When you’re financing an investment property, you want the best possible deal on your mortgage. For borrowers who are new to the lending process, a mortgage broker can offer guidance and help find a great rate, but experienced investors can save time and money by working directly with a lender. Here are a few factors to consider before you decide which option works best for you.
When you hire a mortgage broker, they do the heavy lifting at the outset: They handle the search, pair you with a lender, and start the application process. With direct lending, the borrower is responsible for finding a reputable lender and securing the best rate. This requires a bit more effort, but it means the borrower has full control over choosing a lender.
The key is to find a lender with an ironclad reputation, ample capital, and top-notch customer service. “A borrower should seek out a reputable company that is able to facilitate these loans with clear guidelines, speed, and certainty of execution,” says Gene Clark, president and chief legal officer of 5 Arch Funding. “At 5 Arch, we’re proud to have the necessary capitalization, as well as a deeply-rooted, customer-centric culture.”
Because mortgage brokers don’t actually lend money, they rely on broker’s fees and commissions for their income. For the borrower, that can mean higher costs at closing time. By shopping around for a direct lender, borrowers may also be able to find a lower interest rate or a more suitable loan type; 5 Arch, for example, specializes in loans for fix and flip and rental properties.
Mortgage brokers act as an intermediary between borrowers and lenders, which can be helpful during the application process. However, the bulk of the paperwork is still the borrower’s responsibility. “The borrower still needs to prepare all the same key items, such as a detailed loan request, previous investment background, itemized project budget, and credit history,” Clark says. “The main difference for the borrower is that they will be dealing directly with the lender when submitting and discussing this information.” That means if you have any questions down the road, you’ve already forged a relationship with the lender, and you know what to expect from their customer service–whereas a broker’s job is done once the closing is over.
The main advantage of using a direct lender is fast turnaround. Lenders like 5 Arch that offer in-house underwriting can move you seamlessly through the process, from pre-approval to closing. With fewer parties involved in the process, information can be relayed directly between you and the bank, which means any issues can be resolved just as quickly. And once you’ve found a direct lender you trust, you can use them again for future investment properties, which will speed up the process even more.
For professional real estate investors, spending the time to find a direct lender you trust can pay off down the road. Direct lending can offer greater control, fewer expenses, and faster closings–which means you can start turning a profit on your investment property faster.
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