Getting the best loan: Direct lender or Mortgage Broker?

Thinking of buying a San Francisco condo or home? First things first, you need to know if you qualify for a loan, what kind & how much. In the past my recommendation was to speak to two Mortgage Brokers and one direct lender, compare rates and fees and then get "pre-approval" with whoever was the best.

Today things have changed. The contracting credit market has limited the number of banks a Broker can shop. More over, it seems there are only a handful of banks who have competitive rates, and reasonable qualifying criteria. I won't name names on the "bad" lenders, but I've experienced, and heard other stories, of a number of pre-approved loans that did not go through when the lender found some minor item that disqualified the borrower or property from getting the "pre-approved" loan. And these are often at the 11th hour when Buyer and Seller thought the deal was done. Needless to say, after hearing more than one story about one well known lender, I'm done sending anyone there. Plus, a buyer of mine recently shopped that lender, and they couldn't compete on rates and terms with my two favorite direct lenders. So they charge more, have harder qualifying standards, and then change things on you at the 11th hour.

So today, I refer my Buyer clients to only 2 banks, with a 3rd and a 4th as back ups in the very rare case #1 and #2 can't get the job done. One of my two "go-to" banks is Bank of America.

The impetus for this blog post was an article today in Inman news about BofA getting aggressive with their Jumbo loans. Currently the "low end" of the San Francisco market (if you can call $600k's and lower "low end") is smoking hot. Two recent listings of mine, one asking $649k and another $625k, both got multiple offers soon after hitting the market. I also have several buyers with top ranges of $600k and have included condos just above $600k hoping they could get them at $600k, and yet everything they like is getting snapped up by other Buyers very quickly and above my Buyers' purchase price range. So, so much for a falling market, at least on the "low end" of the San Francisco market.

The reason for this hot market is 3 fold. First, the Spring (March thru June) is the seasonally the hottest market in San Francisco every year with buyers and sellers coming out of the wood works, and that's true this year too. I had over 100 people through an Open House yesterday. Second, interest rates for "conforming" loans (those at $629k or less) are at record lows at 5% and even less. So buyers can afford a lot more (10% more in comparison to when rates were 6% for example). Third, the "low end" of the market are largely first time home buyers who have been priced out of the market for so long, and they seem to be viewing this market as their first chance in years to get into the San Francisco market. I had one first-time home Buyer at my open house yesterday tell me his Accountant recommended he find a write off, and said a real estate loan was the best way. So there are a few reasons first time home buyers are jumping in.

So if the "low end" is hot because of low interest rates, the BofA news could spark the high end market too. We saw this happen in 2006. I had thought we were in for a soft and slow year in early 2006 but then the market took off again. In hind sight that was apparently sparked by the availability of alt-A loans which qualified a lot more buyers. More demand spurred price appreciation.

Could we see a resurgence in the $1million+ market in San Francisco? Only time will tell. But for those in that market, BofA was already one of my top two lenders, so they need to be one of your first calls. Feel free to contact me for a referral to the lender in BofA I use.... who incidentally worked for a Brokerage a few months ago and made the change to a direct lender for the very reasons I cite above. There were far fewer places to shop, so his services weren't needed as much. Today, he's got a lot on his plate with re-fi's and lots of new applications, especially on the "low end". I suspect after BofA's jumbo loan announcement he'll only get busier.