Do brokers always increase the cost of loans

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Do brokers always increase the cost of loans

James McGovern
Flipper/Rehabber · Bloomfield CT · Member since 2020 · 1k+ posts · 408 votes

Are loans acquired via a broker always more costly than working with a hard money lender directly? 

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Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
1y

Brokers can add a lot of value because they may have multiple lenders and they have enough volume that they may have the ability to negotiate better rates and terms.  But, they need to get paid for their efforts.

If they don't charge you a separate fee, you've probably paid for their services in the loan.  It could be through loan origination fees or a slightly higher interest rate or a handful of other mechanisms.

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  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    1y

    Brokers can add a lot of value because they may have multiple lenders and they have enough volume that they may have the ability to negotiate better rates and terms.  But, they need to get paid for their efforts.

    If they don't charge you a separate fee, you've probably paid for their services in the loan.  It could be through loan origination fees or a slightly higher interest rate or a handful of other mechanisms.

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  • Eddie SalemPro Member
    Lender · Jacksonville Beach, FL · Member since 2016 · 24 posts · 7 votes
    1y

    Not always, but they can be. When you go through a broker, they usually add a fee for connecting you with a lender, so the total cost of the loan might be slightly higher compared to going directly to a hard money lender. That said, brokers sometimes have access to lenders you wouldn't find on your own, and they might actually help you get better terms depending on your situation. It really comes down to the deal. If you're experienced and have a strong network, going direct could save you money. But if you're newer or working on a tricky deal, a good broker might be worth the extra cost for the time and options they provide.

    [email protected]904-859-4713
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  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    9mo
    Quote from @James McGovern:

    Are loans acquired via a broker always more costly than working with a hard money lender directly? 

     It depends on how they are brokering the deal, and how much they are charging. 

    There are lenders that provide TPO services to brokers. This allows brokers to "act" like a direct lender and control pricing. I find that a quote from a TPO lender is way less expensive than going direct. 

    Then there's a broker that uses direct lenders such as Kiavi, Lima One, etc.. and charges a fee for it. This will usually be more expensive since they are charging you a point or two for originating the loan... 

    The main benefit of using a broker is to avoid wasted time. Direct lenders don't care if your deal closes or not.. A lot of them are paid hourly or on a draw basis. Their main priority is driving as much business as possible and seeing what sticks to meet their monthly quota. In my experience, a lot of direct lenders prefer working with brokers because they give them volume and a clean submission. If a direct lender isn't giving you the time, it is because they are too focused on getting more business rather than handholding yours for a few bps in commission.. 

    Try both and see what works for you. I find that clients that want to feel that they have more control over a deal, prefer working with a direct lender. It usually works out if your deals are cookie cutter and fit a lender's credit box. 

    Good Brokers ensure timely closings, clean submissions, and will pretty much take away the strain of you micromanaging a deal. If your goal is to focus on getting more deals and worrying about MAJOR expenses such as a rehab costs, holding costs, etc.. working with a broker is the "cheaper" solution. 

    [email protected]818-269-7983
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    • James McGovern
      OP
      Flipper/Rehabber · Bloomfield CT · Member since 2020 · 1k+ posts · 408 votes
      9mo

      @Erik Estrada is there a quick way to filter out brokers who work with Kiavi and others like them?

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    • Erik EstradaBusiness Member
      Lender · Member since 2022 · 6k+ posts · 1k+ votes
      9mo
      Quote from @James McGovern:

      @Erik Estrada is there a quick way to filter out brokers who work with Kiavi and others like them?


       Just look at the terms they send you. They follow the most generic term sheet that is pretty distinguishable. 

      You can also tell when they make you sign the "Brokered Transaction" disclosure. It has their name written all over it. 

      Also then they request insurance and title, you can tell by the mortgagee clause

      [email protected]818-269-7983
      LuxePrivate Investments LLC 572 Reviews
      WebsiteView Page
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    • James McGovern
      OP
      Flipper/Rehabber · Bloomfield CT · Member since 2020 · 1k+ posts · 408 votes
      9mo

      @Erik Estrada I was looking to understand how to filter before waiting for term sheets not afterwards 

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