As a real estate investor, you need to know the difference between a mortgage banker and a mortgage broker. Knowing the difference is going to help you out in the lending process by opening up your options. Instead of taking things at face value, you can understand the why behind what’s going on—especially if you get turned down!
Mortgage Banker: A mortgage banker usually sells their own products. The pros of this setup are that the banker can typically close faster and sometimes give the customer, you, a lower interest rate or cost because they are the bank. But the cons are that they sometimes cannot get a loan done because their product selection is so limited.
In other words, a mortgage banker is typically someone who originates loans for larger companies. There are some mortgage bankers working with a warehouse line, which is basically a line of credit they can use to make loans. But if they’re using a warehouse line, there are certain criteria these loans must meet in order to be approved. And the problem for investors is that they often can’t meet that criteria.
Real estate investors can then be confused because they get turned down, but the banker doesn’t educate the investor on the why: mortgage bankers are limited by their product selection. The real estate investor isn’t getting the whole truth and assume they can’t get approved anywhere. But the reality is that there are a lot of other products and criteria out in the market today if they would just keep searching.
So a mortgage banker can be a good friend. They can close quickly, but it’s important that you understand that their products are sometimes extremely limited. A mortgage banker could literally turn you down in three hours. But then you could go across the street to a mortgage broker and receive four different products to choose from!
Mortgage Broker: A mortgage broker or a broker shop are usually smaller entities in the context of how many people work there. A normal broker shop has less than 10 loan officers working for it. They, of course, broker loans and because of that they represent in most cases many lenders. An experienced, knowledgeable mortgage broker can often meet or even beat the offer of a mortgage banker! And, key to real estate investors, brokers usually can get the loan funded because they have so many lenders available. I go to mortgage brokers for the majority of my loans because I believe they often have many more products available.
Now, not all mortgage brokers are equal. A lot of broker shops will only use 2-3 lenders from the secondary market to buy or fund their loans. This is because the more loans they do for an individual lender, the better deals they get as a broker shop. The reason you want to understand that as a real estate investor, is that you want to find a mortgage broker who has experience working with investors. Preferably, you want a broker who understands how to do Alternative A-paper or, in some cases, subprime loans for investors. Not every investor needs to do sub-prime loans, but it’s important that the mortgage broker be familiar with that market!
Just remember that there are many products out there. No broker or banker knows all the products out there, which is why it’s a good idea to know 2 or 3 of each to get a balanced perspective from all sides.
Do you have a learning experience with a mortgage broker or banker? Let me know in the comment section below!
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