Do you really need a local lender?

[Jacob Pereira]

Most investors, bankers, and real estate agents I talk to adamantly argue that you should use a local lender for your real estate deals, but their arguments tend to be things like they know the market and you can meet with them face-to-face. Most of my lenders I've never actually met face-to-face, and I know my market pretty well on my own. Are there other benefits that I don't know about? The online lenders appear to offer significantly better trates.

[Chris Mason]

When folks headhunt me, I ask for three things.

1) Access to their interest rate pricing.

2) Put me on the phone with the regional underwriting manager. 

3) Put me on the phone with your regional operations manager.

4) I'm not interested in talking to you, headhunter/recruiter dude, so go away.

I have found that there is absolutely a trade-off. Have you ever played an RPG where you get to allocate talent/stat points? It's exactly that.

When I see those stunningly low rates, invariably the underwriter can't tell me how many ways Fannie Mae calculates rental income and when each way is applicable, she can't tell me about net loss carryover, if I'm lucky she knows that you add back depreciation, she can't tell me about how to calculate Patronage Income for all the Berkeley-ites that work at worker-owned socialist co-ops, she can't tell me how much you add back for each business mile driven showing up on page 2 of Schedule C of tax returns, she doesn't know how Fannie and Freddie vary for S Corps, has no idea how transfer taxes work in the Bay Area because she is in Narnia, can't tell me anything about the California Association of Realtors Residential Purchase Agreement, et cetera. 

And then I talk to the regional ops manager, and sure enough he can't tell me when the earliest a borrower can lawfully sign loan docs is, if the CD is acknowledged on Thursday and Monday is a national holiday but not a company holiday, he thinks it's impossible to close an FHA deal in <30 days, he isn't aware that Fannie Mae only requires signed 4506-Ts, not returned and processed transcripts, et cetera.

I work for a place that I believe has an excellent balance. Incidentally you can always have any rate appearing on the rate sheet, meaning everyone has identical rates, all that changes is the cost or lender credit for the rate that you happen to find appealing. That is also the best way to rate shop: have everyone hold rate constant and tell you cost or credit for the rate of your choice. Then you know the exact dollar amount of any reliability or service-based premium you might be paying, and you can decide if you want to pay it, or would prefer to risk losing the house entirely.

A company like the one I work at, the lender credit for a given rate might very well be $500 less than what you will get quoted at the jenky place where the underwriter doesn't know how to calculate rental income. But ya know what? We're actually going to close and close on time. Quoted rates/fees are irrelevant if it doesn't close, and/or you miss out on some percentage of the opportunities that are out there because you fell out of contract and/or because the call center person at the 1-800 number isn't available to sell your offer to the listing agent.