Answering buyer questions regarding mortgage financing

A first-time buyer reached out to me with some great questions.  They are looking to buy a house in Berkeley or Oakland within the next year and had already pursued mortgage financing with a “big bank” as well as a local mortgage lender for a loan pre-approval.  With their price point being $700k-$800k and a 20% down payment, they received rates for a 30-year fixed loan that varied from 3.875% from a “big bank” to 4.7% from a local lender.  They also had an option utilizing cash through a source that would take some time to acquire.

They wanted to know my thoughts on, 1) buying a loan vs. buying cash, and 2) working with a local lender versus a “big bank.”  My response to them was:

One of the drivers of our market in the last 4 years has been low inventory, which has created multiple offers.  I track approximately 200+ transactions in the Oakland and Berkeley area annually and, what is important to note, approximately 80% of winning offers are written with the buyers waiving all of their contingencies (online tools do not reveal type of financing or terms of the winning offers).  If the property is popular, it can be a battleground situation.  One of the implications to this type of offer is that your initial down payment (typically 3% of the offer price) is at risk if you do not close escrow for any reason.

As far as big bank versus local lender, in the 12 years of selling hundreds of homes the majority of my transactions are with local mortgage brokers doing the financing (with a handful of exceptions), but never with the big bank financial institution that this particular buyer solicited Typically in this multiple offer market, a seller will go with the known quantity, meaning the local Realtor and local mortgage lender whose reputations for closing deals precede them.

An example being, this year my client purchased a 2 bedroom, 2 bathroom penthouse in the Adams Point neighborhood of Oakland. On this property there were 12 offers received and there was a full day of negotiating.  There were 4 offers that received a multiple counter offer from the seller.  In the end my client had to increase her price to win the deal, but I found out afterwards that there was another offer identical to ours.  The listing agent mentioned to me that the sellers picked my client’s offer because she conveyed to her seller that I was a local agent with a vast amount of experience in our market and the lender was a local Oakland mortgage provider.  The terms and price were the same.  In no way do I want my clients paying a higher interest rate by selecting a local lender over a big financial institution but we are in a market that is currently beyond competitive.

In regards to cash versus loan, cash can beat out other offers as long as it is about the same offer price as the loan offers.  Meaning if there is a choice of a strong offer with a loan that is more money than a cash offer, I have seen sellers take the loan offer to yield more money.  Cash is king only to a certain point.  I see cash deals about 25% of the time; however, what is even more important is the reputation of your agent and lender.

I hope this potential buyer Q&A helps you as you decide your mortgage financing.