Is Using a Mortgage Broker Worth it?

Question

Hello,

I was wondering if using a mortgage broker is worth it? I know they can save me time and possibly find me better terms, but is it worth the money when they are essentially just a middle man and I can shop lenders myself?

Thanks!

Cory J Thornton · Answer

@Madylen Barberan - You've already gotten a lot of really great answers. Whenever I am looking to do a deal I like to shop a mortgage broker, a credit union, a few smaller banks, and whoever is holding the bulk of my deposits. At a minimum I recommend talking to four lenders on any deal and there are some that I have personally shopped well over a dozen lenders to find the one with the best fit.

It may sound daunting to shop debt with that many places. You do not need to send them all of your financials to get them to give you a quote. I usually start by telling them about the deal, then asking what products and Ideas they have to help me get it done.

When comparing debt options I like to record all the following terms then look at the products side by side.

- Loan to Value

- Debt Service Coverage Ration

- Term

- Rate

- Amortization

- Cost to buy down rate

- Origination fee

- Appraisal amount

- Is there a pre payment penalty

- any other fees?

If you are new to investing and a fist time home buyer, then Truist may be a bank to interview. I recently heard they had a $7k grant to help first time home buyers with closing costs. If you need help connecting with local banks feel free to give me a shout. 9195300355. There are several smaller banks in the Raleigh area that have been good to work with on investment properties.

Best of luck on your learning and investing journey!

Alex Bekeza · Answer

@Madylen Barberan Mortgage Brokers don't stay in business long unless they provide value. Anyone can pick up a phone and call every lender on google but that's not what a mortgage broker does. Good brokers understand the nuances between the different underwriting guidelines of a wide range of lenders and will understand which group has the highest likelihood of funding your deal and the best price and have years of experience working with different lenders so they can avoid potential roadblocks. Perhaps even more important is that many lenders offer wholesale rate sheets/matrices to the best brokers. This is a way to lower their cost of customer service and reward the brokers who bring the cleanest files in. For example, I only do Hard Money + DSCR but my colleagues in the office who do conventional can have you go on to Rocket Mortgages website, price your own deal, and then we can provide a quote in real time while you're on the phone where our rates and terms are leaps and bounds better based on many years of track record via Rocket's wholesale channel. In conclusion, you could never get the rates and terms that we as the broker could get you from one of the biggest conventional lenders in the country. The same is true in my world of Hard Money and DSCR, many of the lenders I use have retail loan officers but I have access to better rates than they can offer (plus way more experience in most cases). It's not uncommon for me to come across investors who have used the same lender a handful of times and then start using me for the submissions because I can get the same exact product for cheaper. Lastly, brokers don't get paid unless a deal closes. Retail loan officers are on a salary very often. That right there will tell you who is more motivated to get your deal funded.

I wise man once said "be faithful to your spouse, but have two lenders". You should be familiar with a handful of lenders but also have a mortgage broker you trust with this since your time is probably best spent doing something other than shopping for some 0.125% rate advantage somewhere since there's a lot more that goes into finding the right product than that.

I wise man once said "be faithful to your spouse, but have two lenders".  You should be familiar with a handful of lenders but also have a mortgage broker you trust with this since  your time is probably best spent doing something other than shopping for some 0.125% rate advantage somewhere since there's a lot more that goes into finding the right product than that.

Madylen Barberan · Answer

Thank you all for the insight, it was very helpful!

Erik Estrada · Answer

If you are fine with a lender potentially killing your deal and leaving you hanging while you find another, go direct.

A broker's value, is presenting you in the best possible way to get you to sign docs. The fact is, a direct lender can get you the best rate (sometimes) best terms etc.. but if they only have 2 months in the business, it will be tough to get you to close.

When you work with a broker, they have practically done all the upfront headache from their experience. Chances are you are not their first client with a unique scenario.

Stephanie P. · Answer

Hey Madylen

Welcome to BP!

If you're trying to finance your primary residence and you're a W2 employee with a clean rental history, your local bank, credit union or lender is a great way to go.  Shop your rates and see who comes in the lowest for the same loan product.  It's important that I note, the same loan product.

For investment properties, there are numerous ways for you to go and if you go with a lender, then you're limited to the products they have (and lots of lenders have lots of different products).  That's where brokers shine.  We have several lenders to send loans to and can tailor your loan to the right lender.  Here's an example of a typical borrower.

Borrower is trying to do a cash out refinance of a rental property they own in North Carolina.  Property is worth about 250K and they owe about 170K.  Right away, they're at 70% loan to value, so their cash is going to be limited.  MOST lenders are capped at 75% loan to value for cash out, but one of my lenders is currently allowing for 80%.  I check to see if the loan will work (DSCR percentage is above 1.0%, borrower's credit is 7420) and it does at 80%, so I send it in.  If the borrower had gone directly to any number of lenders, they would be capped at 75%, but because I have access to a bunch of them, I got her in at 80%.

Hope that helps

Stephanie

Doug Smith · Answer

Yes. Here's the reality. You have Retail Lenders and then you have Wholesale. Brokers are wholesale and have the ability to run your loan through several different companies...not just one. We also typically build in a lot less of a mark up that the retail lenders have built into their pricing. I hired a loan officer away from a larger retail lender recently by us simply running the same scenario on our pricing engines. We were significantly lower-priced. Even when a wholesale lender has a retail arm, they typically don't have the pricing flexibility that a broker has. A good broker that really knows their stuff can be an incredible partner for you. They not only can get great pricing typically, but they know which lenders have the best deals and which ones are great or nightmares to deal with. There is a reason I left retail lender to also be a broker. We actually are a DSCR lender, but we typically broker the deals because we often find that we can get the customer a better deal rather than doing it in-house.

Erik Estrada · Answer

Also FYI,

A lot of direct lenders have overlays on their guidelines. Whereas a broker may work with a few wholesale lenders that have looser guidelines.

Charles Carillo · Answer

@Madylen Barberan

I would say it really depends on the type of property you are trying to finance. For investment properties (loans under $1 million), I like working with local banks, and credit unions. They usually are able to provide very competitive rates and terms. You are able to build a relationship with them, and that helps with financing future properties. If you are purchasing a primary residence, I would speak to my local bank/credit union first, and then I might speak to a broker.

Is Using a Mortgage Broker Worth it?

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