SS60: Should I Use a Mortgage Broker and How Do I Choose One?

The constant question with many real estate investors is should I use a mortgage broker? In this episode, Charles explains the pros and cons of using a mortgage broker and how to choose one that will best fit your needs.

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Talking Points:

When you are purchasing real estate, your lender will most likely be your largest partner; usually providing 65% – 80% of the sale price. The question I often hear is; “Should I go direct to a lender or work through a mortgage broker?” and the answer is it depends.
Typically, I would utilize a mortgage broker but, in some instances, I will go straight to lenders or banks. This usually is the case with smaller properties where local banks are really the main source or only source of funding and where I might already have a personal relationship which makes a huge difference when getting financing from local banks and credit unions.
In most cases, however; working with a broker is usually the best route. Yes, you will be paying for the services of that broker but you are tapping into their experience, relationships, and knowledge.
- Mortgage brokers are involved in more deals than you are and know the market inside and out. They are speaking to buyers and sellers all day long while pulling quotes and they will know the best lender fit for your deal. If you are not the perfect borrower or the property you are buying has some issues, they will know where to go to get it funded. They will make sure to present your deal to the right lender, in the right way.
- Also, if you are using your mortgage broker for just the best rate, you are not utilizing their full potential. The mortgage broker and lender will be underwriting your deal to some degree; use them and their knowledge. For example; how do I underwrite this issue or where do you think this property will ultimately trade at or what are you seeing in the marketplace? Make sure to tap into their market intelligence. I have also found mortgage brokers to be much more upfront than sales brokers in many cases.
- Lastly, if you are purchasing a property from a large real estate brokerage, they usually will have their own in-house mortgage broker. If you are in a hot market, telling the real estate broker that you will use their in-house mortgage broker might help move your offer to the top since their firm is going to make more money on the sale with you versus another buyer.
- A good mortgage broker will pay for themselves many times over.
How do you choose a good mortgage broker?
- Get mortgage broker referrals from your real estate broker
- As mentioned above, if the real estate broker has an in-house mortgage broker, make it known that you want to use them. Keeping the loan in-house will help incentive the real estate broker.
- When you are vetting mortgage brokers; make sure that they are active in that market, asset class, property size, and property class. If you are buying; un-stabilized, 20-unit, value-add, B-class apartment buildings; how many similar deals have they closed in the last 12 months? What type of rates and terms were they able to get the buyer?
- Explain your business, your team, and your goals to them. We have 3 partners and currently own 50 class B apartments in this city and have a 3^rd party property manager. You focus on purchasing 20–40-unit apartment buildings in these cities etc. You will be vetting them but they will also be vetting you.
- I suggest putting together a professional-looking brochure about your firm (or maybe just you) that you can email out to mortgage brokers or anyone really that you might work with. We have one that we provide to potential people we might work with; real estate brokers and mortgage brokers or even potential passive investors. This will put you ahead of the other potential investors that they are vetting at the same time. This will also help with your first deal since the broker will know exactly how your business is structured, who are the partners, what is their bio, how many units you control, etc.
- If you are new, a good broker will help prep you to purchase a property by creating a financial statement, schedule of real estate owned, and resume – making you a strong buyer in the eyes of the lender.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing, should I use a mortgage broker? And how do I choose one? Well, when you’re purchasing real estate, your lender will most likely be your largest partner. Usually providing 65 to 80% of the sale price and funds. The question I often hear is should I go direct to a lender or work through a mortgage broker? And the answer is, it depends. Typically I would utilize a mortgage broker, but in some instances I will go straight to a lender or banks. And this usually is the case with smaller properties where local banks and credit unions are really the main source or the only source of funding and where I might already have a personal relationship with, with that makes a huge difference when getting financing from local banks and credit unions, in most cases, however, working with a broker usually is the best route.

Charles:
Yes, you’ll be paying more for the services of that broker, but you’re tapping into their experience, relationships and knowledge. Now, mortgage brokers are involved in more deals than you are and know the market inside and out. They are speaking to buyers and sellers all day long while pulling quotes, and they will know the best lender fit for your deal. If you are not the perfect borrower or the property you’re buying has some issues, they will know where to go to get it funded. They will also make sure that you present the deal to the right lender in the right way. They’re gonna let make sure that the presentation to that lender is correct. They’re gonna make sure that presentation is done in the right light. And if it’s not, they’re gonna go back to you being the borrower and say, listen, you’ve gotta do these couple things so I can present it.

Charles:
And they’re gonna work with you so that it gets funded. Also, if you’re using your mortgage broker for just the best rate, you’re not utilizing their full, the mortgage broker and lender will be under any your deal to some degree, use them and their knowledge, for example how do I underwrite this issue? Or where do you think this property will ultimately trade for? Or what are you seeing in the marketplace? And listen, they’ll tell you everything about all these deals they’ve worked with. They just close the deal. They’re marketing a deal. They’re trying to find a lender. If you do this, you’re going to every lender I talk to is gonna want to fund it. This is the problem why no one wants to fund it. I might have one person and make sure you tap into their market intelligence. I’ve also found that mortgage brokers to be much more upfront than sales brokers.

Charles:
In many cases, I remember speaking years back to a mortgage broker and they said, no, this one you’ll never get financing for this because of this. And I spoke to a sales broker and they’re like, oh, we’ve got lenders. And we possibly can find something for this. And they really kind of take you through on the whole ride. Whereas a mortgage broker, I found to be a lot more stern and be like, listen, this is just not gonna pencil. Lastly, if you’re purchasing a property from a large real estate brokerage, the usually will have their own in-house mortgage broker. Now this matters more when you’re getting into larger multifamily. So five plus commercial multifamily, even with some small mixed use properties, whatever it might be, you’re gonna find these are listed and sold by large real estate brokerages. And they already have this in-house mortgage broker.

Charles:
Now, if you are in a hot market telling the real estate broker that you will use their in-house mortgage broker might help move your offer to the top. Since their firm is gonna go make more money on the sale with you versus another buyer, a good mortgage broker will pay for themselves many times over. So how do you choose a good mortgage broker? Well get mortgage broker referrals from your real estate broker. Now as mentioned above that the real estate broker has in-house mortgage broker, make it known that you want to use them keeping the loan in-house will help incentivize the real estate broker and the real estate brokerage firm. Okay. When you’re venting mortgage brokers, make sure that they are active in that market asset class, property size property class. If you’re buying an unstabilized 20 unit value, add B class apartment buildings, how many similar deals have they closed in the last 12 months?

Charles:
And what type of rates in terms were they able to get the, I explain your business and your team and your goals to them. We have part, we have three partners. We currently own 50 class B apartments and XYZ city, and have a third party manager. And, you know, our focus is purchasing 20 to 40 unit apartment buildings in these cities and you’ll be vetting them, but they will also be vetting. And I would suggest putting together a, a professional looking brochure about your firm, or maybe if it’s just you about you, that you can email out to mortgage brokers or anyone really that you might work with. And we have one that we provide to potential people. We might work with real estate brokers, mortgage brokers, or even passive investors. And this will put you ahead up other potential investors that are, that they’re getting vetted at the same time.

Charles:
Right? and this will also help with your first deal. Since the broker will know exactly how your business is structured, who are the partners, what is their bio and how many units you control, et cetera. And this is something that when they bring it to the lender, it’s just like, if you’re if you’re buying a property and you have this, you, you put together a nice cover sheet package that can be delivered with the offer to the owner. And that seller’s gonna look at this and go, wow. You know, this is really professional. And it just, everything looks really good and it makes it much easier for that broker to say, listen, this is the buyer that you want and is what they can do. And we know they’re gonna close, et cetera, et cetera. It’s the same thing with the mortgage going to the lender and with that mortgage broker and looking at it and saying, listen, this is this firm.

Charles:
And they have all this experience in business and you know, all this type of stuff, and they’re really gonna do it to sell it because they want to get paid the commission. You may wanna make sure that the person that you’re working with is incentivized the mortgage broker by you getting the mortgage that will make them work harder for you to get approved. Now, if you’re new, a good broker will help you prep to purchase a property like creating a financial stop statement scheduled real estate owned like a resume, you know, making you a strong buyer in the eyes and lender. And if you get in with a broker first, before you even have a property, they’re gonna help you line up all those pieces so that when you have the property, you’re ready to move forward. And it’s not like, Hey, I just got something under contract or I’m ready to get something, a contract, or I found a great deal and they go, listen, you need someone else on your property, on your team for this. And you’ll need something, this, and you’ll need another property manager kinda stuff. And you wanna make sure you have all sorted out beforehand and before you’re into a lender and before you’re actually putting offers in on properties. So I hope you enjoyed, please remember to rate, review, subscribe some comments and potential show topics at global investors, podcast.com. Look forward to two more episodes next week. See you then

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