What’s the Big Deal with Lenders?

Why do I need a Lender?

If you have looked at property or homes for sale you have probably been asked, “Have you met with a lender?” I was asked this myself five years ago when I was looking for an investment property in California. I answered my Realtor just like everyone else. I said, “No, but I can get the money.” At the time, I thought my California Realtor was being pushy and somewhat unreasonable. Why would I go to all the trouble of getting a lender and sending in all that paperwork until I was sure I found a place I really wanted to buy? Didn’t the Realtor know that was a lot of time and effort and if I didn’t find anything, I would have wasted the lenders time too? I wanted to go look first! I wanted to see what was available and get an idea of what the prices were. Wouldn’t it be a lot easier to borrow money if I had some idea of how much money I would need to borrow?

Fortunately for me, my Realtor supplied me with several lenders names and contact information and asked that I at least contact one of them. I did do that, more to placate my Realtor than anything else. But once I started talking to the lender and answering her questions, I realized that a lender really could not just approve a loan without some sort of dollar amount attached to it. The lender also wanted to know if I was planning to rent the property long term or use it as a vacation rental? Was I planning to stay in the house when I visited or not? Did I have cash available for a down payment or would I need to borrow that as well? Lots of question; some of which I had never really thought about. The best part of the whole thing was that I realized the lender had done this before, I, on the other hand, had not.

This led me to scramble around for my last two years tax returns and W-2s, along with my most recent pay stubs and bank statements covering the last sixty days. Once I handed that over to the lender, my life got a whole lot easier.  One thing I did not realize was that my personal information never went to the Realtor or to anyone else for that matter. The lender communicated directly with me and only sent a preapproval letter to the Realtor once I gave them permission to do so and even then, the approval letter was specific to the property I wanted to make an offer on. In other words, the approval letter did not give out my personal banking or income information. It only let the Seller know I was pre-approved to make an offer on the property and that the lender was willing to loan me enough money to do so.

I will say that the first property I put an offer on, I did not get. But that did not have anything to do with my financial picture and I was really glad that “putting an offer in” was really easy once I did have a lender and that mysterious thing called “a preapproval letter.” The second property I made an offer on was more expensive, so I had to make sure my lender was still able to loan me the money I needed and send out an updated approval letter with the address of the second property listed. Again, all of this was easy, quick and I began to appreciate my lender a lot.

Happily, I was able to close on the second property and my lender was there with me throughout the closing process.  We had discussed my monthly mortgage payment and whether I wanted the property taxes and homeowners insurance as part of my mortgage or not. These are important issues and I was glad I could ask detailed financial questions and get specific answers based on my finances from my lender.

Fast forward five years and now I am the Realtor asking my clients, “Have you met with a lender?” I always smile when I get the response, “No, but don’t worry, I have the money.” And I always tell them my story and one other story about a client that never got the house he wanted because he never met with a lender or got his financial paperwork together. Each time we put an offer in, the sellers chose another offer that was not contingent on financing. The other buyers had already done their homework and got their financing approved. And let me ask you, who would you want to buy your home? Someone that made an offer that was still contingent on lender financing, or someone that already had all that done and was ready, willing and able to buy your home now?