3 Real Examples of What Happens When You Choose The Wrong Mortgage Lender

Choosing a mortgage lender is an important part of the home buying process in San Jose. After all, your mortgage lender helps you secure the funds that allow you to complete the transaction.

The best mortgage lenders will communicate promptly and proactively, keep to the expected timeline, and be *very* experienced in securing loans in the San Jose market. Choosing a local lender is critical– they understand the competitive nature of our market and the expedited timelines necessary to compete.They’ll also work hard to get you the best possible rate and educate you on the types of mortgage products available.

But if you work with the wrong lender, things can go sideways. Timelines can extend, money can be lost, and you even risk losing the property. No one wants to work with a bad lender, but we’ve seen it happen. Below you will find real stories that showcase some of my clients’ experience with mortgage lenders. Note that names have been changed to respect privacy.

These stories serve as examples of some of the things that could happen and the lessons learned in order to avoid problems.

3 Real Life Examples We Can Learn From

Example #1: Donna assumed a refinance would be the same as a purchase loan

Donna knew a lender from a personal refinance a few months ago. Donna had been working with this lender for a while and thought all the necessary paperwork was in order for her to make a purchase of her next home.

Donna wrote an offer with this lender with a 12-day loan contingency. The seller accepted and of course, the seller expected buyer performance. Twelve days in the San Jose market with all forms already submitted to the lender should be plenty of time.

During those 12 days, when the lenders should be submitting your file to the bank, the lender kept changing the programs and the loan details they promised to the buyer. (take note that Donna thought that the lender had all the necessary paperwork already and thought that they would be submitting that loan right away to the underwriter during those 12 days).  

Three times in the 12 days Donna got extremely upset and asked “What happened to the first thing you promised? Why didn't you lock it? Where did the first loan go?” Donna finally agreed to talk to my personal lender referral to understand if the loan program changes were true or not.  

Donna ended up working with my lender who got the loan fully pre-approved in just 5 days and was able to close it in less than 21 days.  

Mistake 1 - Donna didn't want to talk any other lender before an offer on a house because she had such great confidence due to recent experience.  

Mistake  2 – Donna assumed her refinance experience would be the same as purchase experience.  

Lesson for buyers  - Make sure your lender has recent experience and that you have a backup lender to jump on immediately if needed. Do not wait 12 days or until your loan contingency is due. A lot of stress could have been avoided if Donna had talked to another lender in the beginning.  

Example #2: Brandon shopped for a lenders after he was under contract

This is the true story of Brandon, a buyer for one of my listings. Brandon’s offer was accepted based on a reliable lender who I knew. Brandon’s agent also had recent experience with this lender.

But Brandon decided to shop rates when the contingency time clock was already ticking without telling his agent. He fired the lender who gave him the pre-approval letter with his offer. 

Since I had a relationship with this lender, the lender told me about this change. I then had to contact the buyer’s agent and the seller about this problem. I then connected with Brandon’s new lender and was promised they could perform on the schedule but was not confident based on experience.  

Brandon’s new lender could not get loan approval in a timely fashion. The seller’s got very upset and had to change moving plans. Twenty-one days into the contract, Brandon still did not have loan approval when he should have had it in 10 days or less. Brandon was very nervous and I was calling the lender and buyer’s agent every day. As a result of this mistake, the schedule slipped by over two weeks, which is A LOT. 

As a result of Brandon’s mistake, the sellers could have cancelled the contract and Brandon lost the house. Instead, these sellers required a hefty late fee for each day Brandon closed escrow after the promised date.  Any little bit Brandon thought he was saving with this loan ended up costing him four weeks of big stress, thousands in late fees, and extra living expenses since he has to leave his rental before he closed. 

Mistake 1 – Brandon decided to shop rates AFTER he was in contract.

Mistake 2 - Brandon completely switched lenders 5 days into the contract.  

Mistake 3 – Brandon thought he could save money and still get the house. 

Mistake 4 – Brandon did not realize or think through that the listing agent knew his pre-approval lender. 

Lesson for buyers - Don’t shop around for rates after going into contract and absolutely do not switch lenders without alerting your agent to the tradeoffs. Although it seems like shopping around will save you some money, the risk of losing the house or not being able to secure a loan in time is too great. It’s OK to shop around for rates, but it must be done before you write an offer on a property.

Example #3: Researched options and good communication

The last case involves Terry who did a lot of lender research ahead of time and her story ends up great. Terry had two complete pre-approval letters going into the offer. Both lenders had all paperwork turned in and were valid pre-approval letters.  

When Terry was ready to write an offer, she was able to pick which lender had the better rate or that she felt most comfortable with.  Terry also had a really solid backup pre-approval as well.  

We wrote an offer with Terry's preferred choice lender and were able to move through the final loan approval process without any problem. This was a great success story and how home-buying should be.  

If you're a home buyer and you really want a house, don't stress about losing the house or timelines, protect yourself, do your research ahead of time to make sure you've got a great mortgage lender (or two!) on your side.

Choosing the right mortgage lender

Choosing the right mortgage lender reduces stress and ensures that you can abide by all of the deadlines in the purchase contract thereby getting you into the property as planned, on schedule. Learn from the stories above so that you are prepared. Wondering how to choose a mortgage lender? We have a resource for that.

Other questions about mortgages?

What’s the difference between loan pre-qualification and loan pre-approval?

Why do you need a home loan pre-approval before going home shopping? 

Who are some local San Jose lenders we can reach out to?

If you have other questions about buying a home in San Jose, read our step-by-step guide to buying a house. Ready to set up your team? Schedule your home buyer consult today so we can talk more about your home-buying goals.