Westcoe Realtors, Riverside California…The question for today’s topic comes to us from one of our regular readers, and we get her frustration. Why is there such a difference from lender to lender on the cost and fees associated with getting a new home loan?
So…let’s wade in here and see if we can remove some of the confusion.
First…understand that money is like bananas…it goes on sale occasionally just like those green bullets your grocery store tries to pass off as bananas! Seriously here, it may help to think of loan money like fruit.
Sometimes, fruit is out of season (think peaches, apricots, etc. this time of year), and so the stuff in your grocery store is imported from Chile…making the price per pound much higher in January than in July. Now…if your local grocer wants to run his peaches at a lower price to attract customers, then so be it…and that is just what happens with loan money.
Banks compete with each other, and sometimes in order to gain more business, they have a “sale” on the primary product banks offer….MONEY. We get that it is weird to think of money this way, but it’s true…money can go on sale. A bank can decide to make a little less money on the making of a loan to attract customers, and if they do, then the bank will reduce either the interest charged on the loan, or the cost of making the loan, or perhaps they will not charge for an appraisal. etc. There are a ton of ways a bank can reduce the amount the consumer will pay if they want too. When they do this, the hope is that you will use them for your loan and not someone else.
Also, it can make a difference if the bank is using their own money for the loan, or they are simply making the loan and will sell it on the secondary market…like to Freddie Mac, or Fannie Mae. As an example, if they are selling the loan, then they have less room to “wiggle” with the rate or costs, as the entity they are selling the loan to has certain requirements that need to be met in order to buy the loan. The lender you are working with must make the loan to the specifications of the ultimate lender who will buy the loan, so your local lender has fewer options at the local level.
However, if the local lender is using their own money, and they will be keeping the loan, then they can make whatever decisions they want, because they are in total control of what they do and how they do it. Banks make this decision on whether to hold or sell the loan depending upon the amount of deposits they have, company policy, stock price, etc. There are a lot of ingredients on when and why they decide to sell or hold, and you will never know what they are doing…just understand it is one of the factors in deciding what you will pay as the consumer to get the loan.
Also, money can be seasonal, like the fruit example above. If you are in a time of year when everyone wants your “fruit (money)”, then the banks might not be so competitive because they don’t have to be. However, if you are looking for a loan when the real estate market is not massively active (a more rare occurrence in Southern California), then someone may have it on “sale”. Think of how gas spikes as we near summer and increased driving, and you will get the idea.
Finally, some banks are simply more efficient that others, so they have lower operating costs, and therefore can offer their product at a lower cost than the inefficent bank down the street. Banks are like any business…some are better than others…and the better ones perhaps can simply do the same thing at a lower cost.
The bottom line here is that no one bank can fit all sizes…and that is why a good real estate agent has 2-3 lenders they work with all the time. We understand that every week, a bank may change the rates and fees for the reasons above, and we need to make sure we are “shopping” for our buyers at the best “store” possible.
In the end, we get the confusion, but it helps if you think of a bank just like a grocery store…and understand there may occasionally be “specials” on what you want to buy.
Thanks for reading, and let us know if there is any topic you may want to see here in our blog.