Direct Lender vs Bank Lender

5 Replies

Hi BiggerPockets!

I have a question about Direct Lenders vs Bank/Broker Lenders. I'm a rookie and I'm trying to pick up a multi-unit/english-basement house to in order to save on my mortgage expense and get some PM experience. I'm shopping around for lenders and I've come across a new type of lender I haven't read much on - Direct Lenders. The direct lender that I spoke with said that using a direct lender gives your offer letter more credibility verses a bank lender since the do a full pre-approval verses what they said is a "BS" pre-approval from a bank/broker lender. They also mentioned that since they are a direct lender that they have a better pool of appraisers to use.

I was wondering if someone could help explain the pros/cons of using a direct lender verses a bank lender? Is what the individual I was speaking with saying something valid?

PS: I'm looking at getting a conventional loan product or using a FHA/203k product.

Best,

Mike 

Hi Mike.  as I've worked under both scenarios, as far as the pre-approval goes I would have to say that individual is incorrect.  Any good loan officer will go over the exact same thing when it comes to a " full pre-approval", pull your credit for scores and liabilities for debt to income ratio, income and assets. now most lenders are able to take it one step further and collect documents to send into underwriter for a credit approval from the  underwriter,which does give it more power. as far as appraisers go I would have to agree on that. 

Hi Mike,

I agree with Brendon. What is most important is that someone who understands the programs and guidelines has reviewed your supporting documentation (tax returns, pay stubs, bank statements, etc.), review your credit profile, and determine an accurate DTI ratio, and is confident that you are an eligible buyer. Whether that comes from a bank or direct lender is irrelevant.

@Mike Bonadies It really comes down to your individual loan officer. "Direct" lenders blow deals just like anybody else. 

As Chris Mason has regularly said on these forums, if any one type of lender was truly light-years better than any other type, the market would dictate that Brokers would fade away and Direct lenders would be the accepted standard or vice versa. That simply hasn't happened because it's just not accurate. Each type of lender has a slightly different process to get to the same end point. 

I'll probably take some heat for saying this, but I'll say it anyway: loan officers who have to send every one of their files to an underwriter to have it pre-underwritten are lazy and probably don't know their guidelines, so they have to lean on an underwriter to help them with their file. Yes, I'm a broker and I can say that I have never blown a loan in underwriting because I know my guidelines and I clear up any questions ahead of time, so that we limit any surprises.

Find a loan officer who has an expertise in real estate investing since that is your interest. They should be transparent about their processes and structure. For instance, I have no issue with telling people that I am not a renovation specialist, so I would rather refer them to somebody who does specialize in renovation loans to ensure they have a good experience. Also make sure they communicate often and at your level of understanding.

The whole Direct vs any other type of lender is much more about them getting a loan than doing what is best for you.

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