There’s a huge difference between choosing a local hard money lender and choosing a national or regional lender. Too many borrowers are completely wrapped up in finding a lender and getting a loan application submitted. Many of us think that’s the most important and difficult hurdle to overcome. When your entire focus is simply on getting a loan, you can easily forget about the importance of having a lender available after the loan is closed.
What Happens After You Sign for Your Mortgage?
Whether you are working with a local bank or a nationally recognized mortgage company, you need to understand what’s happening after you sign for that mortgage. Because lenders have 4 basic options of what to do with your mortgage:
- They can keep the mortgage in their loan portfolio
- Another option is to transfer the servicing to another company for loan servicing
- They can sell your loan to another investor or financial institution who will handle and manage it
- Or a combination where they transfer the servicing and also sell the loan to a 3rd party
Selling Your Mortgage
There are several players in the secondary mortgage market. Some of them include Freddie Mac, Fannie Mae and Ginnie Mae. Other investors or buyers of these loans include insurance companies, mortgage real estate investment trusts, commonly called REITs, as well as Wall Street brokerage firms.
Under this example, the actual mortgage is sold off to the investor. Your bank or lender will “package”, or combine, your loan with others and sell them to an investor for an agreed upon price.
They can sell the loan including the servicing of the loan, or not.
Selling Your Mortgage Servicing
Every loan is serviced (which is a fancy term for managed) by either a lender or mortgage servicer. The company that services your loan tracks several facets of your mortgage to make sure that payments arrive and are applied correctly. Some areas your loan servicer handles for each loan include:
- Loan payments and making sure that they are applied correctly.
- Verifying that sufficient funds are coming in, and going out, for all taxes and insurance requirements for your loan. Also making sure that the payments are made in a timely manner to avoid late fees, service charges or any potential loss of insurance coverage.
- Managing and overseeing any rehab escrows or construction loans. This includes releasing funds as well as reviewing the scope of work and inspections as needed.
The Difference Between a Local Hard Money Lender and a National Loan Servicer
Too many borrowers pay no attention to what’s going to happen to their loan once they acquire the property. And that is when there can be more potential issues than before you buy the property.
This is especially true is you have any rehab funds or construction loan disbursements that need to be managed and handled quickly and effectively. Too often in these situations there’s a draw revision required or a change in fund disbursements that needs to happen. Many times the issue needs to be resolved fast or the project can run into difficulties.
If your mortgage is sold or the servicing sold, this can create a time laden and costly issue for you, the borrower.
To start with, you’ll have to determine who has your loan. Hopefully you’ve been notified and the lender provided all the right contact information for you. Too often it doesn’t happen that way and you have to jump through dial 1-800 phone hell.
Next is the headache that happens when you do reach one, or maybe two, groups that need to be involved in whatever your issue is. If it’s a draw or inspection issue that’s likely to trigger an inspection or review of some sort. Both of which can take time before they happen. Remember, the investor, whether it’s a bank or investment group, isn’t local and needs to find the right resources to review your situation as well as inspect if that’s required.
Suppose you have a project where the draw request and overall project is simply not going as outlined. You might need to revise the entire schedule as well as the draws or even ask for an increase in your construction line. While your local hard money lender could easily review and get back to you within a day or two, if your loan or servicing has been sold, this isn’t quite as easy. Each servicer has their own requirements in this situation, but it is a time consuming process.
What Are Your Options? Local Hard Money Lender!
The important thing for any borrower to understand is that what happens after they get their loan is as important to know as the terms of the loan that a lender is offering. In order to do that, ask a few questions before moving forward with a lender.
Find out if they keep all loans they originate in portfolio or not?
If they say they sell the loans, find out if they sell the servicing of your loan or not?
If they sell both the loan and the servicing, ask them to spell out in detail exactly what and how the draw process would work with your loan, if needed? Who is your contact person?
Ask them what and how are issues or revisions to the rehab or construction loan draw schedule handled?
Only after you’ve had these questions clearly answered, would it be smart for you to move forward.
Choosing a local hard money lender can help you avoid all of these potential issues. Lenders like us, at Lone Star Financing in Texas, don’t do any of these things! All of our loans are originated locally and managed locally.
That means when you have an issue or need to discuss something regarding your loan status or any potential rehab or construction issues, we’re here and able to help you get them resolved quickly and easily. No 800 number calls, just local calls or stop on by to let us know how we can help you have the best lending experience possible!