How should I shop for a mortgage?

Question

I am new to the game of real estate investing and I wanted to know how should I approach shopping for a loan? I'm mostly indecisive on whether I should shop around for a loan myself by calling multiple banks or if I should have a mortgage broker shop for me to find the best rates and terms? Someone told me I should use a broker because they can do it for me but I'm not afraid to put the work in and call as many banks as I need to. Thank you.

Carlos Valencia · Answer

Hi Scott,

Working with a mortgage broker is the best option as they can help guide you through all the different loan products out there. Finding a mortgage broker who is also an investor and works with many real estate investors will be a good source for you. Its also important to make sure the mortgage broker has your best interest and not just looking to win your business by selling you on rate. Find a mortgage broker who wont be afraid to go over the pros and cons of working with big banks and working with them. Lastly if your concerned about rates dont let that be the reason why your choosing the lender you decide to work with as rates are always moving so if someone tells you I can get X rate thats great and all but unless your already in contract ready to lock then thats when rate will be important and actually shop if you think someone can do better than the current person your working with. Good luck on your search.

@Albert Bui @Matthew Kwan

Alecia Loveless · Answer

@Scott Fournier You can do it either way or you can do it both ways.

I’ve had accounts with two local banks where I’ve lived for over 25 years and so that’s who I reached out to. One I’ve done all my mortgages with one but this time it’s a commercial loan and the new loan officer was taking his time and not getting stuff done. We knew that if we put 25% down it was a 25 year amortization that adjusts every 5 years. But he didn’t tell us the rate.

We finally got fed up and went to my other bank and they said they could get it done on time. Their loan was 25% down for a 20 year amortization with a refinance in 5 years at 8.25%.

Then my bank with all my accounts and mortgages said our loan was at 7.0% so we decided to stick it out with them.

So sometimes you do need to shop around because a 1.25% difference is a lot and 5 years difference in the terms is a lot. It ended up being the difference of close to $1000 off our cash flow if we’d have gone with the second choice.

Trevor Schmitt · Answer

Hi Scott, you should have as many conversations with lenders as you possibly can... include local banks, regional banks, credit unions, mortgage brokers, etc...

A great thing for consumers when shopping for a mortgage is that you can have your credit pulled as many times as you want for pre-approval purposes within 30 days of the first time that it is pulled.

With that being said I would schedule at least 3-5 meetings with lenders in the area... they can pull your credit and show you what they can offer you. The multiple credit pulls will not negatively affect you, if they are within 30 days.

Also, it is important to remember that getting pre-approved with a bank does not lock you into anything... you can have a pre-approval and still end up closing a loan somewhere else. After having those 3-5 conversations it usually becomes clear who your best option will be and where you feel most comfortable at!

Lucia Rushton · Answer

@Scott Fournier where are you making the investment ?

Eric Miller · Answer

I've been a broker and also worked with a direct lender, and I'd always suggest going the broker route.

You mentioned talking to a broker and having them shop for you, but I'd take it a step further and contact multiple brokers to have them shop. One broker could be .5% higher on the rate than the other broker. The reason for this is because brokers usually have a commission % set with the lender and if they set theirs's higher, that will effect the rate that is offered.

So shop the shoppers

Doug Smith · Answer

Hi @Scott Fournier. I've been both a banker and a broker. Both have plusses and minuses. If you're new to real estate investment, the question is this: "How strong are your financials and what kind of relationship do you have with the bank?" Banks are set up for "operating entities" (they call it C and I). Federal regulators and bankers are programmed (I was once one of them...I know) to view small real estate investors negatively. They focus on owner-occupied real estate deals...dental offices, widget manufacturers, etc...where the money to pay back the debt comes from the operation of the occupying business, not the rents on the building. They will do a rental property for a good customer with money in their bank, but that's usually reserved for really good customers of the bank. Their rates will usually be pretty good, but they will almost always balloon the loan within 5 years and require you to cough up financials each year for a "renewal". A broker, on the other hand, will be good for someone that is newer, somone that does not have a significant relationship (meaning cash in the bank), or someone with financials that are heavily influenced by their real estate holdings. They will usually go longer term and will have more aggressive options, but a bank will sometimes have more flexibility if they will do the loan at all. Regarding shopping around, I know that, in theory, is correct and I do encourage you to always watch what your "go-to" lender is charging you, but relationship and loyalty are a big thing...at least to me. If I have a client that would sell out their mother because they are offered 1/8% less on a deal, then they shouldn't expect us bend for them. We have great and loyal clients. We know they come back all the time, so we'll make little to no money on a deal to get them closed. That loyalty, respect, and relationship...nay...friendship...is super important to. Shop and first, but don't just look at rate. Look at "closability", meaning are they smooth with the process, do they know their stuff, and to they get the job done. Build a true relationship with those people. Of course, always watch closely to make sure they aren't taking advantage of that trust, but if all things are close to being close to equal, go with the pro that you've built the relationship with. Good luck to you! I hope this helps you.

How should I shop for a mortgage?

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