When to use mortgage brokers, what’s the difference between mortgage brokers and a mortgage lender for Real Estate Funding? How do I go about it?
I compiled a list of eight critical differences between the two and helped you realize when you should go to one and whatever scenario you happen to be in your real estate funding.
One of the key things that make up a lender is that the lender works for a bank. They’re kind of like a bank employee, and they’re only available at the branches. They can only sell products that only the bank creates. Now, the broker works for themselves. They’re entirely independent, and they’re sort of like the middleman. They’re an independent person.
Now, because they work for the bank, as I mentioned, the amount of products they offer is somewhat limited. They can only promote whatever they have available in their bank. The broker has relationships spilled with multiple banks across the nation, across the town. They have a variety of products to choose from this, this, this, whatever. They have more options.
With the lender, you’re going to have to build a relationship with this one person. You know, a lender can be the bank or a lender can be the mortgage officer you’re working with. You can come in and introduce yourself, start a relationship. This will be your go-to person, or this will be your go-to bank, and you have a long life relationship, someone that you can actually call us and send a quick email right away, and you can work on having that loan approved for you.
Now, here, the relationship is a little bit different. Rather than building your relationship with multiple lenders, in this case, instead save time, you don’t have time to go to 10, 20 different banks to say, “Hey, this is me. I’m a real estate investor, and I want a building.” If you could do it, if you have the bandwidth, great!, but sometimes, if you’re busy looking for real estate deals, believe me, you’re not going to have sufficient time to go out and talk to 20 different lenders at the same time.
That’s when you’re going to come in, and you’re going to leverage the broker. The broker will go out, and he’s going to branch himself out, and he’s going to send, I don’t know, a blast email to all of his contacts and say, “Hey, I have this deal. What are your rates?” This is what they can do for you, what they can do for you and that. You have four lenders to choose from, versus having to choose from one lender on your own. This person may or may not offer something that could work, or they may, who knows?
Differences Between Lenders and Brokers
Because they’re only limited in the number of fundings they can offer, lenders have only certain products they can offer them. As opposed to the broker, they have, let’s say, type A, B, and C. If you have a solid relationship built with him over the years, they can make some exceptions with their products. Let’s say, for example, they say, “We’ll require you to have a FICO score of 750 to qualify for this product.” Let’s say your FICO is only 700, in this case.
Depending on their quota, that relationship, how much money they have available, they could bend the rules and say. “We might be able to qualify you for a FICO score of 700, but you’re going to have to deposit $20,000 into our account and not move it over the next 12 months.” Yes, they’re giving you an option, they are bending their own rules to accommodate you, and it’s up to you to decide whether you want to go by it or not.
However, if you’re too busy even to negotiate, or maybe not like their terms, so you decide to go to a mortgage broker, the broker is going to come in and say, “I have all these four other lenders. Lender A is willing to lend you at 620. Lender B is only willing to lend you at 705 for your credit, and then lender C can offer you, I don’t know, let’s say, a loan at 750. Lender D can only offer you if you have a credit score of like 600.”
Mind you, for each one of these, even though they require different FICO scores, their interest rates might be different. For these two, even though they’re willing to lend you a lower FICO score, maybe they have the higher interest here. Perhaps this person asks for 8%, and maybe this bank asks for 10%. Then these over here’re doing 6%, and this one is doing, let’s say, 7%.
It’s up to you to decide which one you want to leverage. Do you want to worry about what you can resolve today, which is this because you don’t want to pay the $20,000 here, and deposit it into this bank account, and having to wait another year before you can even use it? You can apply the approach of closing with each one of these loans, or you can choose to take care of what you can today and say, “You know what? I can only qualify for each of these three. Go with this one and get it out of the way.”
Maybe 12 months down the road, you were able to fix your credit. Now you can afford a much better loan with better terms because you now have higher credit, and then you can eventually come back to this original lender that you reached out to and say, “Hey, can you refinance this at a lower rate? Now I have a 750 FICO score.” They might be able to work something out for you.
Now, the next difference is that you have to do all the paperwork when you go to a lender. With a broker, they do all the paperwork for you. Again, back to the topic of availabilities and options, when you go to a single lender, let’s say, for example, you can only get a specific rate, whatever is it that they’re getting. Now, if you go to a broker, by default, you’re more likely to get lower rates. Why? Because brokers do not get paid unless they close on a loan.
Mortgage lenders get paid a salary, and in addition to that, they receive commissions. Whether they close or not on loan, they still get paid. Here, these people got to pay their bills, if they don’t get to the best rate, guess what’s going to happen? You will go to their competition and see if they have better rates than this one broker. By default, they have to offer you the best rates possible in the market.
By default, because the lender works for a bank, they have to abide by their working hours. They’re usually in an office from nine to five working for them. A broker can work from the comfort of their home, and they don’t have to abide by nine to five, so you have higher chances of finding them. You want to send somebody an email, let’s say at 9 PM, there’s a higher likelihood that the broker will get back to you as opposed to the lender, who you will have to wait until the next day to check their email at 9 AM and get back to you on that one.