Working with a mortgage broker versus going direct

There are several routes to a loan and they access different sets of lenders. Using one exclusively means never seeing what the others offer.

The channels

Retail lender, direct. A bank or mortgage company lending its own money or originating for sale. You deal with their loan officer, who offers their products only.

Mortgage broker. An intermediary with relationships across multiple wholesale lenders. They shop your file and are compensated either by the lender or by you, with disclosure requirements.

Correspondent lender. Originates and funds in their own name, then sells the loan. Sits between the two.

Portfolio lender, direct. Community banks and credit unions lending their own money and keeping it. Not accessible through most brokers, and frequently the best source for investors.

Specialty investor lenders, offering DSCR and non-qualified mortgage products, reached directly or through brokers who specialize.

When a broker earns their fee

Non-standard files. Self-employed borrowers, multiple properties, entity ownership, recent large deposits, complex income. A broker knows which lenders accept which situations, which saves weeks of declined applications.

Unusual property. Mixed use, rural, unique construction, condition issues, small commercial.

When you have hit conventional limits. Brokers know the investor product landscape better than most retail loan officers.

When you lack time. One application, multiple lenders considered.

When going direct is better

Portfolio lending relationships. Community banks and credit unions generally do not work through brokers. These relationships are built directly, over time, and they become the most valuable financing asset an investor has.

A local bank that has watched you operate for five years will do things no wholesale lender will.

Straightforward conventional files, where you are a clean borrower with W-2 income and one or two properties. Retail pricing is competitive and the process is simple.

Existing banking relationships, where deposit balances or business banking can produce better terms.

Shopping properly

Whatever channel, the comparison method matters.

Get loan estimates, in writing, from at least three sources. Verbal quotes are not comparable and do not bind anyone.

Compare on the same day. Rates move daily and sometimes intraday. Quotes from different weeks tell you nothing.

Compare total cost, not rate. Rate, points, origination, lender fees, and third-party costs. A lower rate with two points is not obviously better than a higher rate with none.

Compare structure. Fixed period, amortization, prepayment penalty, recourse, reserve requirements, escrow. These frequently matter more than a quarter point.

Ask about the prepayment penalty explicitly. Investor products frequently carry them and they are easy to miss in the paperwork.

The credit inquiry question

Mortgage inquiries within a defined shopping window are generally treated as a single inquiry by credit scoring models, so shopping several lenders in a short period does not materially damage your score.

The window varies by scoring model. Shopping within a two-week period is a safe approach.

What makes a good loan officer or broker

Investor experience specifically. Residential loan officers who mostly handle owner-occupied purchases frequently do not understand investment property underwriting, rental income treatment or entity ownership, and files stall as a result.

Responsiveness, because deals have deadlines and a slow lender kills transactions.

Honesty about what they cannot do. A loan officer who says "this file is not right for us, try a portfolio lender" is more valuable than one who takes the application and declines it three weeks later.

Transparency on compensation and fees.

Building the relationships before you need them

The advice most often ignored and most often regretted.

Meet two or three community banks and credit unions in your market before you have a deal. Explain what you do, show them your financials, ask what they lend on and what their terms look like.

Open an account. Keep some deposits there.

When a deal appears with a short closing timeline, you will be calling someone who already knows you rather than starting from an application.

And when credit tightens — which it does — the relationship lenders continue lending to borrowers they know, while wholesale channels simply stop.

The unglamorous conclusion

Most investors use whichever lender did their last loan, forever.

Rates, terms and appetite change constantly, and lenders that were competitive two years ago frequently are not now.

Shopping every financing, properly, across channels, is worth a meaningful amount of money over a portfolio's life, and it takes a few hours per transaction.

General information about real estate finance, not investment or lending advice. Loan products, pricing and availability vary. Consult qualified professionals about your own circumstances.