Every Tuesday, I go into detail a question I frequently get asked. Should you use a local bank vs online bank for bay area home loans. While interest rates are always very important, there is one piece you need to be most aware of.
Online banks have gained significant market share over the years claiming to be very customer centric and streamlining the process. They even advertise some of the lowest rates you will see! Check this latest ad out from Quicken Mortgage. They are offering loans for under 2% for a 15 year fixed rate! And they are not the only ones. They are clearly doing very well as their parent company, Rocket Mortgage just IPOed last week making Dan Gilbert the 28th richest person in the world.
But, should you use them for your home loans here in the Bay Area? It depends. Let’s talk about home purchases first. While these online banks are commonly used in a lot of markets across the country, they don’t do many purchases here in the Bay Area for several reasons. Because of how fast properties move, the time it takes to close is very important. They don’t have the same sense of urgency to be competitive with the banks that are local. Many banks even as busy as they are today can close as fast as 15-18 days. 2nd online banks don’t have local contacts that you can chase! The benefit with working with someone local is that reputation matters a lot. It means a lot to me as a top Realtor for future transactions, but also for them to do a good job so that they can get future business with you.. They have much more on the line with their credibility than someone that doesn’t have a focus of a particular area.. Last but not least, it is the ability to actually close the loan! When you are in contract, you would have 3% EMD or Earnest Money Down. This is your commitment amount that you need to fulfill the loan. No slight interest rate improvement is worth this risk! I’ve personally seen many of these loans claim that they have these amazing interest rates, only to fall out of contract weeks later jeopardizing the entire deal and the buyer’s EMD altogether.
Now where is it a good option? Refinances are a great solution because you don’t have the time constraint and the monetary risk of breaking a contract. You are welcome to shop around and try to get those teaser rates. Worse comes to worse, the refinance doesn’t go through so while you lose time and have a headache, at least you aren’t losing tens of thousands of dollars. Just be wary of the fine print. A lot of banks can go very low if you pay points. Think of interest rates and your closing costs as a sliding scale. Anybody can go really low if they are willing to pay a higher closing cost for it. Let’s look at that same teaser rate, while the rate is at under 2%, the closing costs are at close to 1 point which is a lot of money here in the Bay Area.
Want to talk about your real estate goals? Find a time on my calendar! www.Calendly.com/sphsu04