types of lending

[Erika Hexter]

Can somebody help me understand the different types of lending please? Mortgage banker vs mortgage broker vs lender vs private lender etc. It would be helpful to understand the different options for financing a deal and the advantages/disadvantages of each type of lender.

More questions:

1) which lender to use above/below a certain price point

2) strategies to be considered when first starting to invest. For example, use larger banks for first few acquisitions and then combine and re-fi with a smaller local bank or credit union

[Ned Carey]

Mortgage banker - I think of this as someone high up the ladder at the bank. Someone you are I will never see or talk to.

Loan officer - this is the person you are likely to talk to at a bank

mortgage broker. - someone who offers mortgages from a variety of lenders. The advantage is they know of many programs and are more likely to find one to fit your situation. They may be a little more expense because they are making a cut on the loan. 

Lender - anyone who lends money

Hard money lender. - These are professional lenders that loan to real estate investors. They specialize in short term financing like a flip. They have much higher rates and points than a bank or more traditional lender. They are important though because they can finance deals you might otherwise not get financed at all. You need to consider the higher cost of this money when you  make your offers. In my area typically 13-15% with 3-5 points. They are called "Hard" money because they lend more on hard assets like real estate than they do based on your credit.

Private lender - Many people consider hard money lenders as private lenders. I do not. Hard money lenders are professional lenders. A private lender is a friend, family or associate who lends to you because they know you and trust you.

Commercial lender - I mention this because the typical loan officer or mortgage broker does not make commercial loans. Any time you are buying a property with more than 4 units or buying in an LLC or other entity, it needs to be a commercial loan. Banks make these all the time, but you have to talk to the commercial lender. not the guy that does mortgages for homeowners.

Portfolio lender - this is a lender usually a smaller loacl or regional bank that loans their own money. They do not rely on selling their loans to the secondary market, so they do not have to abide by the rules of the secondary market

Blanket Loan - a loan that covers multiple properties.  An example would be if you had one loan for 10 different properties.

Regarding strategies, stay away from the big banks until you are ready to do big deals. Smaller local banks will be more flexible and easier to work with. A half a million dollar loan does not make you important to Bank of America. It does make you important to your local bank.