You turn on the television and see another mortgage ad from a big-budgeted national mortgage company telling consumers they only need to push a button to get a home loan.
That might be a great message for a homeowner considering a refinance, but if a homebuyer seeks a loan from an online or toll-free lender in today’s market, it can be a disaster. Getting a loan to buy a home is a different animal.
Research from the National Association of Realtors tells us that 86 percent of homebuyers require mortgage financing when purchasing a home. Real estate agents can take a proactive role to assist their buyers in vetting a knowledgeable and effective lender in their area.
What does that mean? Every lender has a checklist of minimum requirements in terms of what they need from a borrower to complete a loan approval. There is a list of mandatory documents required, as well as a list of financial requirements needed to approval a loan application.
In today’s market, agents need to make sure their homebuyers have a checklist of minimum requirements to select their lender — and here’s why.
Agents are the key
Local real estate agents and brokers know that a vital initial step towards a successful transaction is having the right lender. In a tight market — like we are seeing today across the country — agents can’t afford to sit on the sidelines and let homebuyers randomly select a lender.
It’s also not a market where a buyers’ cousin Bob, who is in the mortgage business, can do a loan for them from a distant city.
Productive real estate agents in every market know which lenders are reliable and which ones are not. They know that they only get paid if the transaction closes, so they have a vested interest in making sure their buyers select the right lender. They know that they can’t sit on the sidelines when it comes to the financing piece of the transaction.
They also know that unless there is an exchange of value (a big no-no), they can offer a referral in compliance with RESPA and no rules broken.
Most importantly, the best agents understand that referring the right lender is a benefit to their homebuyers. We’d like to see every agent using this top producer best practice.
There is no requirement in the U.S. that a buyer has to be pre-approved before an agent drives them around to look at homes. There sure as heck should be.
Top agents know this is a minimum requirement. This approach allows an agent to have the financing conversation upfront and first.
Making sure buyers determine their affordability at the very beginning of the home search process is a responsibility that we share in and believe everyone in the industry needs to promote.
The No. 1 reason that home purchases fail to close is related to financing, and agents can help close that gap by being more proactive.
Safety, security and trust
Agent safety is another compelling reason for agents to direct home shoppers to a local lender for a pre-approval letter that is vital.
Asking for that proof — upfront — is another way to determine if an agent is working with a buyer who is legit. Buyers also are protected from online scams and fake websites when getting financing for a home that includes a face-to-face meeting.
The other big benefit is trust: Buyers want to work with a lender they trust. Unlike an online lender or a toll-free lender, buyers can walk into an office to meet in person with their loan officer or drop off documentation.
Local loan officers know they have to perform, as they are going to bump into their buyers for years after the home is purchased: in the grocery store, at the bank, on the soccer or Little League fields, etc.
Why local is the key
With 86 percent of buyers purchasing homes with financing in today’s tight market, 100 percent of those buyers should considering working with a local lender. That’s because when a seller has multiple offers, their agent is going to be advising them to select the strongest offer, and the strongest offers all have pre-approval letters from local lenders.
It’s a red flag for a listing agent to see a toll-free, online or out-of-state pre-approval letter. It’s a big plus when the listing agent can testify to the reliability of the local lender on the offers. That’s why agents need to be involved in this process and buyers need to qualify their lenders.
A second opinion
Loan consultants we work with will tell you that it is more common than ever to have agents tell them that their new buyer already has a lender, indicating its game over for the local loan officer. It is not, and savvy agents know that in order to protect the transaction, they need to become proactive the minute a buyer tells them this.
Agents should have the “Have you qualified your lender?” conversation with the buyer. They should point out the advantages of using a local lender and the importance of a local pre-approval letter in a tight market. Most importantly, agents need to strongly suggest that buyers get “a second opinion.”
Look, I know from working with hundreds of homebuyers that it’s painful to get a buyer to do more than one full application with a lender. The rule among loan officers is, “he or she who gets the application first, wins.”
But this is almost certainly the largest transaction a buyer has made in their lifetime, and getting a second opinion is not only reasonable, it’s smart. It’s also the best way for an agent to protect the buyer from being taken advantage of by even cousin Bob. (I’ve won a lot of deals away from lenders who were relatives because they were not giving the buyers the best deal, even if they were related.)
Agents should not fear asking any buyer who is not using a proven local lender to get a second opinion. This step can also ensure that if a deal does go sideways because of the buyer’s lender, they already have a backup in place because they got a second opinion.
The bottom line for agents is reducing risk. In many markets, inventory is so low and well-priced houses are selling so fast, no one wants to risk pulling a home off the market for an offer that is going to fail due to financing.
Buyer’s agents need to do what top producers do and be proactive in the conversation about the importance of choosing the right lender. The WAV Group recently completed a study that involved some 10,000 top real estate agents in the U.S. The No. 1 concern of top producers was lending. Taking the approach of making sure that buyers “qualify” their lender and pick the right one that can close the transition is vital to closing the gap of homes that don’t close due to financing.
By strengthening relationships with local lenders and becoming more active in recommending the right lenders so we can address the affordability issue upfront and reduce loan fall out, agents can increase their level of service to their buyer clients.
Brad Springer is the president and CEO of RatePlug, an MLS-integrated mortgage technology. Connect with him on LinkedIn.