Loan Shopping

November 10th, 2009

Shopping for a loan is easy, kind of like window shopping. You poke your head in the window, take a look, maybe you go in the store and ask a few questions, maybe you go to another store, who knows. You are not obligated to buy from anyone, and you are going to check every source you can TO GET THE BEST PRICE. It’s all about the best price after all (he said sarcastically).

It is all about the best price, as long as you get what you wanted in the first place. And this is the problem in shopping for goods and services, people are so focused on the price, they lose of track of making sure they are going to get what they need. You have to ask a lot of questions, and be asked a lot of questions, to ensure the process will go smoothly and to ensure you will get the price being promised. If you are not being asked a lot of questions when you ask about a mortgage, something is wrong.

With a mortgage, people only seem to care about the interest rate, they don’t ask questions about fees, turn times, execution, experience, etc.

And sometimes, there is a need to go even deeper. It seems most loans nowadays have a twist, there may be a credit issue, a gift that may or may not be allowable, a new job, a recent career switch, or even a property condition issue. People seem to think a bank will lend on just about any property, in any condition. After all, if you have good credit, a good job, and a decent down payment, what does the condition of the property matter. Read on…

I had a potential client several months ago shopping around for a mortgage. All he was interested in was what rate I could get him, and it had to be the lowest. I tried asking questions about credit, property, etc; but he was either vague or not interested in talking about that at all.

Below is a recent email from him to me, after he had applied for a mortgage elsewhere about 30 days ago:

“Hi Brian

Please contact me when you get a chance. I would like to see what you can offer today. However, I need to speak with you about the right mortgage product.

The property I am buying was used as a private school in the past and auctioned. We plan to use it as our residence but the past use of property seems to be of concern despite the R1 zoning and residential district. In any case-if we talk, I can share more and we can determine the best course to take.

Rates are also good today- so please call me ASAP.”

Hmmm, sounds like he is having a problem getting a loan at the mortgage firm or bank that he went to because they had THE BEST RATE. And it sounds like he is STILL focused on getting the best rates, judging by the end of his email. My reply was:

“Do you have a website I can see to look at the property. I can run it by some appraisers and underwriters, to see if this is even anything I can do a loan on. Thanks.”

He sent me some data on the property and an appraisal. The appraisal showed not only was the building previously a school, but that it was missing some very critical elements any bank would want to see. My next reply was:

“I am afraid I did not need to read any further than the first few pages. The below comments/facts on the appraisal make it impossible for any mainstream lender to do a loan on this building:

THERE IS A GALLEY KITCHEN AREA WITH NO STOVE/OVEN AREA, THEREFORE, THE
KITCHEN IS NOT FUNCTIONAL. ALSO, THERE ARE NO FULL BATHROOMS IN THE DWELLING, ONLY SEPARATE HIS/ HER HALF BATHS ON EACH LEVEL. TWO HALF BATHS NEED CONVERTED TO FULL BATHS TO MAKE THE PROPERTY MORE SIMILAR IN FUNCTIONAL UTILITY TO THE MARKET AREA.THE SUBJECT HAS RESIDENTIAL ZONING ALTHOUGH WAS CONVERTED INTO A PRIVATE SCHOOL.

So, without a full, operating kitchen, and without functioning bathrooms, this house will never get a regular loan.

The only loan that this would be eligible for, to accommodate the current condition of the home, is a construction-permanent loan which allows for odd or incomplete condition of property. And these loans are very complicated to get, a bit more costly, and they take a lot of time (60 days). You have to have a licensed General Contractor, plans & specs, a draw schedule, materials list…it is quite a lot of detail and planning to get these loans. We can talk about this type of loan, bit since your loan has been in process at another lender, and you likely have a sales contract on the property that is about to expire, would you even have time for me to get you this loan?

So I am afraid you have to either let the contract die and look at other properties, or we can talk about a construction-permanent loan (if the seller will wait for you to get a loan of that type), or pay cash for the property and then do whatever work/renovations you had planned, and maybe you could come back at a later date when the property is finished, and get a “cash out” refinance to recoup some of your money by placing a mortgage on the place after it is fully renovated.

Check in with any other questions.”

His reply was very nice and thoughtful, and he said the contract would likely die, and he thanked me for my factual and frank reply.

Wouldn’t it have been nice if he was more focused on making sure he was going to get what he needed, asking a lot of questions, allowing himself to be asked a lot of questions, and most of all NOT FOCUSING SOLELY ON PRICE?!

As always, make sure you talk to a very experienced mortgage professional, ask a lot of questions, and expect to be asked a lot of questions. It will save a lot of heartache in the end.

Learn More: Questions to Ask a Mortgage Lender

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.​

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