One Trap of Working with an Out of Town Lender

For years, active brokers and agents alike have shunned working with out of town mortgage lenders and for good reason. While most out of town lenders pretty much say the same thing to the buyers (low rates, nominal fees, that they are familiar with our process, etc) the reality is that they often only tell you what you want to hear and not what they are actually willing or able to do.

Here is a real life situation, being played out as I write. A Metro NYC buyer is purchasing a home in the Capital District. Because of a long-standing relationship with a NYC credit union, insisted that they were offering her the best deal. Well, that was mistake number one. Seldom can an out of town lender compete with local banks. And, often when the quoted rate is low, it will be accompanied by additional fees, points and other unnecessary charges that can cost thousands of dollars up front.

So here we are, two weeks before the proposed closing date and now the loan processor wants to see the current C.O. (certificate of occupancy). Did they say current?

Here’s the deal. “Downstate”, municipalities issue current C.O.’s all the time and owners are expected to have one when they close – but that is the farthest thing from how C.O.’s are dealt with locally. In most upstate communities, C.O.’s are issued once – when a property under construction is completed. The only other time would be after significant (usually structural) changes or renovations were made. Therefore, the probability of getting a current C.O. is pretty low for most properties, mainly because they don’t exist.

No amount of explaining, not even a copy of the curt e-mail response from the local building department saying “We don’t do that here”, would satisfy the credit union. Now for the killer. The credit union wanted to hold back $1,500 at the closing until a current CO materializes. But what if the local town or city does not issue updated CO’s?

In the end, we persevered and (at the last moment) were able to convince the local building department to issue a letter. Still, this is a good example of why buyers should try their best to work with a lender familiar with the practices in the area where the property is located. Otherwise, you may find a total loss of control over the process, delays in closing and unnecessary costs.

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