Homebuyer Beware: 5 Telltale Signs of a Non-performing Lender

Buying a home can be scary! Especially if it’s your first time. Even if you’ve done it before, maybe it was years ago — and let’s face it, things are much different now. With tech changes and laws and lending guidelines being added and removed so frequently, home buying is much different now than it was just two or three years ago. No matter whether it’s your first time or your tenth time, the kick off of the home buying process is getting pre-approved for a mortgage.

This important first step is needed because it tells you if you qualify to buy at all and if so, exactly what you can afford. The first question a Realtor typically asks is if you’re pre-approved. It doesn’t make sense for them to show you million dollar homes if you really comfortably qualify for $400,000. There’s no need to show you homes of any kind if your credit needs work or if you’re subject to a waiting period because of something that happened in your past like bankruptcy or foreclosure. Getting with a lender at the very beginning answers these questions and gives you clear direction.

Of course in lending like with any industry, you have the whole spectrum of quality. The problem is that with so many moving parts to each transaction and with good (sometimes great) sales people out there talking a good game, how can you tell the good lenders from the bad? The truth is, you really don’t know until you know. Meaning, everything can seem great when you’re dealing with the loan officer, but then it can all fall to pieces later on.

Naturally, the loan terms are important. The loan amount you’re approved for needs to jive with the amount of money you have saved and the price range you’re looking in. You also want a good interest rate. Most importantly, you want to make sure you’re comfortable with the monthly payment when you add on real estate taxes, homeowners insurance, and if applicable, mortgage insurance and home owner’s association dues.

Luckily for home buyers, the mortgage industry is heavily regulated and incredibly competitive. This is good for consumers from a decision making perspective because regulations limit the versatility of loan products lenders can offer. They all offer the same types of loans so there’s really no competitive advantage there. Now, that’s not to say that a good sales person can’t find a way to make their offer seem special when it’s really not because believe me, some can. But at the end of the day, it’s just the same 15 or 20 or 30 year fixed rate mortgage that everyone else offers. It is what it is.

Another reason the ultra-high competitiveness in the mortgage industry is helpful to buyers is because it means that all lenders have pretty much the same interest rates and other terms. When dozens of companies are competing for your business, it wouldn’t make sense for any particular lender to have a significantly lower rate or costs than the others. Interest rates may vary .125% or so from company to company. Putting this in terms of dollars and cents which is really what matters, on a $200,000 fixed rate 30 year mortgage, a rate difference of .125% changes the monthly payment by about 15 bucks a month. Not a show-stopper.

What is a show-stopper? Not closing on time or not closing at all! Imagine this: you shop around for a mortgage and get a lot of offers. They’re all pretty close i.e. same loan amount, interest rates are within .125%, all are 30 year fixed, and mortgage insurance amounts are all pretty much the same. So you choose the lowest payment because, “Hey, $15 a month adds up over time, right? After all, the loan officer was really nice, plus she’s local so what could go wrong?”

Now fast forward: it’s 8:00 at night on a Friday. Your closing is supposed to happen next Friday but there’s a huge problem — you don’t know where you stand! You don’t have your loan commitment letter. You haven’t heard from your loan officer in weeks and you’d call her but it’s after hours and you don’t have her cell. Plus, the last time you called her you left a message and it took her two days to call back. You’ve never spoken to your processor because he only uses email and he hasn’t responded to the email you sent yesterday requesting an update. This is when you realize that if you don’t close, it’s not just your purchase and your plans that are ruined. The impact is much bigger because the seller in your transaction is taking that money and buying a home from someone else, then that seller is buying from someone else and on down the line. So you not having your act together could be messing up ten or twenty or more transactions! Each of those has at least one buyer and one seller and usually two Realtors. OMG!! THE PRESSURE!!!

Not a good feeling, right? I could actually feel my stress response kicking in as I was writing that! This may seem like a worst case scenario but believe it or not, it happens a lot more often than you think. There are lenders in the market place that have been so focused on the relatively uninterrupted refinance boom we’ve had for the last twenty years or so that they are simply not equipped to handle purchase business. At those places, closing late or actually denying the loan just a week or so before closing is the norm because on a refi, there’s far less at risk and consequence so underwriting at the last minute is no big deal. That doesn’t make it okay to do business that way even with refi’s, but a purchase loan is a totally different animal all together with a contract containing deadlines and your earnest money deposit on the line. Thus, it takes totally different business model and approach.

So how can you defend yourself against this nightmare scenario? Here are five warning signs to be on the look-out for. If the loan officer checks any of these boxes, RUN AWAY SCREAMING!!

No Realtor Contacts

The moment a loan officer closes one successful purchase transaction, they have at least one Realtor to whom they can refer business. Naturally you want to your loan officer to have closed many more than just one if you are to use them — you want to work with a purchase loan specialist! This means they should have several connections in Real Estate industry and be glad to introduce you.

Now you may say, “All of the homes I see for sale already have a Real Estate sign in the yard or a Realtor associated with it on line. I can just use them, right?” While that’s true and you can use that agent, think about it for a minute. If they have the home listed for sale, who do they represent? Yes, they’re the seller’s agent! Representing both side is called dual agency and it’s actually illegal in some states. In the states where it is allowed, it’s not a great idea for the buyer because that agent already has an existing relationship with the seller. While their intentions in a dual agency scenario are almost certainly honorable, who are they really looking out for? It’s basic human behavior for them to honor their longer standing relationship with the seller over a new relationship with you.

I can’t stress enough the importance of having an excellent buyer’s agent in your corner. They must have your best interests at heart and be willing to fight for you! They must also be a performer. Your lender should have insight into both of these crucial qualities you’ll want your Realtor to have and should be able to match you up with the perfect buyer’s agent. If they don’t have a way to connect you with a Realtor, DO NOT USE THEM. This is a sure sign that they are either not experienced with purchase loans or that the transactions they have been able to get closed were poorly managed. The proof, as they say, is in the pudding!

Accessibility and Availability

When do most folks view potential homes to purchase and make offers? There are some exceptions but I can tell you from experience that most people don’t do it Monday — Friday between the hours of 9:00 AM and 5:00 PM. No, in fact if there are viewings at all during the week, they are generally in the evening. An overwhelming majority of them happen on the weekends. This is when you and your Realtor are most likely to have questions about things like monthly payment, potential financing issues with a particular property, or how quickly you can close. It’s important that you can get these answers quickly from a negotiation perspective, especially in a seller’s market. Properties are moving quickly and often have multiple offers. So your loan officer being unavailable and forcing you to wait until Monday morning to get answers so you can make the offer could cost you the deal!

Also, consider that you are doing a transaction involving hundreds of thousands of dollars. That’s a lot of money! You deserve to be able to get updates whenever you want. The loan officer is the top of the pyramid of responsibility in the transaction. If something goes wrong, they are responsible. Even if the problem isn’t because of something they did (or didn’t do) directly, they need to be accountable to you for whatever happens. If you have easy access to them, you can insure this is the case.

It’s 2018, folks! This is the biggest financial decision of your life, a personal decision about shelter for you and yours which is a basic human need. In this day and age with a decision of this magnitude, there’s no excuse for a loan officer being inaccessible. We all have cell phones that we are more or less attached to. You may not know where your kids or pets are right now, but you know exactly where your phone is. Everyone receives their work emails on their phone. Everyone texts. It’s incredibly easy for your loan officer to be available when you need them.

That’s not to say there should be no boundaries. When you get their number, ask them what time is too late to call. Plus, you can always text. The bottom line is, if your loan officer won’t give you their cell phone number then using them would mean you’re likely setting yourself up for an uncomfortable process at the very least or failure in the worst case. Don’t risk it.

Technology Isn’t Up to Par

Here is the data a loan officer needs in order to produce a quality pre-approval:

* Personal info to pull credit for all borrowers i.e. name, address, social security number, and date of birth

* Income for all borrowers

* Additional debts not appearing on credit such as child support (if any)

* Amount of money you have for down payment and where it’s coming from e.g checking/savings, gift, etc.

That’s all! There are some exceptions like if you’re self-employed, for example. In that case, a review of the personal and business tax returns is needed to calculate the qualifying income. But if you are paid a salary or hourly then your loan officer should be able do the math and tell you if you qualify while you’re on the phone. There’s no need to call you back with a proposal or anything like that. From there they may need to verify a few things and it’s customary to have you send a W-2 and a pay stub along with a bank statement to confirm what you talked about. All said, you should receive your pre-approval letter shortly thereafter.

A pre-approval takes about 20–40 minutes or less to produce from start to finish unless you have extraordinary circumstances surrounding your income or debts. If it takes much longer than this or if the loan officer says it will take longer without explanation, then it could be an indication that their tech isn’t up to snuff.

On the other end of the spectrum, some companies have systems that give you (and sometimes your Realtor) online access to your non-private pre-approval info. These interactive systems are super helpful to use in making your decision. If the loan officer offers you access, definitely take advantage.

Again, it’s 2018. The tech is here to enhance your experience as a homebuyer and to assist you. This is a big decision. Accept the help and use it. If the lender you’re talking to is behind in the times then it’s usually an indication of deeper problems in the organization. This is an easy fix for you though, simply select a different lender.

No Follow-up Plan

At the end of your initial conversation with the loan officer, provided you’re pre-approved, they should either be connecting you with a Realtor or getting your Realtor’s info if you already have one so they can reach out. Then there needs to be a plan to connect again soon, even if it’s just by text or email. If not, then it could mean a couple of different things.

Rushing the pre-approval process and then leaving it to you to figure out the rest and call them back when you’re ready means you’re just a number to them. This typically indicates the lender’s business model is production-centric. The goal in this type of environment is simply to pre-approve as many people as possible. I’ve worked in these models before and all that matters is the bottom line. There’s little concern for you or your outcome beyond the financial gain of the company. They know based on past performance that in doing things this way, a certain, typically low, percentage of the pre-approvals issued will actually turn into loans. So they have to send out a huge amount of pre-approvals to close anything. “Just get ’em pre-approved and move on to the next one!” shout the sales managers.

You want your lender to be customer-centric. The idea here is that if you take care of the customer then the production will be there. You want your loan officer to be an active part of your home buying team! They need to be an advisor and a problem solver. There are specific things that your loan officer can do in situations where you are competing with other buyers to help you win the contract. If they are absent and take a “call me when you have a contract” approach to their work then they will be of little help in these situations which, in today’s seller’s market, happen on nearly every offer.

If the loan officer is taking this narrow, singular focus approach then it could also indicate a lack of experience. If they think their job is done when they issue the pre-approval letter then there’s a good chance they haven’t been doing their job too awful long. This leads back to the first warning sign I mentioned above — No Realtor Contacts. If they are a successful loan officer who has closed a lot of purchase transactions, they ought to know better.

If closing a loan from start to finish were running a marathon, the pre-approval would be waking up on race day, getting out of bed, and getting warmed up and stretched out. It’s just the very, very first beginning step. Once you’re pre-approved, it’s time for your loan officer to spring into action! They should refer to you a Realtor and be on the ball. Now’s their time to shine! It’s time for them to get about the business of assembling your home buying team and spearheading the communication by setting up a conference call to introduce you to your Realtor and making plans to check in within a day or two. You should feel fully supported and comfortable in the fact that you will soon be a home owner. If that’s not how you feel then changing lenders is strongly recommended.

Something Doesn’t Feel Right — Trust Your Instincts

This is the most important part of making your decision and it can actually be the most difficult, especially if this is your first home buying experience. This is because you’re going to someone for advice and it’s easy to mistake knowledge for trustworthiness. Just because they seem to have answers and talk a good game doesn’t mean the rest of the deal is going to go well. The truth is, the loan officer you’re speaking with may be great but their greatness doesn’t define the whole experience. If they’re doing their job well then they will be involved all the way through from start to finish, but they don’t do it all. They have a support team of processors and underwriters and managers who all come together to make the magic happen!

Here are four questions you can ask at the beginning to gain insight into how the rest will go. The questions are sequential relative to the loan process itself so if you don’t like the answer to question #1, there’s really no need to go on to question #2 and so on. These questions are also revealing. If the loan officer is one of the good ones, they were already planning to give you this info. If the loan officer is a not-so-good one then they most likely won’t be expecting you to ask them these things. Remember the answers and hold the loan officer accountable. If they seem vague or evasive with their answers then drop them like a bad habit!

1) What is your cell phone number? If they don’t want to give you this, stop right there and move on to a different lender.

2) How long after I send you a contract will I have a loan commitment? If they say anything other than a specific number of days or at least a range then it’s not a good match. If they give you a date or range and it’s further out than two weeks, it’s also not a good match. Delay or failure to deliver the loan commitment puts your earnest money deposit at risk and is not acceptable.

3) How quickly can you close and will you cover the lock extension fees if you miss the contract closing date? Locking the interest rate is how the lender guarantees your monthly mortgage payment will be the same at closing as it was in the beginning when you agreed to do business with them. Your rate lock has an expiration date. If the loan is not closed by the expiration date, the lock has to be extended and this costs money. If the lender is responsible for delays then they need to pony up and pay the fees. If the loan officer is vague or stumbles when you ask this question, it’s not a good sign. Best to pick a different one.

4) Can you give me three references? Just like any other business, asking for references is wise. In this case, it’s the biggest transaction of your life and, again involves shelter for you and your family which is a basic human need. It doesn’t really get much more important than that! You want to trust them and believe what they have said. It only makes sense to verify. They should at least be able to give you some folks they’ve worked with before or direct you to their personal online reviews. Best bet is to get three references and then actually call them. Remember that Realtors are the best indicators of performance because they have a bigger body of experience for comparison so make sure at least one of the references is a Realtor.

Buying a home these days isn’t all fun and games and it’s certainly not for the faint of heart! It has never been more difficult to get a home loan than it is right now. There are regulations atop regulations and you need a knowledgeable loan officer to help you navigate them for qualification. Then you have the home selection and contract negotiation where having an excellent buyer’s agent is key. This is of course followed by the loan process itself which includes you providing lots of documentation regarding income and assets that you have never shared with anyone before and signing even more documents that aren’t real easy to understand. Once all of that is done, you have to find a closing date that works for everyone so it may have to be coordinated with the seller buying a new home. When you finally get to closing, you sign a whole bunch of confusing documents again. It can seem endless at times, especially if you don’t surround yourself with the right people.

On the other hand, buying a home is also very rewarding and a huge part of the literal American Dream! So it’s definitely a worthwhile endeavor, for sure. The point is, it’s stressful enough if everything goes perfectly. Having poor representation and not having access to info and updates when you need them only compounds the stress. Keeping an eye out for these warning signs, following the steps, and asking the right questions at the beginning will give you confidence and help insure you’re success!