Do I need to find a lender in the local market?

10 Replies

I am looking at multifamily investment opportunities in the San Antonio, Fort-Worth, and Austin areas. I am currently looking for a lender and I am wondering if it is advantageous to have a lender in each market.

I ask because financing seems to be nationally driven rather than market driven. So my point is that why would I need to have a lender in the exact market. If a lender is in Manhattan and he finances my deals in Texas, is there any downside? Is there a gap in my logic?

@Matthew Metros

Suppose that you're a seller in Austin considering identical purchase contracts from two different buyers. One buyer's lender is based in Manhattan. The other buyer's lender is local to Austin. Even better, your agent has had positive experiences with that lender in past transactions. With the lender being the only substantial difference between the two buyers, which offer would you select? If you would go with the local lender, think about why you feel drawn to that lender over the out-of-state lender.

When evaluating offers, sellers (and their agents) don't focus solely on a buyer's offer price and other specific contract terms. They're also asking questions like, "How likely is this buyer actually to make it to the closing table?" and "Will the transaction go smoothly with this buyer, or will it be fraught with drama and uncertainty?" There are many ways for a buyer to address those and similar questions when making an offer. The choice of lender is one important component.

Multifamily properties in the Austin area commonly receive multiple offers from qualified buyers. It can get extremely competitive. I've personally seen several multifamily properties in the Austin area receive 20+ offers this year. I know San Antonio can also be very competitive. If you want to do everything you possibly can to succeed, then I recommend working with a local lender. You might not need one in each market, but having one based in Texas can give you an edge over other buyers with out-of-state lenders or big national banks.

@David Ivy is completely right. The last two multifamily properties we offered on had 15 and 17 offers. A great lender has a lot of pull with a listing agent!

@Matthew Metros I've had many more out of state lenders cause delays in closing than local lenders. Local lenders will be familiar with the appraisers and title companies in the market, and any peculiarities that might be associated with them. 

If you're looking at 5+ unit multifamily, local banks and credit unions will be your best source of financing, unless the deal is large enough for agency debt. There are a few national lenders that will play in that 2-25 unit space, but you'll often run into problems with their minimum loan limits when you're on the lower end of that spectrum.

For a very long time I thought exactly like you did, but these days I have a lot of out of state clients, and I recently had an issue with one that would've never happened with a local lender:

In the Austin market, appraisers are so swamped that it's not unheard of to have a 20-25 day lead time for appraisers. For this reason I've moved to a 45-day closing on most properties where my buyers require financing, vs the traditional 30 day close. I always let the lender know when option is over so they can order the appraisal ASAP, but one particular client's lender ignored that and waited because in their market that wasn't necessary. We didn't end up losing the deal, but we had to adjust the closing date twice before we could get it done, and if the seller had wanted to, they could've gotten out.

That's one specific example, but familiarity with local markets can help in a number of ways. If you have a lender you absolutely love, by all means stick with them, but make sure your Realtor is well-versed in lender issues so they can educate your lender. 

@Matthew Metros I am of course biased but yes having a local lender plays a huge part. With a local lender they can give you a second opinion on the property. So you will get a Realtor’s opinion on value and a bankers. One is very liberal and one is very conservative in most cases which will give you a good range in between in Value. Also a good lender will be able to send you deals that they may run across as well. Lastly, since bankers have clients of all backgrounds when work needs to be done on your property they can send you good references for your home.

Good Luck

@Matthew Metros Are you looking strictly for conventional lenders or private / hard money as well?

I would definitely recommend keeping it local to where you're buying.

Advantages include the lender having better appraisal connections and knowledge of the areas you're buying in. Much more likely to close as others have mentioned.

@Jacob Pereira

Good discussion.

I'll be the contrarian.  Have your ducks in a row with a lender that's licensed (where required) or well versed in their products.  It's against the law for the lenders to influence the appraisers, so not sure where that's an advantage and if you have a local title company, they can shepherd you through any title anomalies like lava floes in Hawaii, mineral rights in Colorado or water rights in Nevada.  If you're doing a Fannie Mae/Freddie Mac loan, your findings are what the underwriters look at, not whether you're local.

Having said that, I have seen where Realtors have steered (yes, I said steered) sellers to use local lenders and their drinking buddies, but it's really not necessary.  I've also seen examples of lenders who don't have their procedures down and waste precious days not ordering appraisals, insurance or title, so I guess it goes both ways.  As an example and not a solicitation (for the moderator) we closed loans in 16 states last year and have 1 office in the DC metro area, so remote does work.

Hope that helps

Stephanie

For the most part, it doesn't matter. Execution is critical. If you use an lender in Manhattan its important to gauge if they can execute their part of the deal flawlessly. Do they have ability to tap into local resources to execute the deal?

I listed a property recently that we purposely were trying to get a bidding war going on. It was a bit of a fixer upper. We had over 10 offers. We had two offers that were very comparable. I called both mortgage folks on the prequal letter. One had a lender that I knew. The other one had a lender out of state. It seemed that the lender out of state didn't have his ducks lined up with local resources, so to speak. My client and I discussed it for awhile and we decided to go with the one that had a local lender as he had a reputation for pulling off tricky deals and this was a tricky deal. 

I'll say it probably never hurts to know the listing agent when getting your offer accepted BUT San Antonio/Fort Worth is a big market so I don't know how good the chances are of being buddies with the listing agent. Being licensed in 48 states, there is an advantage to being able to assist clients in almost every state rather than having the client send a million documents to however many different lenders. I will also say that smaller credit unions and lenders, while they can be more flexible in their guidelines, can also be more inept and there may be more stupid policies you'd have to deal with as opposed to a bigger bank that has the funds to avoid stupid requirements. 

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