dcsimg
We research, you save.
Got Questions On Rates? (855) 610-2972

Using gift money for your downpayment? Here's what you need to know!

Not shopping for a mortgage lender could cost you thousands

Shopping around for the best mortgage can save you thousands, but according to a recent report from Campbell Surveys, a large percentage of home buyers aren’t shopping around at all.

The report, “Building Effective Partnerships With Real Estate Agents,” conducted on behalf of Inside Mortgage Finance, said that more than a third of home buyers choose mortgage lenders based on their Realtor's recommendation, even though the Realtors who were contacted for the report said “low interest rates” were not a top concern.

"There's a lot of value in what Realtors have to say (about where to find loans), but it's important to make sure that you're getting a good long-term deal," says Tom Popik of Campbell Surveys in Washington, D.C.

Is your Realtor’s recommendation legal?

Federal law allows Realtors to recommend mortgage lenders to home buyers so long as they don’t receive anything of value in return, like cash or gifts.

Ken Trepeta, a lawyer with the National Association of Realtors in Washington, D.C., says the law even prohibits agents from sending customers to lenders in exchange for a referral.

But the law does allow Realtors to refer clients to mortgage companies that their firms partly or wholly own, provided that they disclose such "affiliate relationships" to consumers and don't directly receive anything of value for each recommendation.

Real estate and mortgage companies can also team up to jointly advertise or otherwise market their firms, although they still can't give each other anything of value for individual referrals.

37 percent of buyers take a Realtor’s recommendation

According to Popik, Realtors suggest specific loan sources to home buyers in 55 percent of financed home sales. From that group, 68 percent of buyers ultimately use that mortgage provider.

Campbell calculates that 37 percent of all mortgage-financed deals ultimately involve a lending source that a Realtor suggests.

Popik says that's theoretically great news for consumers because Realtors work so closely with mortgage companies and know who's good and who's not.

A Realtor’s top priority: Getting the deal done

However, Popik says the top priority for a Realtor is often different than a home buyer’s top priority.

"Agents have an incentive to recommend a lender that closes on time," Popik says. "That's often in a home buyer's interest, but buyers tend to value competitive rates and low closing costs even more because they're going to be paying that mortgage for a long time."

That sentiment is certainly expressed in the Campbell report.

The findings

According to the report, the top 10 reasons Realtors “like” a particular lender:

  1. Performance on meeting closing dates
  2. Local loan officer
  3. Reputation with homebuyer clients
  4. In-house lender for my brokerage firm
  5. Loan programs
  6. Your personal banking relationship with mortgage provider
  7. Lead time on closing dates
  8. Rates and closing costs
  9. Preapprovals
  10. Mortgage education for homebuyers

How to avoid a bad recommendation

Trepeta says buyers can avoid questionable recommendations by quizzing Realtors as to exactly why they endorse a given lender.

"Ask: 'What's so good about this company? Why should I use them? Why shouldn't I just go online and pick the guy who's advertising the lowest rate?'" he says. "The answer should always be something like: 'Because they have very competitive rates,' or 'Because they really know this area well.'"

John Councilman, president of the National Association of Mortgage Brokers (NAMB) in Plano, Texas, and president of AMC Mortgage Corp. in Fort Myers, Florida, says consumers should especially ask agents whether they have any advertising or marketing relationships with firms that they recommend. "If they say 'yes,' I'd probably say: 'Let me out of here!" he says.

Councilman believes the best way to avoid bad recommendations is to get preapproved from at least one source on your own long before you step into a Realtor's office.

He suggests starting by asking family, friends and co-workers to suggest mortgage lenders or brokers that they've had good experiences with in the past.

The NAMB also maintains a database of brokers that have earned the group's "Lending Integrity Seal of Approval" by passing background checks, agreeing to abide by a code of ethics and meeting other criteria.

And of course, you can also compare current mortgage rates at HSH.com.

More help from HSH.com

  • HSH.com on the latest move by the Federal Reserve

    The Federal Reserve concluded a meeting today, raising the federal funds rate; the target range for the key policy tool is now 1.5 to 1.75 percent.
  • How long do I have to own or live in my home to qualify for the capital gains tax exclusion when I sell?

    You can exclude capital gains on the sale of your primary residence if you meet the IRS's ownership and use requirements.
  • 10 metros where a home costs about $1,000/month

    HSH.com identifies 10 metro areas where you can afford the principal, interest, taxes and insurance payments on a median-priced home for only around $1,000 per month.
  • The salary you must earn to buy a home in the 50 largest metros

    Here’s how much salary you would need to earn in order to afford the median-priced home in your metro area.
  • HSH.com’s annual outlook: 2018 Mortgage and Housing Market Forecasts

    At the start of each year, HSH.com details the important factors we think are most likely to influence the mortgage and real estate markets in the coming year. Come each July, we review to see if our expectations are being met or not.

No Comments

Leave a Comment
 
Mortgage Rates from 0.00%