There are three separate and distinct functions of a lender in the home buying process.

1.  Determining the cash needs and monthly payment in advance of house hunting.

     a)  Dollar amount of Closing Costs

     b)  Montly payment including estimated taxes, insurance and codo fees

2.   Providing a “Pre-Approval” letter to submit with an offer to purchase.

3.  Providing the actual loan to be used in the home purchase.

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The “BEST” lender to use for Step 1. will be the lender

 that most accurately predicts your eventual closing costs

(and monthly payment) BEFORE you make an offer. 

*************************************************************************************************Variances Inaccurate predictions can be costly, and even cause the escrow to “fail”.  If you do not have enough money to close escrow, you can lose your Earnest Money, as the Finance Contingency only covers loan approval.  It does not cover “not having enough cash to close”.  I have not in 15 years personally had the experience where my buyer client has needed to find money at the last minute to close, but I have seen many who have had that experience when working with other agents.

If you do not have a lot of cash to play with, or if it is your goal to close escrow spending as little of your own money as possible, you should try to narrow down your choice of lender in Step 1. to the one you will likely be using by Step 3.  Very important if you are planning to fold your closing costs into your offer.  If the  lender you speak with at Step 1. says your closing costs will be $4,000 and by Step 3. you choose a lender with actual closing costs of $8,000, you will need to dig up an extra $4,000 if you only wrote “$4,000 toward closing costs” into the contract.  Lender costs are sometimes “credit score driven”, same as rate, so the lower your credit score, the more important this will be for you.  Costs can also change dramatically from one lender to another and from one loan program to another.

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The “BEST” lender you can use in Step 2.

is the lender that the SELLER, will value the highest. 

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To determine who will be the “BEST” lender to use in Step 2., you need to understand the TRUE purpose of the “Pre-Approval” letter.  The quality and credibility of the pre-approval letter often plays a major role in the negotiating process.  The seller and the seller’s agent read a lot of things into that letter, especially in multiple offer situations.  Even when there is only one offer on the table, the seller will sometimes accept a lower price from a “highly qualified buyer” who is using a lender that the seller’s agent is certain will close on time.

 Often the Buyer Agent sells the lender and the buyer’s credentials when presenting the offer.  And many, many times I have seen a seller switch to a lower offer with a better “letter” and sales pitch by the Buyer’s Agent, regarding the buyer’s ability to close and to close on time.

Consequently, if you use a lender that the listing agent does not believe in or has had a previous bad experience with, it could cost you the house, or at the very least, raise the price the seller is willing to take from you, using that lender.   I have seen one too many pre-approval letters faxed crookedly on the paper, written with poor English and grammar, with many mis-spellings and two paragraphs of disclaimers.  The phrase I commonly use for that type of letter is “it might as well be written on toilet paper”.  Sorry if that offends someone, it’s that Philly.NY “in your face” honesty, I refuse to shed 🙂

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The “BEST” lender to use for Step 3.

 is the one who has the very best rate and program for you

 within the first five days after you are “signed around”

and can LOCK you there with a “float down”.

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None of the rate quotes or program evaluations that you acquired prior to house hunting, is a true indicator of what exists in the marketplace the day you are ready to apply for your loan.  Generally, you do not truly apply for your loan, until after you have a Contract to Purchase a home.  Most lenders will not permit you to lock in the rate, until you have a contract in play. You can with some lenders apply for a loan with a locked in rate “subject to house”, a tool used when interest rates are expected to rise during the house hunting process.

One might say that the “moral” of the story is that you can “use” any lender you want to process your loan, without regard to whom you “used” in Step 1. or Step 2.   But, hopefully, by seeing in advance the three separate and distinct functions of the lender in the home buying process, you will be better able to choose the “BEST” lender from the beginning.  A lender that will excel at meeting all three of your lender needs in the home buying process.