Benefits of Using a Local Mortgage Lender

Dear Dave,

We are recently retired and sold our home of nearly 30 years. The people who bought our home were from out of state and did not use a local bank to get their loan and our closing was delayed 3 times while we waited for thing to get straightened out. We have not bought or sold in a long time, but according to our agent they got a great rate from this national lender and delays are just part of it. It seemed to us that because the lender was not local, all of the paperwork and decisions had to happen on the other side of the country and nobody here really had any good answers for why it kept occurring, however when it was said and done they did get a very good deal and saved some money.

We are now in the process of buying a new home. We want to make the best decision possible in obtaining our loan, but could you provide some advice on local banks vs. national companies that may have better rates?

Thank you,
Julie and Paul, Fruita

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Julie and Paul,

Ahhh the fresh scent of a lenders delay…The lending side of the world is the most frustrating part of the business for me. First, always remember that the information Realtors relay to our clients is only as good as the information relayed to us by the loan originator and their information is only as good as what all the mouths upstream are relaying to him or her. Let me say that finding a good and competent local lender is always the best idea and the vast majority of our local loan originators will work diligently to get your loan processed and completed through underwriting on or before the closing date.

One of the big delay offenders is when an underwriter needs clarification on a piece of information that was provided in the buyer's loan file or with the property appraisal. When this happens the processing can be delayed until the information is re-submitted or clarified and that can take days. It all depends on the volume of loans that a lender is processing and the location of their underwriter, but it can be like a one car breakdown on the 405 in L.A. It really does not take much to throw everything into a waiting game. Because underwriter delays happen at or near the end of the loan approval process the delays can have a significant impact. The underwriter is the St. Peter at the pearly gates of lending. They are the ones, to my way of understanding, that ultimately have the final say on if the loan meets all the required conditions or not and if the appraisal is satisfactory and meets their internal appraisal metrics. 

If it does, that is fantastic, we are moving to close and if it does not…well that’s not good. Not always fatal, but typically not good. It is best if you use a lender whose underwriter is local or in-state. Having a local or in-state underwriter is key, as they are more accessible and understand our local and state markets for interpreting appraisals and having a local underwriter review the file is far better than one in Boston, as they just have a better handle on our local market dynamics.  

“In my opinion, it also boils down to accountability. When you are deciding on whether to choose a local lender or a national lender accountability is key. Accountability is a rare commodity in any business, but you can bet there won’t be much if your lender is out of town or out of state. ”

In my opinion, it also boils down to accountability. When you are deciding on whether to choose a local lender or a national lender accountability is key. Accountability is a rare commodity in any business, but you can bet there won’t be much if your lender is out of town or out of state. You are most likely going to get a very similar interest rate from a local lender as you will from a national lender and where you might see the difference is in the fees the two charge, but I assure you a national lender and especially lenders from out of state are not as accountable and if something goes wrong, the small monetary savings will quickly become less important and at that point you will gladly be willing to pay a bit more for a lender who cares and gets the job done on time.

My motto is always, use local and keep your money working in our local economy and at the same time, build a relationship that you will have and can value for years to come. Not to mention they will likely work hard for you and be accountable so you spread the word to your friends and family. My experience has been much smoother when working with local lenders vs. the national ones. Hope this helps.

Dave Kimbrough
The Kimbrough Team

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Should I shop around for a mortgage lender?

Dave,

Simple question: should I shop around for a lender? I’ve heard it’s good to interview a few different real estate agents before starting the home buying process. Is it the same thought for lenders or are they all pretty much the same across the board because of regulations, etc.?

Thanks man!
Gregg, Fruita

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Gregg,

Clearly you have read my column and realize I can be pretty verbose, but in this instance I think I can keep it fairly short! It is really pretty simple, no two lenders are the same and it is in your best interest to shop around and I am not necessarily talking about shopping around for the best interest rate!

Just like in real estate or any other profession, you want to find someone who works in lending full time! They should have years of experience and knowledge. Most importantly he or she should be up on all the latest lending requirements and programs and know what it will take for you to get a loan approved. I know everyone is human and can make mistakes, however it still amazes me at the sloppiness/last minute rush that some mortgage lenders put their clients through when it comes down to crunch time. I understand there is a load of paperwork that is required from the buyer when obtaining a loan and getting all that paperwork processed is a time consuming process that requires systems and processes to ensure proper handling. As with anything you have to ask questions! 

Some simple questions to find out more about your prospective lender might be:

1. What kind of experience do you and your team have? If they don’t have a team working with them, move on….There are too many details that can get overlooked.

2. Can I get references? If they don’t readily hand them over, move on.

3. How much time do you need to fund? If they hesitate or say more than 45-60 days, move on (30 -45 days is typical).

4. Can you guarantee an on time close? Most should not hesitate to give you a firm closing date. Remember you MUST be timely in document submission. Many times, it is not the lender, it’s the buyer who is dragging their feet and that causes a loan to either not close or delay closing.

5. What are my estimated closing costs and are there any other fees or costs I should know about? They should be able to provide you a good faith estimate of all your costs right up front.

“Experience matters! I know cost is always part of the equation, however knowledge, experience, track record and reputation are more important.”

Clearly you should find out about the interest rate and the closing costs each lender will charge. However, I will drop this little nugget on you…you will not care or be worried about your interest rate and closing costs if your loan hits a major snag 4 days prior to closing and you lose your dream home. Imagine having to scurry about looking for a short term rental or ponder moving in with the in-laws for a few months while you sort out your homelessness. NO THANK YOU! Experience matters! I know cost is always part of the equation, however knowledge, experience, track record and reputation are more important. Trust me, when a deal starts to go bad, you will throw cost out the window in trade for someone who knows their way around a difficult deal and can find a way to get it closed. Even more important is to find a lender that never lets you get near a situation like I described above. 

Like everything else, do your homework on your lender. No two lenders are created equal and some are better than others. That being said, we have some wonderful lenders in this town who do an excellent job and are really quality people! Another good way to evaluate a lender is by reading online reviews. 

So much for keeping it short! I guess there’s always next time. I hope this helped.

Dave Kimbrough
The Kimbrough Team

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Move the unpaid balance of one home loan over to the loan on a new home?

Dave,

When we moved here in 2007 and purchased our home for $243,000 and refinanced in 2008 for $276,000 and currently owe about $255,000. We think our home would sell in the neighborhood of $250,000, which leaves us with about a $20,000 short fall, when we factor in the costs to sell. We are not in financial distress, but would really like to move to a larger home that would better accommodate our family. 

We have saved up enough money for our down payment on the new home and were planning to have the amount we were short on the sale of our home transferred over to our new home. We have been told we can’t do that and must have the money to cover the amount we are short at the time of closing. We do not have the extra money available to cover the loss and would like to move that over to our new home, as we can afford the higher monthly payments. Is this possible? Or are we just stuck where we are? We do not want to wait to move into another home if there are any alternatives. 

Thanks.

Danny and Colleen, Grand Junction

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Danny and Colleen,

It does appear that you may be stuck. It is true that you can’t just move the unpaid balance of one home loan over to the loan on a new home. Your loan needs be settled at close, so the lien can be released to allow transfer of title over to the new owner. It does seem that it would make sense, since you can afford the monthly payments, to allow a reasonable amount to transfer over, but that is just not the case, your current mortgage must be paid off in full and released at close.

There may be other options. If you have any other tangible assets that can be used to collateralize the short fall, that may be an option. If you have any other property that has an equity position, you may be able to look at refinancing and pulling some of that equity out to cover the short fall on your home and get your short fall covered. Another option is looking into your retirement portfolio. If you have a 401k, you may be able to borrow from yourself and then pay yourself back with interest. In this case you can borrow the funds from your retirement account, look out to see if there are any penalties, and then pay yourself back over time and give yourself an option to get out of your existing home and make some money for retirement at the same time. 

“If you are stuck, then I make the suggestion to ride it out and work on paying down your principle debt and as the market continues to improve, meaning prices are moving up, you are working to reduce your debt basis down and hopefully speed up the time table for moving out.”

If you are stuck, then I make the suggestion to ride it out and work on paying down your principle debt and as the market continues to improve, meaning prices are moving up, you are working to reduce your debt basis down and hopefully speed up the time table for moving out. You can also spend that time making some improvements that are cost effective and will result in added value in an attempt to speed up your homes appreciation as compared to the general market. The biggest mistake I see in cases like this are people just loose hope and let their property start to slide in appearance and upkeep and it has the opposite effect of what I am pointing out. Making modest and cost effective improvements can help bolster your eventual selling price and if you work on reducing your principle debt, you may be able to move faster than you thought possible. You just need to be determined and don’t get side tracked with what you can’t do and focus on what you can do and create a plan to get out of your current undesired situation.

Don’t get discouraged, get determined and make a plan to get your debt down and bolster your value and you might get in that new home sooner than you thought possible. Hope this helps, but sorry I did not have a more immediate and timely solution. Best of luck.

Dave Kimbrough
The Kimbrough Team

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Do I really need a 20% down payment?

Dear Dave,

We are looking to buy a home this year and have been saving our money so we can put as much down as we possibly can. We have great credit. We recently ran into some unexpected expenses and our savings account is down a bit more than we would like. My wife and I are not buying more than we can afford, but we may not have 20% to put down this year. What are your thoughts on how much is enough to put down to buy a home? We appreciate the help.

Joe and Rebecca
Grand Junction

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Joe and Rebecca,

This is an awesome question and one that we deal with a great deal. The great news is, there are great options available to you at far less than 20% down, but I understand where you are coming from. When the real estate bubble burst several years ago and credit standards and requirements tightened, it became a widely held myth that you needed at least 20% down to purchase and although that would be best, there are wonderful alternatives that don’t require that much down and still allow you to remain fiscally responsible. For lending questions I often lean on a good friend, James Pulsipher who is Senior Vice President at Fidelity Mortgage here in Grand Junction. As James goes on to explain, he agrees there are options for less than 20% down.

“The place where the 20% idea comes from, involves mortgage insurance. If you put less than 20% down, then you have to purchase mortgage insurance as part of your mortgage. Mortgage insurance is an insurance that protects the lender in the event of default. In short, if the lender forecloses the property, sells it, and loses money when they do – this insurance covers part of that loss. Because of that mortgage insurance is good to avoid, if possible, because the buyer gets zero benefit from it. It only benefits the lender.”

“In the lending world today, you can put as little as 3% down for conventional financing. Conventional mortgage insurance can be paid in several ways. Monthly – a premium is added to your monthly payment. Up-front, you can pay a single premium up front, and then there is no mortgage insurance in the payment, and finally – through the rate. This is a lender paid, or NO mortgage insurance loan, where you pay a slightly higher rate, and don’t pay any mortgage insurance at all. The bottom line is that there are a lot of choices.”

“In the case that a buyer chooses the monthly mortgage insurance (which is the most common), then that insurance will terminate when the loan is paid down to 78% of the initial price of the home. After two years, if the home is worth more, you could also ask the lender to re-appraise the home and terminate the mortgage insurance sooner, based upon that new equity position.”

“So at the end of the day, not having 20% down is okay. There are a lot of purchasing options without it, you simply want to consult with your lender and determine what the best approach to mortgage insurance should be for you.”

As it is with everything, knowledge is power and teaming up with a good lending professional who can help you assess what is best for you and your individual situation is the key. Find someone you trust and whom you can communicate with and utilize their expertise to help you navigate your mortgage and down payment options. I bet you will be delightfully surprised at the plethora of options you have available! Happy house hunting.

Dave Kimbrough
The Kimbrough Team