You’re in the market for an investment property and you’ve found a viable project, and your next step is securing a loan. For some, this is the most stressful step. You want to ensure your finances are in shape and examine your credit score before deciding where to apply for your loan. This used to be a simple matter of walking into a bank or credit union. Today there is a wide range of options, including mortgage brokers and direct lenders.
What is a mortgage broker?
Mortgage brokers assist in comparison-shopping, serving as middlemen bringing borrowers and lenders together, but do not actually fund the loan.
They gather pertinent information from the borrower, such as income, employment documentation, credit report, etc. to assess how much a borrower can afford. The broker will then determine the loan amount, loan-to-value ratio and type of loan they see fit for the borrower and submit it to lenders. Once you’ve selected the lender and been approved, you work directly with the service provider or loan originator.
What is direct lending?
Exactly what it sounds like – direct. Instead of going through the middle-man, a direct lender usually can do everything in-house. They employ experts in various divisions like underwriting, asset management and loan servicing to help ensure your loan is processed accurately. Direct lenders can do everything from inspecting your credit to handing you your check. A direct lender is a one stop shop.
For the best results, be sure to research direct lenders before you apply. It can make all the difference in securing more funding and better customer service.
Typically, a mortgage broker is bound by guidelines that are set by the individual lender, meaning they do not have the discretion to adjust the requirements to gain your business. A direct lender sets their own lending guidelines, allowing them to waive requirements under certain circumstances.
Both a mortgage broker and direct lender charge fees, which could include origination fees, application fees and appraisal fees. However; the fees charged by the mortgage broker are usually higher than those of a direct lender. Direct lenders don’t typically charge prepayment penalty fees and are transparent about the fees they charge. While the prices may vary, the knowledge, expertise, and dedication of a direct lender is very important.
Since operations are done in-house, direct lenders can provide funding quickly – deals can be completed within weeks. Compare that to a broker who has little control over the processing of your loan.
Either a mortgage broker or direct lender can provide you with loan options. Before choosing, you may want to ask for quotes from both and compare.
A mortgage broker can help you compare many quotes more easily, therefore saving you time on shopping around and applying to numerous direct lenders. But, if you want the loan approval and funding more quickly, then working with a direct lender may be your preferred route.
At Broadmark Realty Capital, we offer competitive rates on a wide range of loan programs. Our lending experts will take the time to understand your project, financial needs and goals in order to create a personalized loan solution.