Should you go with a Big Bank or Local Lender for your Mortgage Lending Needs?
When I talk with new buyers I often get asked a lot about different lenders and who they should go with or I’ll get the “I have already been approved by my local bank”. Being a Real Estate Agent I get my fair share of working with a big bank or local lender. Some are good and some are not so good. I personally will only recommend lenders that have proven to me that they can get the job done on-time, or early, and meet my standards of quality service.
When buyers tell me “I have already been approved by my local bank” I cringe because the majority of the time it’s a “big bank” and the buyers are not pre-approved they are pre-qualified. While some may tell you there is not much difference between pre-qualification and pre-approval. In my experience I have seen huge differences between pre-approved and pre-qualified.
Pre-qualification typically means that someone entered your “basic” information such as social security number, proof of employment, income and assets into a computer and the computer said yes or no based on a standard debt-to-income ratio. Typically a credit check is not performed and sometimes the person is not even the loan officer but rather a teller, sales representative or call center person. Pre-qualification is very common practice with big banks.
Pre-Approval is the process of gathering the same information as pre-qualification plus more. Often a credit check is performed and typically an underwriter reviews the file before pre-approval is granted. People in the know tend to wait to get a pre-approval letter until they are ready to begin shopping seriously for a home. However, getting pre-approval early in the process can help you spot potential issues with your credit in time to correct them and having a pre-approval letter sends a more solid message to the sellers that you will be able to secure financing to ultimately buy the home.
As I am writing this, I got a call from a client concerned about their lender which happens to be a big bank. They are now wanting to move from a big bank to one of my recommended lenders with only 12 business days until closing. Unfortunately, this situation is not uncommon when it comes to working with big banks. UPDATE: My client made it to closing on-time without their big bank.
Big Bank Mortgage Lenders
Buyers tend to think that big banks are better because:
- They’re “big” or “big and old”, so they are more experienced in the lending process and can make things happen faster
- It’s their bank and their bank will give them the best offer
- The branch is local and they can deal with someone in the local branch
- It’s their bank and they can have direct withdrawal from their account for their mortgage loan
- Buyers assume they have the support of a big bank
- My information is more secure with a bigger bank
- They’re “big” or “big and old”, so they are more experienced in the lending process and can make things happen faster – Big banks have a lot of politics, bureaucracy and red tape which will ultimately slow the lending process and often times cause buyers to lose money and opportunity to buy their home.
- It’s their bank and their bank will give them the best offer – The first loan package from a big bank appears to be good and often the buyer is happy but unaware. However, if the buyer educates him or herself and does a little “shopping around” the buyer will quickly realize that there are more options available that the lender didn’t mention. This is because the bigger banks tend to provide the loan package that would benefit them and not the buyer. Big banks have higher overhead costs which translates into higher lending fee’s. Buyers assume or have faith that the lender has their best interest in mind. However, big banks are only interested in their bottom line.
- The branch is local and they can deal with someone in the local branch – You might be able to start the loan process in your branch but ultimately someone in a much larger office building will do all the servicing of the loan. Too often big bank mortgage lending teams are scattered throughout the country in different states and even different time zones. You are client number 2,086 and bottom-line is they really don’t know you at all.
- It’s their bank and they can have direct withdrawal from their account for their mortgage loan – Unless you have something in your contract that prevents your mortgage from being resold to another lender it’s possible that your loan will be sold to another mortgage lender.
- Buyers assume they have the support of a big bank – Big banks are in the business to make money. Their interest is their own and NOT yours. It’s simply not true if you believe that they will provide you with a phone number that you can call 24/7 to get your questions answered night and day about your mortgage.
- My information is more secure with a bigger bank – No offense, but if you really believe this then you are very naive. All mortgage lenders are susceptible to hacking and loss of your personally identifiable information you should protect yourself with LifeLock. Big banks simply means a bigger target for hackers. Also, Remember, your loan may be sold to another company on the secondary market so your information could end up anywhere.
Before starting the contract process many big banks will say “yes we can easily close in 30 days” however once under contact I always begin to hear “I am not sure we can close in 30 days and we may need an extension”. Here are the excuses typically heard:
- The underwriter is in Florida and the office was hit by a hurricane. It may sound insensitive but don’t you think a big bank would have contingency plans for events like this?
- The loan officer for your account was let go recently.
- The underwriter went on maternity leave
- Add more!
Most big banks will close 35-50 days whereas a normal closing takes 30 days or less. If your real estate agent has to ask for an extension and needs to know from the loan officer how many days to extend then most likely the big bank loan officer will not commit to a date and more importantly will not take responsibility if the closing date is not met. What most buyers are not aware of is that when you ask for an extension the sellers can ask for more earnest money, so the big bank just cost you money. To be fair, this same thing can happen with some local lenders but is more likely to happen with big banks.
Local lenders have a huge advantage over the big banks. They are smaller and can offer you a more personal one-on-one approach that makes you feel like you are part of the family and not just a number. The local lender lives off of your referrals and your future business and just like a real estate agent (Me), our livelihood and success depends on doing good business. The local lender, also called a local service provider, has a vested interest in every transaction they work on. Do you have credit blemishes or no credit score at all? Local lenders might be willing to work with you over days, weeks, and even months until you raise your credit score. They are more likely to take the time to review your bill payments not normally looked at by big bank lenders, such as cellphones, utilities, rent, and more.
Local lenders have access to all the major loan programs such as a conventional loan, FHA loan, USDA loan, VA Home Loan, Fannie Mae or Freddie Mac, and HUD or State specific loans.
- Don’t have politics, bureaucracy and a lot of red-tape to deal with.
- Specialize in writing mortgages, understand the local market and the contract guidelines.
- Depending on your personal financial situation, they may have more flexible loan packages.
- Have the ability to provide more lender credits to include even covering some closing costs.
- Can often close in 30 days or less – this all depends on the buyer getting all the required underwriting documentation but in most cases the mortgage company is by far the speediest option.
- Better, more personal customer service.
- Will help you find solutions versus simply telling you that you do not qualify for a mortgage.
- Sometimes have lower rates and fees.
Questions to Ask Your Local Lender Before Deciding What Mortgage Lending Company to Use
When shopping for a local lender here are some things to ask up front. Listen to their answer and decide for yourself:
- What is your average days to close looking like?
- Should be under 30 but it depends on how complex your situation is
- With the loan package you are offering, is this the best package for me and why?
- You want the best deal for you. Make sure you are getting the best offer.
- What are other packages you offer?
- See #2 Above
- Where is your support team located? Underwriter? Loan Officer?
- If they are located in another State or time zone, ask how this will affect you?
- Ask if any of these people have any planed time off in the next month or so and how this will affect you and your loan?
- If I go with you, will my loan be sold off?
- Sometimes this is important to some people, it helps to know.
- After my option period how soon do you order the appraisal report?
- (Not applicable in some areas) but helpful to know
- How long are your appraisal reports taking? NOTE: they will say we have no control over this which is true, however they do know there average days
- If it’s in the double digits….RUN.
- When can I contact you and will you give me your cell phone number?
- Most big banks only work Monday-Friday and 9-5, while smaller lenders will work nights and weekends. In all fairness, I know small lenders that have the same big bank hours, however they do not get my business.
If you haven’t noticed yet, I am not a big fan of big bank mortgage lenders. Too many things can happen that will derail your transaction. Buyers have the ultimate decision on which lender they will go with and whoever my buyers decide to go with, I will make every attempt work closely with that lender, to partner with them, and try to make the buying home process less stressful for my buyers. When I do end up working with big banks, I will do my best to not allow them to push their politics and bureaucracy at my clients and affect my buyers contract.
In all fairness, any lender can make the process go faster and simpler when you have good credit, a steady job and a plain deal. Most often big banks manage to mess up even the simplest deal, whereas local lenders, credit unions, community banks, etc. tend to get it right a majority of the time. As a Realtor I’d much rather my clients experience the care and customer service of a small local lender.
Buying a home should be fun and with as little stress as possible. Having a good team working for you is key and that includes a good realtor (me), lender and title company. Contact me today and I will be happy to answer any questions that I can and help you get your next home.
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