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Real estate agents are experienced professionals that can serve as a great source of knowledge. Many people only buy or sell a home a couple of times in their life and first-time buyers can often feel overwhelmed by the whole process.
Your agent will be very familiar with every aspect of buying a home, including getting a mortgage. They can probably provide referrals to for lenders, but is taking their advice a good idea and will you be on the hook for anything if you take their recommendation?
What is a mortgage lender referral?
Put simply, a lender referral happens when someone, like a realtor or agent, recommends a lender to someone who wants to get a loan. If you ask your realtor for a few good lenders to work with and your realtor directs you to a lender, they’re making a referral.
Some common questions people have about getting a lender referral from their Realtor include:
Should your realtor 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 homebuying process.
Do realtors get “kickbacks”? Do mortgage brokers get them? No, under the Real Estate Settlement Procedures Act (RESPA) realtors cannot receive compensation for referring someone on a conventional, federal mortgage loan.
Can a seller require you to use a specific lender? Can a Realtor? No, you can’t be required by a homeowner, builder, or your realtor to work with a specific lender.
Do sellers prefer local lenders? Some sellers may prefer local lenders, especially if they’re known for good and quick service. However, many sellers won’t be particularly concerned about the lender you use.
Are you obligated to stick with a lender if you get their pre-approval? If you accept a referral and get pre-approved by a lender, you’re not required to move forward with them. However, you will have to go through the qualification process again with a new lender.
Should you use your Realtor’s ‘preferred lender’?
Some realtors will have a preferred lender that they can recommend to you. They might prefer that lender because they’ve built a good working relationship with the lending team.
Jeremy Shachter, a 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 recommendation for a lender. There are so many lenders currently and your realtor usually… knows how the lender performs… (You should also) research lender reviews and ask your friends who they have used.”
You are not obligated to work with a realtor’s preferred lender if you don’t want to. If you already have a preapproval or want to work with another lender, the realtor 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 the process
- The lender knows the local area
- Lender may offer incentives, like closing cost discounts
- The lender might not offer the best deal
- The lender might not offer FHA or VA loans
- Potential conflict of interest
What your realtor should 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 in all aspects of the homebuying process. After all, they get paid when you close on a home.
Even if you stick with a different lender, your realtor should be familiar with the mortgage process and be able to offer you advice, such as fees to watch out for and how things like appraisals work.
Always shop around for mortgage rates
No matter where you’re getting your mortgage, it’s essential that you take the time to shop around and compare mortgage rates. Especially in today’s market where rates are rapidly changing, going with the first offer you get might mean leaving money on the table.
Mortgages are massive loans, which means even a small difference in interest rate can have a big impact on the cost of a loan.
For example, if you get a 30-year loan for $250,000 with an interest rate of 5 percent, you’ll pay $1,342 per month. If you drop the rate to 4.75, you’ll pay $1,304, saving $38 per month. Over the course of the entire loan, you’ll save $13,680.
Your realtor likely knows a few good lenders and will give you a recommendation if you ask for one. However, there’s no obligation to work with your realtor’s preferred lender and you’re free to stick with whichever one you choose. Be sure to always shop around and compare rates. Putting in the effort could help you save a lot of money.