Homebuyers work closely with both a mortgage lender and a real estate agent to make sure they find the right house and get the proper financing.
Real estate agents often develop relationships with lenders so they can recommend a professional who they trust to provide excellent financial service to their customers; others may even cultivate an association with a specific mortgage lender or lenders. Some real estate companies go a step further and develop in-house lending programs or an affiliation with a mortgage lender in order to generate more revenue and have greater control over the financing process. The extent of these relationships can vary according to state and federal laws.
There are both advantages and disadvantages to working with an in-house lender, and homebuyers should always compare offers from multiple lenders before committing to a lender or a loan.
Advantages of in-house mortgage financing
If you're a novice to buying a home, having your real estate agent or sales associate recommend you to a lender can be a convenient avenue to getting preapproved for a mortgage to buy a home. That said, while this lender may be your first stop, it shouldn't be your last or only one.
Given the complex transactions of buying a home and getting a mortgage (they are separate deals!) and how they intertwine, having a chance at one-stop shopping does have its appeal.
Such relationships between lender and real estate agent or can mean more consistent communication between the parties and fewer delays in solving any problems that may arise. This can have value to all everyone with an interest in the transaction.
That said, while having a lender readily available to talk to is convenient, not researching what the market has to offer may mean you miss better rates, terms or service from another lender.
One thing that's important to keep in mind is that the goal of the real estate agent is to get a deal done for their client, who is selling the home. The goal of the lender is to make a sale. It doesn't have to be the right deal or the best deal, just a deal that works. The only one with a vested interest in making sure you get the right deal (or a good deal) in all this is you.
That's not to say that there won't be any benefits available to you for following the in-house path. For example, you might find that you'll be offered cost reductions or incentives to use the in-house lender.
This is especially common in new construction. Builders may have built-in financing companies that can offer you temporary or even permanent reductions in interest rates on your loan, reduced closing costs or even things like kitchen upgrades. Still, you need to weigh these offers against those of firms not connected to the deal to determine how much value they bring.
Related: Buying a new construction home
How does in-house financing work?
Outside of the point-of-sale location, the process of getting a mortgage from an in-house or outside financing source is the same.
In general, an in-house lender is generally someone who sits in the real estate agent's or builders office to field questions and offer loan programs and advice to agents' clients. Some buyers like the concept of communicating with one party, knowing their lender will update all other parties involved.
At least at this point, the lender will likely do a preapproval to establish how much mortgage your income and debt load will support at your given credit rating. They'll pull your credit score and potentially collect a fee for a future appraisal if you should find a property to buy through the agent with whom you're working.
This fee is likely to be non-refundable if you should choose to go with another lender, so you might simply work with the prequalification that the sales associate likely provided, then research and shop for your loan with other lenders to see what's available. You can always come back to the in-house lender if their deal is competitive.
In-house financing disadvantages
An inaccurate assumption is that in-house financing requirements are less stringent, and result in a smoother and faster loan process than with other lenders.
The implied sense of control over the loan is typically just that -- implied. In-house lenders go through the same steps from application, to underwriting to closing.
In-house lenders have a good amount of built-in volume and may have a different compensation structure because business comes to them directly. With deals coming in all the time, they may have less incentive to go the extra mile for someone who needs to explain a period of unemployment or perhaps has a credit ding as a result of a divorce.
Some in-house bank mortgage companies may feel they have your business "in the bag," and as a result, may not be as hungry for it. A lender who faces no competition for your business could result in you failing to get the right loan type and best mortgage rate and closing costs for your needs.
One important factor when it comes to using in-house lenders that has caused the real estate and lending industry to change its game is surveillance by the Consumer Federal Protection Bureau (CFPB). The CFPB has been cracking down on realtor/lender relationships for violating the Real Estate Settlement Procedures Act (RESPA) for years, and lawsuits alleging "kickbacks" from these kinds of referrals happen routinely among entities both large and small. For example, in the past there have been such suits filed against Zillow, and one was filed against Rocket as recently as December 2024.
None of this means that an in-house lender or offer won't be right for you. You just need to consider all options and offers before making a choice. It's the only way you'll know you got the deal that's right for your situation.
Always compare mortgage rates
Regardless of the offers from an in-house or preferred lender, it's always smart to shop and compare mortgage rates from more than one company. You may end up finding that the in-house lender is the best fit, with the best fees and the best rates. You may also find, however, that a better mortgage loan exists for your situation.
Don't worry too much about having multiple inquiries potentially harm your credit score. Typically, over a short period of time, multiple credit searches are treated as a single inquiry. This means shopping around should have very little impact on your credit score. In fact, according to myFICO, one inquiry should take less than five points off your FICO score. The general rule of thumb is as long as the shopping occurs within 14-45 days, all inquiries count as just one.
A mortgage is generally for a lengthy time-period, so it is important to do your research to find the best possible home loan.
This article was revised by Keith Gumbinger.
