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Simply put, a preferred lender is a mortgage lender or mortgage broker who is recommended from a specific source. Your real estate agent or broker may refer you to a local mortgage company when you are getting ready to buy a house. Or, you may be buying a new construction house from a residential home builder. They may recommend a preferred mortgage lender who has experience in funding mortgage loans for their properties.
A preferred lender may be a mortgage broker, direct lender, bank, online lending service or credit union. Some home builders may even offer their own in-house mortgage lending services. This doesn’t necessarily mean you should, though.
In this article, we want to address common questions home buyers have about preferred mortgage lenders and the mortgage process, in general. Here are some important details you will want to understand before you buy your home.
Do I Have to Use the Preferred Lender?
No, do not have to use a preferred lending source. You always have a choice as an independent consumer. You can select your own mortgage lender or work with a mortgage broker to find the best lending solution that meets your needs. You are free to shop around to find the lowest mortgage rate and most attractive mortgage loan terms. Ultimately, you may find the preferred lender is your ideal choice. It’s always worthwhile to talk with the preferred lender as one of your options. It just never hurts to explore additional alternatives in case there is something better available.
What About a Builder’s Preferred Lender?
If you are buying directly from a home builder who offers their own financing services, you may feel obligated to work with them. However, it does not mean you are only limited to this one in-house mortgage lending resource. Again, you have the option to find other financing solutions on your own. The builder cannot add financial penalties for working with an outside lender, and they cannot increase the house’s price based on who is funding the loan.
Though they can’t punish you, there may be some additional benefits when you do work with their in-house services or preferred lender. They may offer a price reduction, faster closing process or cover some additional closing costs. They could tempt you with other perks like appliance upgrades.
A mortgage lender cannot legally pay a home builder for referrals. Builders can, however, offer you added incentives if you opt to work with the preferred lender.
What Are the Benefits of Working with a Preferred Lender?
There are several reasons why you may want to consider working with a preferred lender, especially when buying from a home builder. The first is simply a matter of convenience. The mortgage lender is familiar with the seller or has an existing relationship with the real estate agent/broker who recommended you. This means the pre-approval process could be completed faster and easier. They trust their preferred partner and this can be to the borrower’s advantage in terms of mortgage loan qualification.
As we discussed, using a preferred lender for a new construction home can come with specific benefits such as a reduced home price, reduced closing costs or property upgrades. It may also mean a smoother and quicker closing because the financing is more immediate with a preferred or in-house lender. A home builder may require a loan pre-approval and their preferred lender may be able to provide it faster. Preferred lenders recommended by real estate agents and brokers often have an existing relationship that benefits them both. This may also be to the borrower’s benefit, but there may be some downsides to consider.
What Are the Disadvantages of Working with a Preferred Lender?
As with any major financial transaction, you have to read the fine print and understand any strings that could be attached. The most convenient option (i.e., the preferred lender) may not be your best. The mortgage lender could take advantage of the situation by charging higher fees or approving a higher mortgage rate. They may only offer a limited set of mortgage products, which could work against you. For example, a veteran home buyer who qualifies for a VA loan may be much better off working with a VA-approved lender if the preferred lender cannot offer the unique rate and down payment benefits of a VA loan.
Should I Work with a Preferred Lender?
It’s definitely worthwhile to consider the preferred lender. Talk with them, ask questions and get a quote. See what it will take to get pre-approved for a mortgage loan. Explore different loan products you may qualify for and try to find the lowest possible mortgage rate. Even the best benefits of a preferred lender could be easily offset if you are able to get a significantly lower fixed interest rate elsewhere. Ultimately, it is your responsibility to do your own research and look at more than one option before locking yourself into a less-attractive mortgage loan.
Moreira Team | MortgageRight does have preferred lender partnerships with multiple sources, but we are an independent mortgage broker. Our main priority is providing the best lending services available to our borrowers. Contact us today to learn more about our process and to get started with your mortgage pre-approval.