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A Good Loan is More Than Just a Low Interest Rate.

January 15, 2013 San Carlos Real Estate No Comments

Rock-Bottom Rates Abound.

One of the benefits of our misfiring national economy is that home buyers are able to take advantage of unprecedented low interest rates on home loans.  It seems as if there is an endless supply of lenders coming out of the woodwork looking to get a piece of the booming real estate market in the Bay Area, and they’re aggressively making their pitch to buyers on the radio, TV, and the Internet.

So with all of these choices at your disposal, which institution is right for you?

The answer to that question will be very different depending on whether you are purchasing a new home or re-financing your existing home.  For this discussion, I will focus on the purchase side.

Service is Paramount for Purchase Loans.

If you’re in the market to purchase a home and your Realtor is suggesting that you to use his or her preferred lending institution, you should probably take heed to their suggestion.   They’re not doing this because they will get some sort of “financial incentive” by referring their favorite institution (that’s illegal, by the way).  A good Realtor should be suggesting a lending institution that can a) best execute the loan process in the defined time-frame, and b) provides attractive rates and terms.

Did you notice that “interest rate” was not the first criteria?  That’s because service and execution are absolutely critical when you’re purchasing a home in this hyper-competitive real estate market.    I can probably count on one hand the number of institutions that truly understand the Peninsula real estate market, and that have invested in the infrastructure required to service this market.

Here’s why service and execution are so important…

Don’t Forget:  It’s a Contract.

When you write an offer to purchase a home, you’re entering into a binding contract with conditions and associated deadlines that must be met by you to complete the purchase.    These conditions will of course vary depending on the buyer and the home they are purchasing.  But unless you are paying all cash for your home (lucky you if you are), you will be signing up to conditions pertaining to the funding of your purchase — and that means making and keeping commitments on behalf of your lender.   (This is the primary reason why purchase loans differs so much from re-finance loans.)

And if you’re entrusting your loan to a bank that doesn’t understand the local market, or doesn’t have a good track record on hitting their dates, you are unwittingly putting your offer or your home purchase at risk.

There’s nothing terribly difficult to understand here — in any contract, if you don’t execute the agreed upon conditions, you are in  breach of the contract.   It’s no different when you are buying a home — if your lender doesn’t meet the commitments you have specified in the contract for the finance contingency, appraisal contingency, and/or the close of escrow date,  they have just breached the contract on your behalf.

And that puts you and your Realtor into damage recovery mode — not a good place to be in a negotiation.

Listing Agents Are Taking Note.

In a incredibly competitive real estate market like the one we’re in now, the listing agent often has the luxury of receiving stack of offers from which to pick the winning bid.  As such, they are able to closely scrutinize every aspect of the offer — from the price, to the terms — and pick the one with the best one.  What’s the best offer?  It’s not always the highest price.  Increasingly, it’s the offer with the best reward-vs-risk trade off.   And what are the “risk” items in an offer?  It’s the contingencies and other conditions that may get in the way of a smooth escrow.   This is where partnering with the wrong lender can really hurt you.

If you’re going to bat with an institution that’s either not known to the listing agent, or worse yet, one that the listing agent has had a bad experience with, your offer is already in deep trouble.   I’ve seen a number of offers get bounced entirely out of consideration solely because of the lender that was chosen.

Who’s the Best?

The problem is that everyone has their own definition of who the best lender is.   But consider this:  Wells Fargo and Bank of America together write probably 2/3 of all purchase loans for residential property in the Bay Area right now.    Does that mean that every agent is enamored with both of these institutions?  Of course not.  But it does mean that both banks DO understand the local market, and they’ve invested in the infrastructure to execute on purchase loans, because they continue to get the lion’s share of the business.  There are a few smaller bank that understand the local market too, and have been very successful here.

It’s also important to note that the loan officer behind the loan is just as important as the bank that they work for.   I’ve had widely varying degrees of success with different mortgage brokers at the same bank.  Much of your success lies in the hands of the mortgage broker who will be babysitting your loan application during the purchase.  (If you need some suggestions on who I believe does really well in this market, feel free to contact me and I can provide you with some excellent references.)

The bottom line is that if your Realtor has a couple of “go-to” people that they refer to, understand that there’s a very good reason why you’re being encouraged to go that path.   While you may want to work with your local credit union, or an internet bank,  or the institution that issues you your credit cards,  be very cognizant of their track record in closing home loans and how they are perceived in the local real estate market.  It’s not worth a 1/8 point difference in the interest rate to jeopardize your home purchase.

If you still really want to give them your business, you can always refinance your home with them later… when time is not so critical.

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