Pros and Cons of using a Mortgage broker
Rental Property Investor · Madison, AL · Member since 2019 · 25 posts · 15 votes
Hey everyone,
I'm moving to the Madison, AL area and looking to buy my first home to live in and house hack. I currently have two other properties in NY, one that was bought with a conventional loan, and the other was bought in cash. I'm looking to get an FHA loan for this next property that I will live in, so I can pay a smaller down payment (I have the means to pay more, but I like have money in reserves in case something comes up). My question is whether or not I should use a Mortgage broker to help find a loan for this property, or should I just call around to local banks and credit union to get my financing. I'm curious what are some of the pros and cons of using a mortgage broker since I've never used one before. Thanks in advance for any advice or help.
congratulations on your two houses so far and moving on to a third! The benefits of using a MB includes the following and I'm not aware of any downsides: incentivized to work hard for you, have knowledge of many loan programs/lenders/etc, and work outside of normal business hours. I guess the only downside is a mortgage broker will not be able to get you a portfolio loan, but an FHA is almost always going to be a portfolio loan. I like your plan of doing a low down payment and keeping money in reserves. It fits my Beyond House Hacking strategy I've used for years with a lot of success. Keep rocking it!
congratulations on your two houses so far and moving on to a third! The benefits of using a MB includes the following and I'm not aware of any downsides: incentivized to work hard for you, have knowledge of many loan programs/lenders/etc, and work outside of normal business hours. I guess the only downside is a mortgage broker will not be able to get you a portfolio loan, but an FHA is almost always going to be a portfolio loan. I like your plan of doing a low down payment and keeping money in reserves. It fits my Beyond House Hacking strategy I've used for years with a lot of success. Keep rocking it!
@Kevin Pfeil I usually use a mortgage broker (I've worked with the same one for 7+ years and have done many deals and refis with him).
However, be advised: not all mortgage brokers are created equal. You can go to 5 different mortgage brokers, and they'll give you 5 completely different types of service, and may give you 5 different sets of loan options with different terms. Even something you'd think would be the same across brokers--like how much you qualify for--can be different from one broker to another. A good broker can help you understand all your options, will work hard to make sure the deal goes smoothly, and can get you good terms...a bad broker can completely screw up a deal.
Speaking of screwing up a deal: just because a broker quotes you the best terms does NOT necessarily mean that's the broker you should go with. It's not unheard of for a broker to quote excellent terms to get your business, and then once you get into the deal, you discover that they can't deliver on what they promised (not a good situation if you have a property under contract!).
So, it's worth studying up on how to find a good broker, and finding one with real experience and a reputation for excellent customer service.
Good luck out there!
@Leo R. Thanks for the advice! Very good points with not all brokers are created equal. I guess the most logical question is how did you find a good one for yourself? I am looking on findamortgagebroker.com but I'm not sure how to tell the different brokers apart. There's a solid list of brokers for the Madison area, however I'm only seeing one person who has an actual review. What would you recommend in trying to find a solid broker?
@Grant Shipman thanks for the input! So if I am reading your post right, since most MB can't get a portfolio loan and you're saying that an FHA loan is normally a portfolio loan, will a MB be able to find a FHA loan for me? Or did I misinterpret that? Love the name "beyond house hacking strategy" btw and glad it's something that has worked for you for a while now!
@Leo R. Thanks for the advice! Very good points with not all brokers are created equal. I guess the most logical question is how did you find a good one for yourself? I am looking on findamortgagebroker.com but I'm not sure how to tell the different brokers apart. There's a solid list of brokers for the Madison area, however I'm only seeing one person who has an actual review. What would you recommend in trying to find a solid broker?
I found him via word of mouth...First, I found an "investor friendly" agent (who has a TON of experience in nearly every area of residential REI--I've also continued to work with him for many years and across many deals), and he suggested the broker... so, I'd suggest asking around to see if anyone you know has a broker they like--especially ask other RE pros like agents and investors at your local REIA.
Also, there were some signs right off the bat that this broker probably knew his stuff...he was a middle aged guy who was one of the highest grossing brokers in the area, and he could tell me--in detail--about his level of experience...plus, whenever I would ask him fairly technical questions, he either always had a thorough answer, or--if he didn't know the answer--he would openly admit that he didn't know, but then he would look into it and quickly get back to me. His customer service was quick, detailed, and very professional. In all our conversations, he came across as highly competent, and HIGHLY detail-oriented (which is what you want)...all these things indicated that he was a pro. Over the years, he's only continued to prove that he's one of the best around, and so I keep doing business with him...
There are probably articles/forum posts/other resources out there on how to screen/interview brokers, agents and other professionals--probably worth studying up on those resources.
Good luck!
@Kevin Pfeil I will caveat the following with the fact that I am a mortgage broker. However, at the beginning of my career I had a similar decision to work for a local bank or become mortgage broker. There are a lot of reasons I chose the latter, but the main thing is that as a mortgage broker I was able to provide better service for my clients. Statistically MBs are able to provide better pricing because they are able to shop across multiple different banks. The same logic comes into play with the products we can offer. Because we have so many different banks we are more equipped to fit everyone's unique circumstances. A simple example would be yesterday I had an appraisal come in low. With a bank this means you have to cover the difference in purchase price and appraised value with cash or drop the loan. In our case, I switched it to a new lender, ordered a new appraisal and we are going to close on time. This person is also a good example because they originally came to me with an FHA loan and now we are working on a commercial portfolio purchase out of state. He was able to make this jump because I didn't have to pigeon hole him into a specific product or area that a bank might service and was able to give him far more options both geographically and with lending options for him to grow his portfolio. That being said, there are some things that banks do better. HELOCs and ground up construction are the two that come to mind. When these things come up to me as a broker I immediately advise my clients that a local bank may be better. In summation, I think it is advantageous to have relationships with both and to consider the MB your swiss army knife and the bank your specialized filet knife for certain projects.
Mortgage broker makes their money with points charged to you. In return they have access to all products and can shop interest rates
Mortgage broker makes their money with points charged to you. In return they have access to all products and can shop interest rates
While this is true, it could be understood that mortgage brokers have extra points. The way it works is we as mortgage brokers are offered a wholesale rate from the lender, and then our portion is added before the rate is shown to the client. This is the rate that can be compared with all other options on an apples to apples basis. That said, rate isn't everything and you will always want something that shows the points if any associated with that rate.
@Leo R. Thanks for the advice! Very good points with not all brokers are created equal. I guess the most logical question is how did you find a good one for yourself? I am looking on findamortgagebroker.com but I'm not sure how to tell the different brokers apart. There's a solid list of brokers for the Madison area, however I'm only seeing one person who has an actual review. What would you recommend in trying to find a solid broker?
@Leo R. Thanks for all the specifics with what got you a solid MB! That's a lot to work with.
@Braydin Mehnert That example in there that you used was very helpful! Thanks for giving both the pros and cons of using a MB!
@Al M. That sounds like solid advice not only for MB, but life!
Thanks everyone for all the help here, there was a ton of solid information!
@Grant Shipman thanks for the input! So if I am reading your post right, since most MB can't get a portfolio loan and you're saying that an FHA loan is normally a portfolio loan, will a MB be able to find a FHA loan for me? Or did I misinterpret that? Love the name "beyond house hacking strategy" btw and glad it's something that has worked for you for a while now!
I'm so sorry to take so long to answer. Me and my family got the Christmas plague for a few weeks. My bad if I was confusing, a MB will be able to get you a FHA loan (my MB's have gotten multiple for me and my investors). Also- not all MB's are created the same. @Eliott Elias mentioned that MB's make their money through points, and this is not always the case. They also can charge no points and get money by slightly increasing your interest rate. Other MB's get paid by lenders (these are few & highly accomplished) and do not charge you points nor increase your rate. I'm happy to connect you w/my MB if you pm me- I think he is licensed in AL.
Go live your day dreams brother!
@Leo R. Thanks for the advice! Very good points with not all brokers are created equal. I guess the most logical question is how did you find a good one for yourself? I am looking on findamortgagebroker.com but I'm not sure how to tell the different brokers apart. There's a solid list of brokers for the Madison area, however I'm only seeing one person who has an actual review. What would you recommend in trying to find a solid broker?
findamortgagebroker.com isn't a bad start. The list there is in semi-random order, however, and often there aren't reviews. Because it's in semi random order, the folks on page 1 have in effect been "blessed" and may take you for granted, get down to page 4 or page 6 for some folks that are NOT used to calls from that website. (I was randomly [through no 'fault' of my own] on page 1 for my area for a while, then there was a random reshuffle, and I was on page 6... the month before the 2021 super bowl ad for findamortgagebroker.com!)
Cross reference with google. "Mortgage broker john smith" and check out his reviews there. Google business listings, FYI, is the only such review aggregator with zero pay to play options, meaning there's no hiding bad reviews or promoting only good reviews on google (unlike, say, yelp, zillow, redfin, and everything else out there that I have ever encountered).
@Grant Shipman thanks for the input! So if I am reading your post right, since most MB can't get a portfolio loan and you're saying that an FHA loan is normally a portfolio loan, will a MB be able to find a FHA loan for me? Or did I misinterpret that? Love the name "beyond house hacking strategy" btw and glad it's something that has worked for you for a while now!
FHA loans are not portfolio loans, and mortgage brokers do them just fine, heh. The term "portfolio loan" is regularly abused on these forums (whenever someone has some crazy high risk loan scenario with a >90% chance of borrower default, the comments are always full of "abracradabra, waive a magic wand, get a pOrTfOlOo loan, and you're problem is solved!"), so mostly just disregard any post you see using it.
@Grant Shipman thanks for the input! So if I am reading your post right, since most MB can't get a portfolio loan and you're saying that an FHA loan is normally a portfolio loan, will a MB be able to find a FHA loan for me? Or did I misinterpret that? Love the name "beyond house hacking strategy" btw and glad it's something that has worked for you for a while now!
FHA loans are not portfolio loans, and mortgage brokers do them just fine, heh. The term "portfolio loan" is regularly abused on these forums (whenever someone has some crazy high risk loan scenario with a >90% chance of borrower default, the comments are always full of "abracradabra, waive a magic wand, get a pOrTfOlOo loan, and you're problem is solved!"), so mostly just disregard any post you see using it.
Yes, to confirm FHA are not portfolio loans, and I never intended to say they are. I don't understand why you are saying MB's can do portfolio loans- are you saying mortgage brokers hold the loans in their portfolio? If so, I would say the MB is a lender rather than an MB. I understand that MB's can do all kinds of things w/private lenders, but I don't usually refer to these as portfolio loans. You are helping me understand that "portfolio loan" can be a clay term in the real estate world, so it's helpful to define this term when it comes up in conversation. I'd love to hear your thoughts.
@Grant Shipman thanks for the input! So if I am reading your post right, since most MB can't get a portfolio loan and you're saying that an FHA loan is normally a portfolio loan, will a MB be able to find a FHA loan for me? Or did I misinterpret that? Love the name "beyond house hacking strategy" btw and glad it's something that has worked for you for a while now!
FHA loans are not portfolio loans, and mortgage brokers do them just fine, heh. The term "portfolio loan" is regularly abused on these forums (whenever someone has some crazy high risk loan scenario with a >90% chance of borrower default, the comments are always full of "abracradabra, waive a magic wand, get a pOrTfOlOo loan, and you're problem is solved!"), so mostly just disregard any post you see using it.
Yes, to confirm FHA are not portfolio loans, and I never intended to say they are. I don't understand why you are saying MB's can do portfolio loans- are you saying mortgage brokers hold the loans in their portfolio? If so, I would say the MB is a lender rather than an MB. I understand that MB's can do all kinds of things w/private lenders, but I don't usually refer to these as portfolio loans. You are helping me understand that "portfolio loan" can be a clay term in the real estate world, so it's helpful to define this term when it comes up in conversation. I'd love to hear your thoughts.
It just means it can't be re-sold, it's going to be held on the lender's books ("lender" in this case meaning institution, not person). Mortgage brokers don't fund loans or keep them on their books an aren't lenders, so they obviously can't sell them. In general people do not sell mortgages, instiutions do.
The mortgage loan originator or loan officer (MLO for gov't, LO for private sector, the catchall terms) being a employee of a bank ("mortgage banker," think "W2") or an independent contractor ("mortgage broker," think "1099,") doesn't really enter into it. A yellow taxi, and a car owned by an uber driver, can both plug into the same gas stations, no? "Uber drivers can't use diesel fuel" wouldn't be a sentence that makes intuitive sense -- it's not even that it's "wrong" per se, it's just.... kinda... quirky.
Note the 1099 V W2 thing isn't anywhere close to 100% accurate, the tax code doesn't always map onto the mortgage world perfectly.