The internet gives home buyers and owners the flexibility to shop for mortgage lenders across the country. Many borrowers will stumble across seemingly attractive rates or fees from a lender clear across the country. Other borrowers may have a bank relationship in a location where they used to live. Is it a good idea to use an out-of-state mortgage lender? In many cases, the answer is a resounding no.
- Are they licensed in your state? – Just because you see some advertising online doesn’t mean that a particular lender is authorized to do business in your state. The Nationwide Mortgage Licnesing Systems (NMLS) is a quick and convenient way to check on a lender.
- Do they understand the closing procedures in your state? – The real estate closing process is different in every state. Some states close the deal and exchange money at the closing table. Other states, like Washington, are escrow states where everything is signed and deposited into escrow and the transaction officially closes when the deed gets recorded. A lender who doesn’t regularly do business in your state is likely to make mistakes which will cause delays in closing. If they can’t prove they have experience closing loans in your state, don’t use them for your loan.
- You don’t want to be in a different time zone – The mortgage process is time-sensitive, particularly when you are purchasing a home. Using a lender that is 2-3 hours ahead of your time zone is a recipe for delays. We’ve had plenty of disappointments where lenders go home for the day at 3PM our time, leaving our buyer in the lurch with no loan documents. Not to mention, a big chunk of the lender’s work day may happen before you even wake up. If you need documents from them urgently or they need documents from you urgently, you absolutely want to be in the same time zone.
- Don’t be farther than driving distance – When deadlines are tight and physical document reviews are needed, you want to be within driving distance of the lender so that documents can be hand-delivered or sent via courier. I had a transaction with a lender in Oregon that came down to the wire. Loan documents arrived for signing at the very last minute and while the buyer got them signed in time, the lender was required to review the physically-signed documents before they would fund the loan. The distance between us meant that the physical documents could only be sent via FedEx and we had to delay the closing by a day. If that lender was in Seattle, it would have closed on time.
- Knowledge of local real estate market and practices – Not only is the closing process different in each state, the local contracts and practices also vary. You want a lender that is in tune to the local contract documents, contingencies and timelines. You also want a lender that has the right local appraisal contacts so that you are getting appraisers who regularly work the market.
While we have had occasional success with out-of-state lenders, a large number of painful mortgage experiences for our clients have occurred when they select a lender in another state. Our recommendation is to stay local. We see hundreds of lenders every year through a variety of transactions and are more than happy to share the ones that are great and ones that aren’t so great.