Last week I received a request for help from a lender. One of my team members was on vacation and his client informed the lender that he was switching lenders less than three weeks before closing, to get a lower interest rate. This created a huge problem with the seller and her agent, and it could have delayed the closing.
I contacted the buyer and pointed out the clause in the purchase agreement that states the buyer must make application for the loan within five business days after the acceptance date of the purchase agreement. I also explained that when the purchase agreement was presented to the listing agent and seller, the buyer’s pre-approval letter was included, and the listing agent contacted the lender to verify the approval, before the seller accepted the purchase agreement.
It takes about four weeks to get a loan approved, and in this case the appraisal was complete, and the buyer’s loan was already approved. The listing agent made a routine follow up call to confirm the file was on track for closing and the lender informed the agent of the buyer’s intention to switch lenders. The listing agent was furious as now there was no pre-approval letter, there would need to be a new loan application, appraisal and the sale wouldn’t close by the date in the contract.
Once the buyer understood the contract and the process, he agreed to continue with the original lender. The reason the buyer was quoted a better rate was because the interest rates dropped the day before. The original lender has a “slide rule” whereby they match rate reductions within two weeks of closing, so the buyer benefited from the lower rate with the original lender.
It is important for buyers to compare lenders and loan costs, but it must be complete before the execution of a purchase agreement, or immediately thereafter. Had this buyer discussed the rate change with his agent and the rate wasn’t matched, his agent could have prepared an amendment to the purchase agreement requesting approval from the seller, to switch lenders and extend the closing date. An updated preapproval letter from the new lender would have been submitted with the amendment. Then the listing agent and seller could have verified the status with the new lender and made an educated decision.
A purchase agreement is a legally binding document, so it is important to consult your real estate agent or attorney before making any changes, once it has been executed.
Ask the Real Estate Agent is a weekly column by Cheryl Kempenich of Coldwell Banker Burnet, who lives and offices in the Chisago Lakes Area. Submit your questions to email@example.com. All information is deemed reliable but not guaranteed. For legal assistance consult an attorney.