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Updated over 7 years ago, 05/18/2017
What would you do in this situation?
Hello all. Thanks in advanced for the replies.
So here is my situation. My day job is doing social work. My side job is being a realtor. I have a lender I like to work with and is always helpful with my clients. I went through him to buy a triplex last year. I wouldn't say we are friends...but have a good relationship.
Ok, enough of the background...I've got two duplexes under contract. One will be a primary, the other will count as an investment. He quoted me 4.25 on the primary and 5 interest rate on the investment.
Fast forward a week...I was hosting a open house for one of my listing and a different lender walked in and was peddling his product. He asked about my situation and I told him about buying the two duplexes. He asked me to give him a chance to show what he could offer. I didn't think much of it and said sure why not. He got back to me with 3.75 on the primary and 4.75 on the investment no points.
I went back to my original lender and said...hey this guy offered 3.75 and 4.75...I like you and would prefer to go with you...can you come close? He came back to me at 4.125 for the prim.
Now I'm at a loss of what to do...most investors will say take the better numbers...but I might destroy this business relationship. Maybe I'm just looking for confirmation I'm not doing the wrong thing. I've already bounced 100 questions off my original lender. Just feel bad not going with him.
What would you all do in this situation?
#2 General Landlording & Rental Properties Contributor
Money has no emotions, go with the better numbers and establish a new relationship for the future. Your old friend is not a good fit.
@Jason Muenchow As a realtor, the lender depends on you for referrals. And, as you said, he is not your friend as much as a business relationship. As a lender, I would never ask a client to take such a wide spread on rate to keep from hurting my feelings. I would simply warn you too look into the details on that loan, as rate is not the only factor you should be considering.
It sounds like the second fella might have quoted you for an ARM, so just be sure you have all the facts before committing to anything.
You should be able to use that relationship with your original lender to double check the new financing and make sure you aren't getting screwed somehow on the back end. He should respect your openness and honesty and have no issue continuing to do business with you in the future.
@Jason Muenchow You have a track record with the first lender, you know he's reliable and will close your deals. The other lender could honestly tell you anything as far as a rate and not really have to back it up - how would you really know unless you were ready to lock that day? Based on your relationship with the other lender you could reasonably expect that he was being honest. Remember, rates do change every day...
@Jason Muenchow This is a purely amateur answer but I'd ask for any (and all) fees from the 2nd (lower rate) lender. You don't want to get surprised if things (just being random) like the appraisal cost twice as much because of the 2nd lender using a different pre-approved group of appraisers. Not to mention you always want to make sure the second lender has as much information about you as possible. You never know if that rate he quoted was for for a 60% LTV when you need 80%. There are just a lot of variables that go into rates. Usually a lender you've used before isn't going to be 3/8th's different, in my experience it's usually +/- an 1/8th of a point. But your mileage may very.
Just make sure you ask about all the fees: Loan origination, etc so you are comparing apples to apples,
Thank you all for the responses. Here is a little update. I've received a pre-application worksheet from the 2nd lender. I locked in a rate of 3.75 for my FHA and a 4.625 for the conventional investor loan. The 4.625 did require a buy down, but it was cheap. This would save me roughly 65 dollars a month.
On the pre-application worksheets it lists out all the costs. On the FHA loan the 2nd lenders fees were 400 dollars more than my normal lender. On the conventional it was roughly 400 cheaper. Nothing looks too out of place on his pre application worksheet. In fact his worksheet looks almost identical to my normal lender.
Perfect!; go with the cheaper lender
Wait!? On the $122,250 loan the new guy is 4.75% and the guy you've built a track record with, who has been a mentor and helper to you as a newbie, who has "poured into you" and answered tons of questions and is developing a profitable long term business relationship with you is offering 5%? Is that what I'm reading? That's $19 per month! You'll throw him under the bus for $19 of cash flow a month?
Have some class and integrity and at least do one more deal with him to "pay him back" and then never waste his time again and find someone else to answer all your question and do deals with them! It's about relationships, not 1/4 of a point. Especially as a beginner. You aren't expected to "overpay" for money forever, if he continues to be overpriced then expand your network. But over time the very best deals that "those in the know" know about and get sent to quality clients just won't come your way.... and you'll wonder why. There's a right way and a right time to "shop for the lowest prices money", but I doubt that for you it's now. That $19 might cost you a lot.
After every deal closes take your realtor to dinner, take your loan agent to lunch, and buy flowers for the escrow agent and the Realty office receptionist. Pay it forward.
Rate is not the ONLY thing. Make sure you compare apple to apple with all terms and fees. Good luck.
@Gordon Forbes I think you're stretching a bit calling him a mentor and helper. He is just one of my resources. I don't know who you're quoting with "poured into you", but that doesn't describe this situation. Dare I say you didn't even read the post? I probably shouldn't because you missed the mark, but let me respond to each of your points....
-I'm a Realtor (no need to take myself out to dinner)
-Relationship with lender 1 is business one and isn't even close to a mentor.
-There are actually two loans here. The pure investment conventional property and an FHA loan.
-I'm not sure what you're talking about in paragraph two of your post.
That being said...the difference is closer to 60 dollars a month between the two loans. I appreciate all the responses and the messages. Everyone pretty much is on the same page about going for the better deal. Thank you very much all.