In most cases, buyers and sellers are represented by their real estate agent. There is a special relationship between the agent and the client — called a fiduciary relationship — that requires the agent to put the client’s interests above the agent’s own interests. This is a really important relationship that usually does not exist between a buyer and the lender.
A lender usually is looking out for the best position for the lender. Some of the housing crisis issues might have been avoided had the lenders been more concerned for the buyer’s best interests, but that is a discussion for another day. When choosing a lender, a buyer needs to be aware that the lender is not necessarily trying to find the best situation for the buyer. Hopefully, the lender is not actually trying to harm the buyer, but a buyer can end up in a lot of trouble.
Remember that loans are not “one size fits all.” Everyone’s situation is different. When choosing between loan products, the following are a few warning signs that should cause a buyer to do much closer investigation:
- Claims that bad credit is not an issue
- Prepayment penalty
- Larger than normal loan charges
- Rate gouging by brokers – yield-spread premium
- Loans without escrow accounts for taxes and insurance
- ARM loans that only go up and not down
- Initial loan to secure property with plan to replace it later
If you are getting ready to buy a new home, or you’re looking to refinance the one you’re in, let me know. I can recommend a lender who is experienced and has a history of providing good service. Choosing a good real estate loan is an important part of the buying process. It pays to select a good lender.