First Deal - Do I Need a Mortgage Broker?

Question

I am planning on purchasing my first rental property within the next year. I am currently in contact with a potential broker who let me know what he can do for me. He seems very knowledgeable and was introduced to me through a mutual friend. My understanding is that he will consolidate different loan options from lenders in the area and help me choose one that fits me best. It sounds like that will save me a bunch of legwork and give me a solid comparison. I believe the lender also pays the broker fee.

What is your opinion on mortgage brokers? Should I be calling/going into banks on my own to build a relationship with a local lender? What's the best way to compare different loan offerings in my area? I am a first time investor so any/all opinions will be helpful!

Chris Mason · Answer

I was a banker for 5 years. Jumped ship a few years ago when it became the case that these a-hole 3rd party brokers could broker a loan to the mortgage company I worked at, and get the consumer a better deal, and faster turntimes, than I could as a direct employee of said mortgage company. As a "captive vendor" employee, I wasn't the priority over the independent broker who could take the deal anywhere. Maybe it'll switch again, and I'll jump ship again. No skin off my back. But that's where things are at for now. It takes typical area loan amounts being about (rough ballpark) $200k or more for #brokersarebetter to be the relevant hashtag. You might find that's a wash if the relevant loan amount for the area is in the $150k to $300k neighborhood. But that's why you see bankers / direct lenders in Ohio, etc, boasting on these forums, as well as mortgage brokers in the urban East Coast markets, or California -- in their respective markets, they are ALL telling the truth, for THEIR markets. Direct lending / banking seems to scale down to the smaller typical loan amounts better, brokering (for now, at least) seems to scale to the larger typical loan amounts better. If I moved to Nebraska, I likely would not continue to be on the broker side, I suspect I would find that working at a mortgage company as a direct lender / banker is the better route. Direct and brokered are just a pair of distribution channels, each with their own costs that are ultimately passed on, unique to that distribution channel.

Paul Nicklin · Answer

@Alex Read Agree with the sentiment here. I used a broker on my first investment mortgage. When it came time to refinance on this and another investment property I renovated I tried various credit unions and banks. Long story short I wasted time and an appraisal fee. Went back to my original broker who has always managed to get it done. I have bought / refinanced four properties with him now. I would have used him for a HELOC but he doesn't offer them. I have gone with a credit union who everyone recommends and is very responsive. Its an individual based decision. Good brokers can save you time and effort, sometimes money. So try some other banks and credit unions and see how you feel about them. There are plenty of threads on BP with advice on the benefits of each. Worth noting at the moment that its a tricky time to get investment property financing. I am trying to buy a property and the rates / points being offered are surprising.

Steve K. · Answer

@Alex Read I would recommend speaking with a few different lenders and comparing their rates, how they work, how responsive they are, etc. For me the most important thing to consider about a lender is how likely they will be to come to the rescue in the 11th hour when the deal is scheduled to close at 8am and something comes up that needs fixing (happens more often than it should). I pretty much base my opinion on how likely my lender is to be available and come through to make the deal happen in those circumstances. I have several I use that I can trust to get it done and that characteristic to me is what sets the good ones apart from the others. I know a few locally in this area I’d be happy to recommend.

Julien Hochner · Answer

I am sure different people will have different opinion on this. As a lender, we have many great relationships with mortgage brokers who brings us potential deals. When we lend on a deal they bring us, they typically charge 1-2 points in addition to our points. This is paid fully by the borrower.As an investor, I think having relationships with mortgage brokers as well a banks and lenders is a powerful tool in your toolkit. It will all depend on how much time and energy you want to spend looking for funding.