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Friday, December 19, 2014

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The Real Deal / Avoiding the big-bank blues

Updated 11:54 am, Thursday, May 29, 2014
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When you're buying a home, one of the first things you do is to line up your financing. This involves getting "pre-approved" by a mortgage broker or directly from a lending institution.

In the long run, it probably doesn't make much difference who your lender is, as long as your interest rate is competitive. But in the short run, your choice of lender may make a big difference in terms of how smoothly your transaction progresses to closing.

Theoretically, your buyer-agent should not care who your lender is. That is up to you. However, experience has taught us that when certain financial institutions are involved -- most notably the "Fab Four" financial monoliths (Bank of America, Chase, Citibank and Wells Fargo) as well as some of the larger regional banks -- getting from accepted offer to the closing table may be a difficult and frustrating process.

That's because these lenders are bureaucratic institutions with inflexible rules and procedures, and a schedule that fits their needs rather than yours. Phone messages to these banks often are directed into a black hole in their underwriting department, never to be returned. Appraisals are ordered two weeks after we would like, because "that's how we do things here."

Obtaining mortgage commitments seems to take forever, because the Fab Four prioritizes their thousands of mortgage applications by closing date rather than by the mortgage contingency removal deadline in your contract. Sorry. No exceptions.

The process of obtaining a mortgage in our local area is not the same as in most of the rest of the country. Attorneys handle our closings, not title companies. Mortgage contingency removal dates are negotiated hard, with 30 days the norm. There is the expectation that this deadline will be met. Appraisals are ordered quickly after deals are struck. Progress reports are sought and expected at every key milestone. Regular dialogue between the bank and the buyer's mortgage broker or attorney is our norm.

As you may imagine, the big banks' one-size-fits-all approach does not mesh with our local customs. Sellers get crazy -- and rightfully so -- when 30 days have elapsed since contract signing and the appraiser has not yet visited. Everyone involved in the deal gets nervous, especially when the seller has begun packing or has already moved. They want to know, "What if the buyers don't get their mortgage and we don't find out until only a week before we're supposed to close?" Followed by, "We'll have to put the house back on the market and possibly go through this again with another buyer." This scenario is every seller's nightmare.

Fortunately, this rarely happens. Even when a Fab Four lender is chosen, the vast majority of loans eventually do go through if the buyer is qualified, even if it is at the last moment. But these closings are beyond stressful for everyone involved. And needlessly so.

In my world, a seller should never have to go through this kind of uncertainty. Moving is stressful enough. That's why I advise every one of my buyers to work with a local mortgage broker -- even those whose brother-in-law or Uncle Ted works for a Fab Four. Buyers who don't know me well may be suspicious of this advice, assuming that I benefit somehow if they use one of my recommended resources. That is not true. I would be breaking the law if I did that. My only motive is to have an uncomplicated transaction.

I also caution my sellers when a buyer comes forward with a pre-approval letter from one of these lenders. If there is more than one similar offer, I counsel sellers to accept the offer from the buyer who is not obtaining financing from one of the banking monoliths. I have even asked buyers to switch lenders as a condition of making a deal with my sellers. A bold move, perhaps, but most often they comply.

I have nothing personal against any financial institution. As an advocate for my clients, I simply want a stress-free, successful transaction. In my experience, working with one of the big banks is off strategy.

Evi Coghlan's "The Real Deal" appears every other Friday. She is a licensed real estate agent with the Riverside Avenue office of Coldwell Banker and a former marketing consultant to Fortune 100 companies. Evi may be reached at 203-247-6691, by emailing her at evi@evicoghlan.com, or visiting www.evicoghlan.com.