On Offers and Loan Approval

bank prayerA reader asks: I’m pre-approved with a lender, but now that I’ve found a house am I obligated to use that lender if another bank has better rates and fees?

I get this question a lot, and of course there are many factors to consider. No one can really blame any buyer/consumer for trying to get the best rate. The unfortunate part of that process is; in this market you are submitting an offer on a certain loan approval and changing that source/loan/lender/loan officer can impact the timeline that you agreed to in the contract.

Actually, there are points in the purchase contract that state the buyer should be representing their loan situation truthfully. Which is what the pre-approval letter is meant to provide to the seller, a good faith statement of your plan and where you are in the process of loan approval. The promotion of this status by your real estate agent can be the difference between getting your offer accepted. Yet, many buyers do not take it seriously.

The RESPA guidelines require a complete application, a ratified contract, to be received, GFE created (Good faith estimate), sent to buyer, reviewed by buyer and a 3 day wait period (to make sure you’re all good with numbers/product/loan) before your loan officer can order the appraisal and start the real approval process.

In California, a 14 day contingency/approval period is fairly normal but some REO sellers want 10 days. If you start “shopping” at the time your offer is accepted, you could find yourself passing 14 days without an answer from your underwriter. Now, your contract is in jeopardy and your agent has to slip off the loafers and put on the tap shoes.

In my humble opinion, loan officers are too quick to say “yes, I can” and “really cheap” before they ever see your documents of proof and/or understand your credit risk. They completely believe in the “ask for forgiveness later” policy.

In this market, having a solid lender as a part of the team helps keep the stress down and the process smooth. Most of the loan products are available to all. It is service and cost to process that is the negotiating factor. Big banks are advertising NO POINTS, NO COST but really, do we think they are working for free while other mortgage bankers/brokers must charge? That money is in your loan somewhere.

I don’t think they always realize that for that 1/8 of a percent that the risk of a 100/day per diem for being late on close of escrow or worse, losing 3% of sales price deposit is not worth it. However, over and over I see this happening.

In the end, the customer always has the right to choose the loan product they want, even when they want. As long as they understand the potential ramifications of being late and the potential penalty of breach of contract, per diem fees, deposit risks, and losing the home they wanted. But shopping for rates; it is what it is.

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