Best Rates Are Not Always the Best Deals
They say that “you get what you pay for.” This is especially true when choosing a mortgage lender.
When you’re looking for a loan for a house flip, you may find that there are variations in rate and point combinations between otherwise similar lenders.
When you add everything together, you might find that the differences total two percent or less. You need to consider what you will get for that two percent.
Ask yourself if the lenders that costs a little less require that you have more of your own cash in the deal. If that’s the case, that means your capital will be tied up and not earning for you elsewhere preventing you from taking advantage of other opportunities. Are you able to quantify that expense? It will definitely eat into that two percent difference.
Many lenders that appear less expensive may have prohibitions on paying off your loan or the penalties for prepayment that you did not consider when you took out the loan. This could mean that you are paying interest on your loan far longer than you need to or you’re paying a significant fee to pay off the loan early. This will use up or even exceed the initial two percent savings.
How are inspections handled? Does the lender charge a fee for each draw, along with the fee for the inspector? How fast are they releasing draws? Will your contractor keep working while they are waiting for your funds to arrive? It can get very expensive if your lender requires that you get a certain number or draws and makes you pay the inspector for each one followed by a fee to obtain the funds.
In the event that it takes more than one day to release your draws, it will cost you time. Many contractors will not want to wait to get paid and will move on to another job. You’re forced to wait for them to be free again, which will extend the time that your loan remains outstanding.
It’s a good idea to interview the different lenders you’re considering. The feeling you get from the initial contact will let you know which is the best fit.
Consider these questions:
- Did they speak to you in a professional way?
- Did they send you information when promised?
- Did they promptly respond to your questions?
- Have their terms stayed the same? Or do they change in the lender’s favor each time you talk to them?
- Is the lender listening to you and responding to your specific situation?
- Have they showed a willingness to be flexible in terms of qualifications or loan structure?
- Can you envision a long term business relationship with them?
- Do you know people who have dealt with them? What were their experiences and impressions?
Observe their behavior as much as you listen to what they have to say. You’re going to need to fully trust them to move forward. When you evaluate the intangibles, you may find that the lender that you are most comfortable with is not the least expensive option.
Know all the facts and keep in mind some of the hidden costs. After that, quantify what your aggravation is worth. Everyone knows that working with people who are unreliable is frustrating.
You need to decide if the difference in cost between the lender you like and the less expensive lender is worth a potentially unhappy relationship.