What if my buyer doesn't want to use a local lender?

Sep 09, 2022

Most buyers will follow your lender recommendation. However, there will always be buyers who want to find their own lender. It's a reasonable decision when you don't understand the true landscape of mortgage lending. Buyers who want to find and use their own lender generally have one or more of the following misconceptions:

1. They think that they'll get favorable terms from their retail bank or they think the process will be easier because this bank already has their accounts.
2. They've seen misleading marketing that shows more favorable rates than can actually be obtained.
3. They think some other lender can provide better rates and/or terms.
4. They think there is no downside to using a lender from another market.

If your client has seen terms that look to good to be true, let them know that you think that is the case. Recommend that they get a formal quote (so we can all see if this is really the case) and to then compare that rate sheet with a local lender.

Sometimes, a lender from out of state will provide a misleading rate sheet. There are fees that they have to estimate that aren't set in stone (examples are title fees and property taxes.) If the lender underestimates these fees, then their rate sheet will be misleadingly good. Recommend that they send this rate sheet to a trusted local lender to confirm. Any great lender you work with will have no problem saying, "I can't beat this" if it's truly great.

There are plenty of downsides to using a lender outside of our market:

1. Great lenders provide a smooth transaction and a much more pleasant experience. A much lower % of lenders from out of market are "great lenders". They have very little downside to providing a poor experience and many of them just don't care.
2. Lenders from out of market have no local reputation to protect. If they muck up the deal, you'll never work with them again, but they don't expect to ever work with you again, regardless. Local lenders fiercely protect their reputations. Agents have long memories when a local lender closes late or provides a bad prequalification, so local lenders care deeply about closing on time and providing good pre-approvals.
3. Close on time? Is that a big deal? Yes, absolutely. If you don't close on time, then it's likely that you will have to put down additional earnest money and/or pay a per diem (daily money the seller is losing due to the late close.) While it's unlikely, you can sometimes lose the house if the deal closes late.
4. When you present an offer with a pre-approval from a lender from out of market (or from a big retail bank), you are instantly putting yourself at a disadvantage. Because of points #1-3, listing agents really dislike working deals with lenders like these.