Local Lenders | LeadingLane Podcast | Ep 25

Welcome to the Leading Lane podcast for Real Estate Pros by Real Estate Pros with your hosts Ashley Frederick and Stephen Burch. If you're looking for an honest, authentic and raw perspective, you found it.

All right, welcome today's podcast. We are going to talk about local lenders and so let's break that down real quick. What is a local lender to you, Ashley?

So a local lender to me is someone that you can actually walk into their office and have a conversation with them about what the financing piece looks like. It's likely someone that you'll run into at the grocery store or at your kids soccer game. But that's what a local lender is to me. And I think the caveat of that too is that a local lender might be where someone else is currently living. So maybe say that someone's living, you know, three hours from there and they want to use that lender. I get that. But if you, if you're moving three hours here, like they're likely not going to be your lender or your bank moving forward. And again, trying to get yourself established in the town that you're moving to will definitely benefit you in the long run.

Sure. So in what is the, the opposite then of a local lender? What do you define that as?

So the opposite is someone that probably got you from an online type of lead. So I'll call them out. I mean there's like Rocket Mortgage is probably one of the ones that we see the most Quicken loans. There's fly by night ones like all, all over the Internet because what happens is you search for, you know, home buying loan and whoever paid for the most ads pops up and they are someone that you'll never meet, you'll never see them face to face. Maybe over a zoom call. Unlikely. I like to question how much skin they have in the game because again, once the transaction's over, you'll never hear or see them again. They likely sold the loan off, gosh knows where it went after that. But again, so one, the online and then two, like someone that's three states away. Sure you might be established in Montana, but if you're moving to Kansas, is that the best scenario? Because same thing, you're not going to hop in the office once, once you move.

Sure, yeah, I, I call them big box, Big box banks. Right. Like big box mortgage companies or the dot coms. And you know, I think you make a great point too. Like depending like where we are since we're rural America, there's a lot of different Programs that are available that will actually benefit a buyer. And some of these big box banks don't have access or can't lend because they're not on that local level and meet the different criterias to be able to loan on it or even know or have any knowledge about it just because it's is so unique, because of our specific area. So I totally agree on the local lender side of things too. Like there's, there's so many different positives to be able to make sure that you can actually have a conversation with somebody. And you know, even going further with that, a lot of these big box places, what they're going to do is yes, you submit your application or you do everything online. You talk to one person, but then your file, you know, moves on down the the line to the next person and you never get to talk to the same person or it seems that you can never talk to the same person. Nobody knows what's going on. They always want to transfer you around. And when you are already in one of the largest purchases in your life, right, purchasing your home, why would you want to add more frustration and being passed around in a call center and you're just a number game and your file is just, you know, piled underneath all these other people across the nation. Like, I personally want to be working with somebody if I'm going to be spending that type of money and if I'm going to be making the money, I want to be working with somebody face to face or at least have direct communication with them. So I know exactly that I have one point of contact and I'm not running around. They can run around and handle anything on the back end, that's fine. But I want to make sure that I have a direct connection of who I'm working with.

So, well, I think too, like the local lenders can also give suggestions for other parts of the transaction. So some people start with a lender before they contact a realtor. So a lot of times that realtor might have experiences with local realtors and say, oh, I like working with so and so. They're full time, they do a great job. You know, I think a lot of them like to give out three or four, you know, names. But then it's also, sure your realtor might have an inspection referral, but the lender might as well. And then also with insurance, right? Like the lender needs your insurance at the end of the day and they can likely help you find again a local insurance agent, which let me tell you, after the hailstorm that we had here in October. A lot of people realized that it wasn't ideal to not have a local insurance agent while they were also going through those issues.

So.

So I think that it's not just supposed to be like this one person that does some things online and gets you some numbers and tells you what you need to bring at the end of the table. It's way more than that. I think that you make a really good point about the types of loans. And I also think that buyers are probably really misled in thinking that they can't purchase because that big box likely is looking for 20% down or 10% down. And if that buyer can't do that, they think that they can't purchase. Which actually is likely furthest from the truth. Because there are plenty of 3 1/2% down programs, 0% down programs. I'm sure you qualify. You know, we have a widow, which is a specific one, rural housing, which is another, you know, low down payments. So to me that's frustrating that these buyers don't even know what's available for them or they think they can't buy a house just because they don't have that 20% down.

Yeah, and we have different grants too that you'd be able to like if you need assistance with down payments or closing costs or whatever, it's going to be like there's different grants in our area that you can. As long as you qualify, then you'd be able to, you know, capitalize on that. And for me, like I would much rather keep the cash that I have if I qualify for a program like that in my pocket and utilize a program and get me into my home at a way more cost effective approach versus paying these astronomical origination fees or you know, and I think that's another thing that a lot of people, you know, we look at like they can call different line items and their charges different things. So I see a lot of different big box people saying, oh, we don't charge an origination fee. But then there's this nice underwriting fee or you know, whatever admin fee that they want to recategorize it. Yeah, they're not charging you the, you know, a number there on that line item. It's a couple down and just name something a little bit differently. And those numbers could be, you know, I mean, huge. Right. Like I remember wine, it was like almost $2800 that was going directly over. And then they had buy down points and all these other extra stuff to where when I got them over to a local lender. They truly did not have that large of an origination fee. I think their origination fee was like 495, $495 versus the 2,800 DOL. And you know, like that instantly, especially for somebody that is looking at finances and understanding where all their money is going, like that can change drastically. Your negotiations, your monthly payment, like depending on how everything is structured. So, so important. It's going to cost you more than a headache. It's going to cost you a lot of money out of pocket. A lot of times when, when you just throw your information out online. And that goes true to, to the relationship with the Realtor. Like you already said, there's realtors, there's different companies that have affiliations with these big doc, big box mortgage companies. And so what they do is you enter your information online, you go to this big.com and then they have to get you over to their preferred agent, which more than likely that agent is paying to be affiliated with them and it has to pay a referral back to the, the, the big box.com and now everything is just discounted. So is that agent truly working in your best interest or is it because they have this affiliation and then they have to do a kickback back over to this mortgage company that sent you over to them? There's a lot of different moving parts into this.

When I think the, like we have the down payment plus like what you mentioned, and those aren't available to the big box. I mean they have to apply. They're typically awarded to local lenders. You know, and again, that big box company is probably not telling you that there's these grants available if you were local, obviously. But you're right, I do think that most times closing costs are significantly less with a local lender. The other part, like we're in a medical community, so a lot of our local lenders have specific medical programs. So they're forgiving your debt because they know that you're in, you know, medical school or whatever that might be. So you actually can get a better rate, less down because you have a signed contract with the hospital. And I think that, you know, with that too, it's just a matter of educating buyers to know that there's options. So it also goes back to the other agent. So you and I were talking a little bit about this beforehand and it's frustrating to me about agents that maybe aren't having that discussion. And I know that some do and they don't, they don't Win that conversation, if you will. But the amount of transactions probably in the last 60 days that have gotten extremely dicey because there was a non local lender involved is super frustrating. And when I get multiple offers on a property, I want to tell the seller what's in their best interest. That's what they hired me for. So if I get two offers that are the same exact offer, all terms, the same, non local lender and a local lender, I'm going to tell the seller we tend to have much better luck with a local lender than we do a non local lender. And I don't know if other agents are explaining that to their clients either. So I like to have that conversation with my clients that are buying if we end up in a multiple offer situation. Just so you know, a lot of times it comes down to a local lender or a non local lender. And I would really encourage you, just hear me out, just see what another lender has to say and maybe it'll work, maybe it won't work. A lot of those lenders too are willing to match an interest rate. So if you have that letter that shows that they were offering you 6, 8 and they were at 6, 9 guarantee that they're going to come down to 6, 8 to get your business to stay, you know, locally. The other part, when we're talking about offers and choosing who to work with, the issue that we see, and I don't know if you see this, but when it's a non local lender, they also have a non local appraiser that comes. The appraiser knows nothing about Marshfield or Central Wisconsin Market because we're unique in our own little way. And so they'll hire an appraiser from three hours away. They know nothing about our market. They don't know that, you know, we typically have pretty average, you know, high sales because of the community that we live in, it's safe, good schools, et cetera. They're not taking any of that into account. They haven't been in the other homes that have sold where if you're using a local appraiser, nine times out of 10 they've been in the homes that they're using for comparables. So we also see that with those non local lenders that hire non local appraisers, we tend to have appraisal issues. So same thing. If I'm working in my seller's best interest, I'm going to explain all of that to them and then they're going to have to make the decision if they want to work with the offer that had the non local lender or the local lender that, you know, is working with a local appraiser. And we tend to have less issues in the long run.

Sure. At the end of the day, I mean, it's that seller's choice, right? It's that, it's that buyer's choice and it's a seller's choice. What we're here to do is help advise and provide our professional opinion and making sure that they're, you know, getting all of the facts together to make an educated decision on however they want to move forward. You know, one of my favorite stories, and actually we talked about this last night too, is that I had a buyer get their CD so that we're right before closing and, and they get their closing disclosure and they get a astronomical number that they said that they have to bring to the table. While this entire time, like I'm telling them that they only had to bring a couple thousand dollars, you know, compared to the 18 or $19,000 that they said their, their lender said that they had to bring to the table. Well, what that lender did not tell them is that there's no credits that were on there. They did not account for anything else. They were just putting everything hard numbers. And, and that's not where we were at in the negotiation. We weren't even negotiating. It was the contract. That was not where we were in the journey of the, this process. So the, the buyer opened it up during different time zones. The buyer is freaking out. And you know, I had to be able to show them like, no, look, we're, we're not taking in consideration that the seller is offering you credits. We're not taking consideration what we actually negotiated here for seller concessions. Right. We, you know, what about the taxes that are going to be prorated over to you from the seller? Like, there's so much that is going to be affecting what that bottom number really is. Nor did they take into account the earnest money that they already put down on the transaction and apply that over. So we had no credit on there. And if I was not able to articulate that over to that buyer and settle them down, like they just wanted to be able to say, nope, I can't afford this because they didn't have the $19,000 to bring to the table, like, and I totally would freak out too. So I had to calm them down. And just imagine if there is an agent that did not have that conversation with them, was not able to be able to recognize that there's numbers missing on here. This is not the true fact of what it is. They do have to disclose this, but this is not what you're going to see here in a few days at the closing table. Let's just take a chill pill and let's get on a call with your big box and have the conversation, you know, so even just those, those different, again, trauma and drama during the transaction that we can hopefully eliminate. And if we can't eliminate it, at least we need to be educated to make sure that they are very aware of what the true reality of the transaction is going to be.

You know, I think the other thing I have found is that a lot of buyers are concerned about like shopping, you know, for lenders. And you can correct me if I'm wrong, but what my lenders have told me is that once you start the process, it's kind of like your, your credit scores if you. There's like a two to three week window. So some people are afraid that I'm going to call bank one, they're going to check my credit, I'm going to call Bank 2 the next day and then it's going to hurt my credit because there's a second bank and that's not actually the case. So once someone starts, there's like a window because they understand that you're looking to shop rates. So I think I just want buyers to be educated on that too. And normally when I tell people that they're like, what It's, I'm not going to get dinged on my credit for doing that. And I'm like, nope, go ahead, like call three lenders in one day. Call them in two days. It's not going to hurt because they've opened that window, if you will, to look at that. So, so, you know, it's things to consider as far as, you know, interest rates for sure. It's also, you know, is your loan going to stay local? Are they going to sell it? Can you walk into their office? How much do they require for a down payment? There's just so many things. We have a little buyer sheet like to ask each lender so that you know what their differences are. But I just can't stress enough how important it is to just use someone local. It will make the, again, like you talked about, it's the biggest transaction likely that you'll make. Why not have someone that if it doesn't make sense, you can walk into their office and say, hey, I got this CD in the mail. And it makes no sense to me versus calling a big box and then you get transferred four times and then you still don't have the answer. And maybe you're now looking to back out of a transaction off of the incorrect information. And let's be honest, like there are such things in a contract as far as default and you know, you could lose earnest money sellers have the option to sue for specific performance. There are a lot of things that happen in these legally binding contracts. But I don't think everyone thinks about that whole big picture.

Yeah, no, and it's something I think that a lot of people, you know, so, so easy. It's just something somebody giving me a loan. It's not a big deal. No, this is a huge deal in my opinion. Like this entire portion of the, the transaction is so critical. I mean this is the funding that is literally going to be able to allow you to purchase this home. So it is a big deal to make sure that you have somebody that's educated and is local and is working in your best interest versus just being a processor and doing data and they don't know you other than just the numbers on their screen that they're, they're working through. Like we want the human to human like interaction and connection to make sure that we're making these decisions properly for our family. And to be able to move forward in a financial situation like this should be something that you're gearing yourself up in the future to be able to cash out equity and put you in a position later on and in life on a financial win. And if you make a wrong choice and work with some wrong people in the big box world, I mean there's even, I mean, I guess I have to even say there's people on a local level that may not be in the best interest either, but they could be putting you up for, for failure. And you're not going to be able to get those different financial successes that truly real estate should be working in your favor for.

Well, and I think with that too, it's just I, I hope that people understand that there is just a benefit of working locally and just trying to have the conversations of maybe you need to pay off your car loan. Right. And again these big box companies might not have the option to talk to you about that. But you know, if you're using a local bank, they probably have a consumer financing department. So then they were able to help you realize that maybe the car rate that you have, the interest rate, you know, is significantly higher than what it is now. So they help you refinance your car or they see that maybe you have a high credit card, well, let's throw that in the equity of your car. We get that off of your debt to income ratio. Those are I think happen much more on a local level than, you know, box. So same thing, they're setting you up so that they help you with the debt to income. Maybe your monthly payment is lower on the vehicle that you have, which now means you can afford more. So there's just so many different pieces that tie together that it's not just as simple as filling out an online request form.

So what would you recommend? If somebody is starting out today and have the little inkling idea that they're looking to start buying a house, what would you suggest to them?

I always like to ask people where they bank first. Like most people have a checking account or a savings account somewhere and I always tell them to start there. A lot of times, you know, we know our, our local lenders and what they have to offer. So if it's a lender that I know only offers one or two programs, I will just tell them that, okay, start there. They tend to do conventional loans, but let me also get you the name of someone that does wida loans, rural housing. And so I think that for someone, I think it'd be best to, you know, also involve your realtor if you haven't already or if you don't have one because likely the realtor will also have suggestions. You got to remember we do this every day. We work with all types of lenders. So we can normally recommend, you know, three or four depending on what you're looking for too. Right. That's where it's important to know your clients. So if they're looking for a rehab type of home, there are specific loans for that that only specific lenders offer. If you're in the medical community, there's only specific lenders. So I think it's really one starting with where you bank but really having those discussions with your family and friends as to who they've used experience. But I like to say rely on your realtor too to give you the best suggestions.

Absolutely. Love it. Well, awesome talk. In short, talk to your realtor, go to a local lender, use local insurance agents. Right? Like it's all about local. You're moving there, use local. So thanks for tuning in today. Make sure that you like subscribe and tune in next time.

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