A client writes:
"Have you ever had a client work with Quicken Loans or E-loan? Do you have any thoughts on using an online lender?"
Our Answer: Yes we've had clients use all types of lenders. Online lenders tend to have a bad rap, but we've found a way to really have them benefit you. Here's our suggested "formula" to get you the absolute best rate:
Start by contacting as many lenders as you can. We'd suggest half a dozen or more. Have them all take an application from you. (This means they'll all pull your credit - see our related article on why this is OK). Within a few days of having made application with all these lenders, you will have a number of Good Faith Estimates (known in the industry as "GFE's"). Some will have better qualities than others; some will have a better interest rate, or not have a pre-payment penalty, or not have any (or as many "points"), etc. Make sure you do this before you put an offer on a house, because once the contract process gets underway, you won't have time to do all of this.
Now, here's the thing about local vs. online lenders: Online lenders can be fine, and they can all be terrible. It's a crapshoot. Think of it like buying a car you can't see. You might end up with a gem, and you might end up with a lemon. You could have a lender that won't answer his phone on the day of closing (yes this has happened to our clients). You could have a lender that's not familiar with the rules of the state in which you're buying (this has also happened), etc. So, you will definitely want to talk to at least one local lender. We also highly (highly highly) recommend that you use a local lender to get your approval letter (see our related post on the entire approval letter process) because the seller is going to feel much more comfortable looking at a contract from a lender they know vs. one that is not local. You do not have to use the same lender to buy your house as you have do your approval letter, so you can switch out later if you choose, as long as it doesn't affect the seller in a negative way.
Here's where the magic "DROdio Process" comes in: Now that you have several GFE's from local and online lenders, all you do have each lender try to beat the other lender's GFE. I promise you, they will trip over themselves trying to beat each other out. We see it all the time. The "when banks compete, you win" is VERY true; the difference is, we'd prefer you have them compete on yourterms, not an online servicing's terms, meaning you have local and online lenders competing together.
At the end of this process, by swapping GFE's back & forth until you feel guilty about it, you'll definitely end up with one or two clear winners. We would much prefer you chose a local lender (we can suggest a few lenders we trust) but you can choose an online lender as long as they communicate well with us. If you are leaning towards an online lender, we'd like to talk to them before you make your final decision.