Are you being pressured by your Realtor to use “their” lender?
Minneapolis, MN: When buying a home, unless you have cash, you are going to need financing! As a consumer, you have the right to pick whatever lender you decide is best for you. You will likely also receive all sorts of lender suggestions from those around you, and maybe even high pressure to use specific lenders.
My take on the state of the industry and why you are being pressured to use a specific lender follows one of three scenarios:
- You have a competent real estate agent who is concerned about the transaction closing. If they have never worked with the lender you plan on using, they are naturally concerned about that lender’s ability to perform. More often than not, this is an unfounded in fact fear, perpetuated from hard to close sub-prime loans that long ago disappeared from the market. More often than not, simply having your lender and Real Estate Agent talk to each other will address the Real Estate agent’s concerns. If they are both competent professionals, they’ll recognize that in each other and problem solved.
- Most real estate agent today work at a company that has their own lender. The agent is under enormous pressure from management to refer all buyers to the in-house lender. Why is that? Because most of the profit from the real estate operation accrues from the in-house mortgage and title company operation, and not from the real estate side. You will almost always find that the rates offered by the in-house mortgage lender are higher than what you could find from other lenders. The in-house lender knows the statistical evidence that 75% of home buyers accept the first rate offered to them and set their profit margin accordingly. If the lender your agent is recommending is offering you higher rates than another lenders you judge to be competent you now know why their rates are higher – they are responsible for producing excess profit for the parent organization. Your choice whether you want to pay for that excess profit or not.
- The agent is getting an under the table kick back from the lender – yes illegal, and unfortunately, yes it continues to occur. The specific agent themselves is getting a monetary kickback, their advertising paid for, or some other form of payment by the lender or specific loan officer. While very rare, it does happen.
If the rates offered by the recommended lender are higher, it is pretty simple – you are not getting the best deal in the market. You are paying for someone’s additional profit. That “someone” could be the big bank name as their rates are higher to pay for all of their fixed overhead and advertising. It could be the real estate company that depends upon extra mortgage affiliate profit to pay the commission splits they are offering to real estate agents, or something else.
Most buyers focus on the monthly payment difference between rates and end up thinking something like, “the agent wants me to use this specific lender and the monthly payment is only $15 dollars more, so who cares”. What you’re missing is the present economic value difference that an .125% or .25% higher rate means in dollars today.
What I mean by that – if the recommended lender is offering you a 5.00% rate and other qualified and competent lenders tell you they can off you a 4.75% rate, the important number is not the $15 or $30 per month difference. The important number comes from asking the 4.75% rate lender, “What is the dollar amount of the lender closing cost credit you will give me if I do the loan with you at 5.00%?” Another way to look at it is this, at 4.75%, maybe your closing costs are $6,000, but at 5.00%, your closing costs are only $4,000.
That is the dollar amount that could have been in your pocket, but if you give in to the pressure, and instead transfers to someone else’s pocket. When you are getting that level of pressure, someone has a vested interest in who you obtain your mortgage through.
Bottom line: Talk to the Realtor’s suggested preferred lender if you want, but be sure to talk to one or two other lenders, then YOU CHOOSE who YOU WANT.
(C) 2011 – Joe Metzler – Mortgages Unlimited, St Paul, MN #274132. Re-blog but do not steal!