Why Your Agent is Pushing You to Use Their Lender
You’re finally ready to buy a home. You contact a real estate agent, who says you need a pre-approval from their preferred lender before she shows you homes.
You have a pre-approval from another lender. But evidently, it’s not good enough.
The agent also wants you to use her preferred lender to complete the loan. You’re hesitant to go through the pre-approval process again.
Why is your agent pushing so hard for her lender? Is something unscrupulous going on?
Start your pre-approval. Find a lender here.
5 Reasons an Agent May Want You to Use Their Preferred Lender
There could be a few legitimate reasons your agent wants you to use their lender.
1. Validity of the Pre-Approval
Many lenders' pre-approval letters are more like “pre-qualifications.” A "pre-qual" is when the loan officer believes you can be approved based on a conversation or reviewing preliminary documents.
But pre-qualifications can go bad after a full review by the underwriter. Additional debt, low self-employment income, or myriad other factors can disqualify the applicant. This is a big problem after you receive an accepted offer on a house.
The agent may be more comfortable using a pre-approval from a loan officer whose standards they know.
2. Speed of Response
Imagine this: you make an offer on a house at 5:00 PM. You learn at 8:00 PM that you need to increase your offer by $10,000 more than your pre-approved amount.
The agent knows her preferred lender will review and issue a new pre-approval that night. Another lender may not.
3. Closing Success Rate
The agent knows that her lender can close on time, every time. A late closing will delay her commission check, sure, but it also puts your earnest money at risk.
Sometimes the agent would rather not introduce an unknown factor – your lender – into the transaction.
4. The Lender’s Reputation
Using an lender unknown in your market could get your offer rejected.
The seller’s agent knows which lenders do the most business in that market and whether they have performed in the past. If the seller receives two identical offers, the agent could choose the one with the known lender.
A lender with no reputation – or even worse, a bad one – can hurt your offer.
5. Affiliated Relationship
In some cases, the agent’s company has an in-house loan officer or even owns a mortgage firm. The agent could be encouraged by their company to funnel business to the in-house lender if they can.
However, the agent can’t force you to use them.
Plus, direct kickbacks are illegal. An agent can’t receive a percentage of commission on a closed loan, for instance. So there is little chance your agent is getting extra financial benefits from the referral.
Risks of Not Using the Preferred Lender
As mentioned, using an inexperienced lender – or one that just doesn’t care much – can result in a late closing, unnecessary stress, and even lost earnest money.
You could also miss out on the perfect home if the lender has a bad reputation or doesn’t respond to the agent quickly.
Of course, if you find a quality lender, your transaction should go smoothly no matter which lender you choose.
Can You Refuse to Use a Preferred Lender?
The agent or builder can’t force you to use a specific loan officer or company.
Additionally, it would be unwise to go with the agent’s lender without getting other quotes. You don’t know if you’re getting a good or bad deal until you compare offers.
The lender may not give you the best deal if they think they have you locked up as a customer. Getting other quotes will spur competition and a better deal for you.
The best bargaining chip is a Loan Estimate from another lender.
Getting Your Agent Comfortable With Your Lender
Sometimes all it takes for your agent to feel comfortable is a conversation with your lender.
A good loan officer can convince the agent of their experience and track record. The agent can communicate expectations for off-hours requests, closing dates, and other elements of the transaction.
Alternative: Use Your Lender’s Preferred Agent
Another way to go about homebuying is to get the pre-approval first (which you should do anyway) and ask the lender for agent recommendations.
Using one of these agents will ensure there isn't further discussion about changing lenders.
What If Your Agent Advises Against a Cheaper Loan Quote?
A common situation in real estate is deciding between a lower rate from a questionable lender over a higher rate from a local, proven lender.
The agent, understandably, may worry about closing late.
Though you might pay more, your best bet may be the lender with the best reputation. Not closing on time – or at all – could cost your earnest money. In many markets, this can be $5,000 to $10,000 or more.
While rare, the seller has the legal right to walk with your earnest money for closing late.
Find a Reputable Lender
Before you find an agent, get a pre-approval from a lender of your choice. Interview and check references just like you would for any service provider.
Then, if the agent recommends their lender, you’ll have at least two options to choose from.
Tim Lucas is the editor and Lead Analyst for MortgageResearch.com. Tim spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. He has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, and more.
