Estate agents are experienced professionals who can be an excellent source of knowledge. Many people only buy or sell a home a few times in their lifetime and first-time buyers can often feel overwhelmed by the whole process.
Your agent will be very knowledgeable about all aspects of buying a home, including getting a mortgage. They can probably provide referrals to lenders, but is it a good idea to follow their advice and will you be liable for anything if you follow their recommendation?
What is a Mortgage Lender Referral?
Simply put, a lender referral is when someone, such as a realtor or agent, recommends a lender to someone who wants a loan. If you ask your realtor for a few good lenders to work with and your realtor directs you to a lender, they are making a recommendation.
Some common questions people have about getting a lender referral from their real estate agent include:
Should your real estate agent talk to your lender? Yes, there are situations where your realtor will need to contact your lender. This can include organizing things like appraisals and other aspects of the home buying process.
Do real estate agents receive “bribes”? Do mortgage brokers get them? No, under the Real Estate Settlement Procedures Act (RESPA), real estate agents cannot receive compensation for recommending someone a conventional federal mortgage.
Can a seller require you to use a specific lender? Can a real estate agent? No, you cannot be required by a homeowner, builder or your real estate agent to work with a specific lender.
Do sellers prefer local lenders? Some sellers may prefer local lenders, especially if they are known for their fast and quality service. However, many sellers won’t be particularly concerned about which lender you use.
Are you obligated to stick with one lender if you get their pre-approval. If you accept a referral and are pre-approved by a lender, you are not obligated to proceed with them. However, you will need to start the qualification process over with a new lender.
Should you use your real estate agent’s “preferred lender”?
Some real estate agents will have a preferred lender that they can recommend to you. They may prefer that lender because they get a referral fee on successful loans or because they have established a good working relationship with the loan team.
Jeremy Shachter, Branch Manager at Fairway Independent Mortgage recommends listening to your realtor’s advice, but also doing your own research. “I absolutely think you should trust your realtor in their lender recommendation. There are so many lenders out there right now and your realtor usually knows how the lender works…(You should also) research lender reviews and ask your friends whom they appealed to.
You don’t have to work with a real estate agent’s preferred lender if you don’t want to. If you already have pre-approval or want to work with another lender, the real estate agent should still be willing to work with you. They want to help you close a deal on a home just as much as you do.
If you’re considering using your realtor’s preferred lender, consider these pros and cons.
- The lender has a good working relationship with your realtor, which can speed up the process
- The lender knows the area
- The lender may offer incentives, such as closing cost rebates
- The lender might not offer the best deal
- The lender might not offer FHA or VA loans
- Potential conflict of interest
What your real estate agent needs to know about mortgages – and what you should
Whether you choose to go with your realtor’s preferred lender, your realtor should be willing to help you buy a home. After all, they are paid when you close a house.
Even if you stick with another lender, your real estate agent should be familiar with the mortgage process and be able to offer advice, such as what fees to watch out for and how things like appraisals work.
Always shop around for mortgage rates
No matter where you get your mortgage, it’s essential that you take the time to shop around and compare mortgage rates. Especially in today’s market where rates change rapidly, accepting the first offer you receive can mean leaving a lot of money on the table.
Mortgages are massive loans, which means that even a small interest rate difference can have a big impact on the cost of a loan.
For example, if you get a $250,000 loan for 30 years with an interest rate of 5%, you will pay $1,342 per month. If you lower the rate to 4.75, you’ll pay $1,304, saving you $38 per month. Over the life of the loan, you’ll save $13,680.
At the end of the line
Your real estate agent probably knows a few good lenders and will recommend you if you ask for one. However, there is no obligation to work with your real estate agent’s preferred lender and you are free to stick with whichever you choose. Be sure to always shop around and compare rates. Putting in the effort could save you a lot of money.