Reason(s) Not to Go With the Cheapest Loan/Lender
By definition, all real estate is unique.
Money isn’t.
(In economists’ lingo, money — and other commodities like aluminum, corn, and lumber — are what’s called “fungible”).
So, is there a reason for prospective home Buyers (and mortgage borrowers) not to simply get the cheapest loan they can find, online or off, whether it’s at a bank, discount retailer like Costco — or corner gas station? (Full disclosure: my family LOVES Costco, and we do much of our shopping there).
“No, But . . . “
My Realtor’s answer to that question is, “no, but . . . ”
Here are my two caveats:
One. Sometimes what appears to be the cheapest loan, isn’t.
That’s especially the case with unscrupulous lenders who dangle a too-low interest rate, but then more than offset that with exorbitant fees.
Prospective borrowers can police that by comparing the loan’s face interest rate with the A.P.R., or annual percentage rate (the smaller the gap between the two, the better).
Vanilla vs. Butter Brickle
Caveat #2 is that some borrowers need more support and/or service than others.
If all someone needs is a plain vanilla mortgage — especially if they already own the home, and are simply refinancing — cheapest is definitely the way to go.
At the other extreme, someone who needs “butter brickle” (or tutti frutti!) would be smart to consider using a higher service (and more “expensive”) lender.
Complex and/or Competitive Transactions
That would certainly be the case with someone contemplating a more complex transaction.
For example, they need a bridge loan or home equity line of credit (“HELOC”) tied to their first home to buy home #2.
Or, they may be a candidate for a surprisingly cheap jumbo loan (jumbo’s historically were more expensive than conventional loans; now, they’re often not).
In my experience, getting proper coaching about which loan product makes the most sense can more than justify a lender’s higher fee.
Ditto for someone trying to buy a home that’s in multiple offers.
One of the “tie breakers” in such situations is the prospective Buyer’s financing.
I know that when I represent Sellers contemplating a choice of offers, my first call is typically to the various Buyers’ lenders, to qualify both how strong the Buyer is — and how strong the lender is.
If I’ve never heard of the lender and can’t reach the loan officer, pronto . . . the chances of that Buyer getting the home go down considerably.
Cost-Benefit Analysis
Which begs the question: if using a cheaper-but-lower service lender costs the Buyer a home they really want . . . how much did they really save?
That cost-benefit criterion also applies if the cheap(er) lender doesn’t do what they’re supposed to do, when they’re supposed to do it.
So, if the Buyer’s appraisal and underwriting aren’t completed by what’s called the “Written Statement” deadline, the Seller can cancel the deal.
Similarly, if the Buyer’s funds are delayed at closing, the Buyer risks breaching their contract and losing their home.
It all sort of recalls a radio ad for a (non-discount) tuxedo rental service I heard years (decades?) ago: “if your tuxedo looks cheap . . . haven’t you paid far too much?”
See also, “‘Good Lender Service,’ Defined”; “Listing Agents Who Call the Buyer’s Lender”; “Tie Breaker in Multiple Offers: the Buyer’s Loan Officer“; “FHA Fees: Up, Up, and Away“; and “The Second Most Important Date in a Home Sale.“
