Turnkey provider choosing lender?

Question

I recently had a turnkey provider, that I've worked with before, change a policy. I'm curious what words of wisdom the BP crown can shed.

The turnkey provider now insists that buyers use one of 3 lenders that they suggest. I'm used to turnkey providers strongly suggesting particular lenders, title, insurance companies. But usually they are willing to work with whoever the buyer wants to use. Part of me wonders if there isn't a bit of shenanigans going on here. Another part of me doesn't care that much about the lender. They're going to sell the mortgage before I even make the first payment anyway. And the turnkey provider is giving me a choice of 3, not forcing me to use just 1 lender (presumably their brother-in-law.)

Thoughts? Thanks!

Ali Boone · Answer

Hey everyone, so here's the deal- having been on the other side of this equation (helping people buying turnkeys and seeing all the shenanigans.)

First, there are only a few instances when people can collect commissions or referral fees from lenders, so that's not part of the issue (in case anyone was wondering if the TK providers make commishes from the lenders they recommend).

Second, lenders have to care about the banks that the lending goes through, rather than appeasing anyone outside of that. Meaning, having appraisers in the bag who will appraise high would only hurt the lenders because the banks are on the hook for the properties. So I doubt any lender/bank would work with a turnkey provider in that capacity.

Lastly, and the main reason for them making recommendations (and some now apparently requiring it), is because most lenders will never close an investment property loan. Certainly the big banks won't, but most banks are used to primary homebuyers and primary home loans. It's not that they can't do investment property loans, but most people don't really have the systems or bandwidth to deal with them. Because they aren't used to them, it's just not in their everyday. Most every bank on the planet, if you ask them if they can get you a mortgage on an investment property, will tell you yes, absolutely. But will they be able to actually close the loan. That's when things get hairy, and a lot of banks can't. The lenders that the turnkey providers use are able to close those loans, and they do it regularly for turnkeys so it completely avoids the potential drama of someone saying they can close it but never actually closing it.

I've dealt with investors who have wanted to use their own lenders rather than the ones that the turnkey folks offer them, and I guarantee you that no more than probably 5% of those lenders could ever close the deal. It was like 95% of those loans didn't make it through whenever an investor picked their own lender. When that would happen, it would nearly double (or more) the holding time of the property by the turnkey provider because then they had to wait for the investor to completely requalify with a new lender and start all over.

I don't know the company specifically who now requires investors to use 1 of 3 lenders, but I can totally see why. Ultimately the turnkey provider ends up hurting when they have to double their hold times because of the need for a lender switch.

Regardless of whether you're buying turnkey or not, you always want to work with an investor-friendly lender who focuses primarily on investment properties rather than primaries. It makes a ton of difference.

Wayne Brooks · Answer

I’m thinking they know they can get generous appraisals through these lenders, since they typically try to sell above true market value.

Scott Wolf · Answer

In instances like these, they most likely have pre-existing relationships, and know that the process will be easy(and fast) for both sides.  They do this to ensure the speed of the transaction, know that only a worst case scenario will fall through, and there may not even be a monetary incentive involved(for them).  As long as their rates and points are in line with market, and they're licensed, I wouldn't worry too much about it.

Pride Davis · Answer

Does anybody in this thread recommend a turnkey provider in the Pensacola or Hampton Roads area?

George Pauley · Answer

Wayne, you get right to the root of my concern.  But, is this an issue with qualifying loans?  My understanding is that federal Appraiser Independence rules require random selection of the appraiser?

Danielle Wolter · Answer

@George Pauley I actually have this same question. I have a couple turnkey providers that I have shied away from because of the requirement to work with their lenders. And maybe it's just fine, but it makes me nervous nonetheless.

Turnkey provider choosing lender?

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