Should I Use The Realtor Preferred Lender?
Many home buyers are referred to a realtor preferred lender even before he or she takes you out to see your first home. Home buying can be confusing and overwhelming, and it is sometimes easy just to go with what is easy. Selecting the right lender is almost as important as choosing the right home and for most this will be the largest purchase of your life.
Should You Use The Realtor Preferred Lender?
You should speak with the realtor preferred lender but use that referral as just one option. Getting additional recommendations and doing your own research and then comparing them to the realtor preferred lender is the best course of action.
Why Do Agents Want You to Use Their Realtor Preferred Lender?
The Top Reasons Why Realtors Want You to Use Their Preferred Lender
- Pre-Approval Confirmation
The role of the real estate agent is not an easy one. There are too many deals that go south due to some of the 3rd parties who are also involved in the transaction. This can be attorneys, inspectors, appraisers, and lenders just to name a few.
I have had some real estate transactions get held up by attorneys for example. We thought they were working with the title company and in the end that work was not complete in time to meet the scheduled closing date.
When it comes to the lender, realtors have had quite a few deals fall through because the lender gave the impression that the loan was not going to be a problem only to find out in the end that the borrower cannot get the financing. In some instances, it is because the lender did not have the right program for the borrower and they tried to squeeze them into something that was going to be a long shot to get approved.
- Pre-Approval Confirmation – Realtors know they can get a quick pre-approval letter from the realtor preferred lender. This gives them the peace of mind knowing that they are not wasting their time with a borrower who cannot get financing.
- Trust – Realtors like to know that if the lender says the borrowers are qualified and pre-approved, that they really are. They develop this trust after working with the realter preferred lender for a few years.
- Communication – Lack of communication from the lender makes realtors extremely nervous. They will often ask to be in direct communication with your lender to make sure they have the latest info on your approval and whether the loan can close on the scheduled date.
I can promise you that your realtor’s intentions are genuine and they are likely trying to do what is best to make sure your loan closes and you are able to buy your dream home. However, it does not mean that lender your realtor is recommending is the right one for you.
Your real estate agent is a local professional who can help you through this process even if you do not use their lender. They can help prepare you by informing you what lenders are looking for even before you apply for your mortgage.
Can a Realtor Get Compensated by the Lender?
The Real Estate Settlement Procedures Act (RESPA) forbids realtors and lenders from compensating one another for referrals. It is against the law for the lender to give the realtor a kickback or referral fee.
This does not mean that money will not change hands in some way. Real estate agencies have charged lenders a “desk fee” or space rental in the office. The intent is simply to get compensated for the space that lender will use when he or she is meeting with clients in that office. Another method is for the lender to pay a marketing fee for helping to disperse a flyer with program and contact information on behalf of the lender.
These activities are not as common as they used to be and would be considered illegal if the realtor steered business towards the lender in exchange for the fees paid. In 2017, Zillow was investigated for violating RESPA based upon the possibility that referral fees were collected from realtors and lenders.
Does the Realtor Preferred Lender Have Good Rates?
The realtor preferred lender may absolutely have good rates. There is also a significant possibility that they do not have the best rate. Think about it for a minute. There are thousands of real estate offices out there and some of them may use the same lender but for the most part they don’t. The best you can hope for when shopping for a loan is that you got a competitive rate. There is now way to truly know whether you got the lowest rate possible.
What is most important is whether that lender has the right program for you. To me, that is the problem that is the most common. For example, many of the realtor preferred lenders do not have bank statement loans for unemployed individuals. So, if they cannot document their income then I have no idea how they are getting qualified. Many lenders also cannot originate loans with very low credit scores.
Maybe you are a military veteran or live near a rural area and if the lender tries to fit you into a conventional 30yr fixed without having the ability to suggest a VA or USDA loan, then the rate the least of your problem. All things being equal between the programs that lenders offer, rate is absolutely important. Even a quarter of a percent in your rate can cost you thousands of dollars over the term of your loan.
Should You Rely on Lender Recommendations from Friends and Relatives?
When you are shopping for a mortgage, your friends and relatives may offer the contact information of the loan officer they worked with. “This person was great” “the transaction was easy” etc etc. You may be surprised to hear me say this, but you should not rely on the lender recommendation from your friends and relatives.
Just like the realtor preferred lender, you should just take the recommendations from your friends, then add them to your vetting process. Once you have narrowed it down to two lenders you can take the recommendation from your friends into account. This is not the same as getting a bad restaurant recommendation. You have a lot more at stake here than a bad meal if their perception was wrong.
What if your friends and relatives never did their homework? What if they don’t know whether they truly got a good deal? I am sure you have seen people over pay for goods and services in the past and had no idea. What I am saying is you should do all of the research and make the decision. This is especially true if you have a friend or relative who is in the lending business. You should not over pay so a friend can have your business.
Suggest reading how to find a good loan officer.
When Should You Use the Realtor Preferred Lender?
You should use the realtor preferred lender after you have done all of your research and vetting and found that lender makes the most sense for you. This is the largest purchase of your life and the decision you make regarding your mortgage can with save or cost you thousands of dollars over the life of your loan.
Follow These Basic Steps
- Begin your lender search and discussions well before you contact a realtor
- Come to the realtor’s office for the first time with a pre-approval in hand
- Have a conversation with the realtor preferred lender to see what they have to offer
- Connect with us and see how our perfect lender match program can offer you more choices
- Weigh and compare all of these options and make the best decision for yourself.
* When comparing lenders be sure to get a good faith estimate from all of them. They must disclose their fees initially so you can see whether you are comparing apples to apples between lenders.
** Here is another reference 5 simple steps in choosing a mortgage broker.
When Should You Use the Builder Preferred Lender?
If you are going with new construction, your builder may have a preferred lender as well. This is especially true for larger building developments. You have seen those before where they have a model where they turned the garage into an office.
Builders are also not permitted to receive compensation for the referral as it also violates RESPA. What you may see though are other things happening here. They may offer you some home options in exchange for using their lender. You may also see a significant closing cost credit of $8k as an example.
It is important to read the good faith estimate before agreeing to anything. These credits referenced above may be nothing more than a lender paid credit in which case you are most likely paying for those by unknowingly agreeing to a higher rate.
You should consider using the realtor preferred lender after you have done your own research. If it makes sense for you and you feel comfortable with the recommended lender, then absolutely move ahead with that option.
Is the Lender Allowed to Recommend a Realtor?
Your lender can absolutely recommend a realtor but RESPA forbids the lender from receiving compensation in exchange for that recommendation.
Why Do Realtors Need a Pre-Approval Letter?
Realtors will require you to provide them with a pre-approval letter before viewing any homes. They want to be sure you are a viable buyer first. This is often why they would like for you to speak with their in house lender.