FHA Loans: Using a Mortgage Lender vs a Mortgage Broker
Rental Property Investor · Winston-Salem, NC · Member since 2017 · 24 posts · 6 votes
I'm looking for an FHA loan to help finance a 2-4 unit apartment in either the Bay Area or Los Angeles in one year's time. In securing an FHA loan, you can choose to work with a mortgage broker or a mortgage lender. A lender is a financial institution that makes loans directly to you. A broker does not lend money but finds a lender for you.
I am looking for a lender or broker that will underwrite exactly to FHA guidelines with little to no overlays. In my preliminary search, I've found that most lenders often have overlays on top of the minimum FHA requirements whereas some brokers do not.
How have you gone about securing FHA loans and how was your experience? Which would you recommend? How should someone go about securing an FHA loan with little to no overlays?
I would recommend a broker or direct mortgage banker/lender (often called a correspondent lender, in the industry). I wouldn't recommend a bank necessarily. Whether you go broker or direct mortgage lender, make sure the lender AND the loan officer are well versed in multi-units. The issue is many lenders out there can be decent at single family homes...but a 2-4unit is a different animal...and the experience you'll have on that purchase will largely depend on how well versed the lender is. For what it's worth....
@Cameron H. I would find a mortgage broker as the broker becomes an important part of your "team". I started out working with a broker from Loan Depot here in the Chicago suburbs, and the same broker has helped me with seven loans over the past five years. In addition, he has helped dozens of clients acquire properties.
The issue with going directly to the financial institution is that they will have stricter guidelines for what works for them. If you bring a deal with a little hair on it, they probably will take a pass half way through and put you in a time crunch to find a new lender.
@Cameron H. I would find a mortgage broker as the broker becomes an important part of your "team". I started out working with a broker from Loan Depot here in the Chicago suburbs, and the same broker has helped me with seven loans over the past five years. In addition, he has helped dozens of clients acquire properties.
The issue with going directly to the financial institution is that they will have stricter guidelines for what works for them. If you bring a deal with a little hair on it, they probably will take a pass half way through and put you in a time crunch to find a new lender.
FYI loanDepot is a retail mortgage bank. They don't have brokers, but a broker can send their business there if they wish. But if it's working for you, by all means carry on and don't fix what ain't broken!
The 3 categories are
- Traditional / depository banks. These guys are direct lenders only. Chase, BofA. No brokering. As a loan originator, you go here if you can't hack it as a self-starter and need your hand held to go to the potty. These guys are "registered," but not "licensed." Due to superior lobbying budgets, the "registration" is nationwide, for the below 2 categories it's state specific. Least regulated, no one can come anywhere close to touching efficacy of their lobbyists.
- Mortgage banks aka direct lenders aka retail "nonbank" lenders aka mortgage companies (confusing, I know). Quicken, loanDepot, Guaranteed Rate. Can broker with management permission, which will generally only be granted if they can't do the deal (good luck getting an approval over rate/terms). I started my career here, generally this is where the best training is to be found for someone new to the industry. When someone calls me with "hey I want to be a mortgage broker!" I say "nope, call one of these places for the training. But don't worry, no one knows the difference anyways, they will think you are a mortgage broker." These folks are licensed professionals who had to pass a written test, not merely "registered." Medium to strong regulation.
- Independent wholesale mortgage brokers. The only category where no one has signed a "captive vendor" agreement with one particular lender, they can broker without restriction or needing to ask a manager permission. Comparatively little training or support, starting here is like learning to swim by jumping into the deep end. Also licensed. Most regulated, these guys got thrown under the bus post-meltdown during the re-regulation, essentially no one on capital hill was representing their interests when Dodd Frank was being drafted (most of them fled to a mortgage bank, or left the industry entirely, circa 2008-2009).
Here's the rankings of the latter two (traditional banks & internet lender mortgage banks aren't included here).
https://www.scotsmanguide.com/Rankings/Top-Lenders-2018/Results/Top-Overall-Volume/
1st place is UWM, and you see their breakdown includes 0% retail. 0% retail means you can't get a loan from them directly, only through a broker. They are also the fastest growing employer in metro Detroit.
4th place is loanDepot. 16% of their business is from mortgage brokers, but 84% is from their own banker employees. If you are speaking to an employee of the lender, by definition it's a retail banked transaction, rather than brokered.
You can see another counter-example in 7th place, Guaranteed rate 0% wholesale means they don't work with brokers at all.
Movement Mortgage is in 12th place. 1% wholesale means they in theory have a wholesale channel, but very very few mortgage brokers determine that they're ever the best home for a loan.
I'd say 60% of Realtors and 80% of consumers don't use the terms accurately, so not trying to pick on you. :)
Chris is spot on with his write up!!!
@Chris Mason nice write up! I always think of the Loan depot and guaranteed rates of the world as brokers since they sell the paper to different banks. Interesting to see the breakdown. My loan officer there must have something going for him internally because he actually brokered a commercial loan for a client which is not something they do at all that I know off for business off the street.
I would think for the vast majority of investors here on BP it would make sense to go with options 2 and 3 though. Option 1 still has no wiggle room for us investors.
@Chris Mason nice write up! I always think of the Loan depot and guaranteed rates of the world as brokers since they sell the paper to different banks. Interesting to see the breakdown. My loan officer there must have something going for him internally because he actually brokered a commercial loan for a client which is not something they do at all that I know off for business off the street.
I would think for the vast majority of investors here on BP it would make sense to go with options 2 and 3 though. Option 1 still has no wiggle room for us investors.
That sounds right. The residential mortgage banks will generally approve their LOs to broker out loans that aren't in their wheelhouse, a commercial mortgage for a past client and/or consistent Realtor referral partner being an example of that, so it's potentially actually you that had the "special" thing going. :) I could always get a little love with "hey this is for Realtor Sally, here's a list of the clients she referred to us in the last 12 months: [list]. Will you approve [special thing]?" was generally a "yes."
@Cameron H. I would find a mortgage broker as the broker becomes an important part of your "team". I started out working with a broker from Loan Depot here in the Chicago suburbs, and the same broker has helped me with seven loans over the past five years. In addition, he has helped dozens of clients acquire properties.
The issue with going directly to the financial institution is that they will have stricter guidelines for what works for them. If you bring a deal with a little hair on it, they probably will take a pass half way through and put you in a time crunch to find a new lender.
Hey John,
Thanks for your help. I hadn't considered how finding a good mortgage broker is essential in building a strong team. That definitely helps me moving forward.
@Cameron H. I would find a mortgage broker as the broker becomes an important part of your "team". I started out working with a broker from Loan Depot here in the Chicago suburbs, and the same broker has helped me with seven loans over the past five years. In addition, he has helped dozens of clients acquire properties.
The issue with going directly to the financial institution is that they will have stricter guidelines for what works for them. If you bring a deal with a little hair on it, they probably will take a pass half way through and put you in a time crunch to find a new lender.
FYI loanDepot is a retail mortgage bank. They don't have brokers, but a broker can send their business there if they wish. But if it's working for you, by all means carry on and don't fix what ain't broken!
The 3 categories are
- Traditional / depository banks. These guys are direct lenders only. Chase, BofA. No brokering. As a loan originator, you go here if you can't hack it as a self-starter and need your hand held to go to the potty. These guys are "registered," but not "licensed." Due to superior lobbying budgets, the "registration" is nationwide, for the below 2 categories it's state specific. Least regulated, no one can come anywhere close to touching efficacy of their lobbyists.
- Mortgage banks aka direct lenders aka retail "nonbank" lenders aka mortgage companies (confusing, I know). Quicken, loanDepot, Guaranteed Rate. Can broker with management permission, which will generally only be granted if they can't do the deal (good luck getting an approval over rate/terms). I started my career here, generally this is where the best training is to be found for someone new to the industry. When someone calls me with "hey I want to be a mortgage broker!" I say "nope, call one of these places for the training. But don't worry, no one knows the difference anyways, they will think you are a mortgage broker." These folks are licensed professionals who had to pass a written test, not merely "registered." Medium to strong regulation.
- Independent wholesale mortgage brokers. The only category where no one has signed a "captive vendor" agreement with one particular lender, they can broker without restriction or needing to ask a manager permission. Comparatively little training or support, starting here is like learning to swim by jumping into the deep end. Also licensed. Most regulated, these guys got thrown under the bus post-meltdown during the re-regulation, essentially no one on capital hill was representing their interests when Dodd Frank was being drafted (most of them fled to a mortgage bank, or left the industry entirely, circa 2008-2009).
Here's the rankings of the latter two (traditional banks & internet lender mortgage banks aren't included here).
https://www.scotsmanguide.com/Rankings/Top-Lenders-2018/Results/Top-Overall-Volume/
1st place is UWM, and you see their breakdown includes 0% retail. 0% retail means you can't get a loan from them directly, only through a broker. They are also the fastest growing employer in metro Detroit.
4th place is loanDepot. 16% of their business is from mortgage brokers, but 84% is from their own banker employees. If you are speaking to an employee of the lender, by definition it's a retail banked transaction, rather than brokered.
You can see another counter-example in 7th place, Guaranteed rate 0% wholesale means they don't work with brokers at all.
Movement Mortgage is in 12th place. 1% wholesale means they in theory have a wholesale channel, but very very few mortgage brokers determine that they're ever the best home for a loan.
I'd say 60% of Realtors and 80% of consumers don't use the terms accurately, so not trying to pick on you. :)
Chris, thanks for sharing your depth of knowledge and explaining the mortgage avenues available to me. I'll start reaching out to some of the broker-based companies on that list to see what they have to offer.
I would recommend a broker or direct mortgage banker/lender (often called a correspondent lender, in the industry). I wouldn't recommend a bank necessarily. Whether you go broker or direct mortgage lender, make sure the lender AND the loan officer are well versed in multi-units. The issue is many lenders out there can be decent at single family homes...but a 2-4unit is a different animal...and the experience you'll have on that purchase will largely depend on how well versed the lender is. For what it's worth....