, or closing on condos.
Usually in a scenario like this, we notice that inaccurate information has been shared with the client from somewhere else. Of course, if you don’t already know what you don’t know, how would you be able to discern whether or not what a lender is telling you is true? How do you know when it’s time to walk away or look for a second opinion?
Some of the most common inaccuracies we hear include:
- A lender saying we can’t do that specific loan for you on a specific type of property (like a condominium.)
- This might just mean that they have never done that loan before, or they don’t do it often, and they aren’t sure how . This happens most frequently with condos and using an USDA Rural Development or VA loan. We know how to handle the complexities of closing condos with these different loan types!
- A lender telling you that you don’t want to do a specific loan because it will take too long to close.
- If a lender is telling you that a loan takes too long to close, it probably means they don’t have a ton of experience with that loan program. A lot of lenders also don’t have an in-house underwriter like we do, so they are waiting to hear back from an underwriter who could live in a different city, or even state—which can add time to the process!
- A lender who tells you that if you close this loan with us now for X interest rate, we can refinance you for free in the future when interest rates drop.
- If a lender promises a ‘free refinance,’ they’re likely charging you elsewhere. Often, this comes in the form of a slightly higher interest rate. In reality, there’s no such thing as a truly ‘free’ refinance.
- A lender saying a government loan such as a VA or FHA loan are not worth it, and that you should do a Conventional or Adjustable Rate Mortgage (ARM) loan instead.
- If a lender advises you to avoid government loans, they may lack accurate information or be uncomfortable handling them. Government loans offer significant benefits and are well worth considering if you qualify and comparing to your Conventional options.
- A lender telling you that you’re pre-approved, before taking a good look at your financial situation.
- Unfortunately, not all lenders conduct pre-approvals as thoroughly as we do. Some pre-approvals lack a complete picture or have gaps, which are often discovered when you make an offer and start the closing process. Be cautious of lenders who seem more focused on getting you in the door than on providing accurate pre-approvals.
- Lenders who apply a lot of pressure or tell you to act immediately “Today only!”
- Sometimes, lenders don’t want to give you the ability to shop around or look for a second opinion. Just remember, you’ve always got options if something doesn’t feel quite right.
While there are other scenarios, most fall into these categories. The common thread is a lender lacking the necessary information or capability to handle specific programs.
We’ve had people tell us that now that they know more about the process, they will definitely be using us the next time they buy a home. While we appreciate that, we do want to do our due diligence in getting this information out there so others can recognize red flags before they close.
Why it Matters
Fortunately, many people seek our second opinion, and we’re often able to secure a loan that is financially better for them in the long run. However, there are times when people come to us after they’ve already closed on a loan with another lender and share their experience with us afterward.
For example, we recently talked to a person who had bought a condo and was a veteran. A VA loan would have been a great option for them, but because VA loans and condos can be tricky for people who haven’t done them before and don’t know the ins and outs of how to navigate them, they did not get to reap the benefits that being a veteran qualified them for. They were so upset once they realized we could have gotten a VA loan done for them!
There’s also a distinction between online lenders and local lenders, with the locals often offering benefits that might be overlooked when working with the online lenders.
For example, we offer local benefits and programs, such as grants from the Iowa Finance Authority (available exclusively through IFA-participating lenders), and have a deeper understanding of local trends and the market. If you are working with a lender who isn’t able to tell you about any programs that are local to you, that could be a sign that you might not be getting everything offered to you that you should be able to take advantage of.
Bottom Line: working with a red flag lender can make you miss out on great programs, benefits, and money.
If you’ve talked to a lender and they can’t seem to answer questions about local programs, make promises before looking at the whole picture, or try to dissuade you from different loan options, that might be your sign to get a second opinion!
We are upfront, and won’t make any promises without looking at all the facts!