Are all loans more expensive when using a broker?

Question

Are all loans more expensive when using a broker especially hard money? Are there any scenarios where a broker can make a loan cheaper than going directly to the lender?

Patrick Roberts · Answer

As with everything in life, it depends. In some cases, yes, the broker fee is laid on top of whatever the lender makes. In other cases, a broker can help negotiate lower costs and possibly save money. It varies by lender and particularly by loan product.

Something I saw firsthand working as an underwriter at a direct lender is that not having a broker doesnt automatically remove their fee and result in lower total cost. What frequently happens is the lender adds what wouldve been the broker's fee to their own margin and simply makes more on the loan. The market will bear what the market will bear - if the going rate for something is X, then that is what everyone charges. How that money is divvied up on the backend is typically what varies.

If you have a house that will sell for $300k, and then you find a way to cut the listing agent's commission/fee out by not using an agent, are you then going to reduce the price of the house by the same amount as the saved commission, just so you can do all the extra work for free? If the house will still sell for $300k, then you just make more and do more of the work yourself. The market will bear what the market will bear.

Erik Estrada · Answer

Brokers have their place in the lending market place.

Most clients start with their local bank. When the bank says no, then they search around online or ask families/friends. They then get in touch with a broker that can structure their file to close with lender B.

Brokers are not competing with banks for fees and rates. They shine when those banks can't perform. And yes, some brokers will charge more, but if it's a complicated deal, that you would have spent months talking to multiple lenders, ordering multiple appraisals, etc.. the 3pts are worth the money.

Dante Craig · Answer

Great question James, while direct lenders are often seen as the most straightforward option, brokers can sometimes secure more competitive pricing, particularly from institutional brokerages. However, these instances are not common.

Where brokers truly shine is in navigating complex or "rough-around-the-edges" deals. These are properties or situations that might not fit neatly into a direct lender's standard criteria, making it harder to find financing. A skilled broker can leverage their network and expertise to find solutions where others might not.

However, for a typical fix-and-flip investor, whose deals are often more conventional and less complex, using a broker may indeed add unnecessary costs. If your deals are straightforward and easily financed through direct lenders, the added layer of a broker's fee might not be justified.

In essence, the value a broker provides often depends on the complexity of the deal. For standard, clean transactions, going direct might be more cost-effective for a flipper. But for those unique or challenging situations, a broker can be an invaluable asset.

Josh Dan · Answer

Any lender that is a true wholesale lender it will be more expensive to go direct. Because, the person you talk to at the lender is a broker and have to charge more.

Todd Kime · Answer

It really comes down to the professional that you are using.  Typically each person will have an oversight on what they typically will charge.   Most Brokers will have to charge a little more on rate, since they are mainly set up on lender Paid Compensation.  ( which bakes their fees into the overall rate)

Brandon Croucier · Answer

They're usually cheaper.

What makes you think that as an investor, who spends most of their time sourcing and working on properties, knows where to find the best mortgage product on the market?

Yes, Mortgage Brokers charge for their product & services but we end up saving borrowers thousands and countless hours of headaches.

I've worked for direct lenders & I can tell you one thing, they ARE NOT cheap.

Some Direct lenders go & bake in as much as 4 pts per file.

While working with a broker you can expect a 1-2.5% fee but that is on top of extremely slim margin mortgage pricing which is not available to a direct consumer/investor.

Are all loans more expensive when using a broker?

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