Local bank versus online lender?

Question

I keep hearing real estate investors recommend going to a local bank to get a loan. Has anyone had success using any online lenders?

Jason Wray · Answer

I would suggest you get a quote with a bank and a broker and look at who has the lowest rate, APR and make sure you are not paying points just to get the rate you qualify for with a bank.  Just make sure your getting a rate locked quote that is good for 30-45 days so it's not a teaser rate or a BS quote.

Daniel Hennek · Answer

Is there such thing as an "online lender"?  Not really...Is my brokerage an "online lender" because I have a website?  If I generate 10% of my leads online does that make me an "online lender"?  How about 50%?

The term "online lender" is used to generally refer to a company that buys leads generated on the internet, or generates their own leads from the internet.  However, those companies don't turn away business just because it came from somewhere other than the internet, and they also have homes and offices.  They are "local" to somewhere...So what makes a lender an "online lender"?

Our "online" giant Quicken/Rocket does most of the "cookie cutter" stuff in the entire USA, which means agency loans like Conventional, FHA, VA, and USDA with some jumbo mixed in.  Case in point, Quicken/Rocket is the largest mortgage lender in the nation and they do agency loans; only stuff they can quickly and easily sell to an investor.  Quicken/Rocket pretty much created the term "online lender" by pioneering the space.  I'm not saying you should get a loan from Rocket, however it's a point that "cookie cutter" loans are the easiest to scale and therefore the most likely product line of loans that "online lenders" are going to be doing.

You only mentioned bank vs lender when a broker beats them both handily.  As a broker I have all the "cookie cutter" stuff at the best rates because I can access those major lenders as well as some smaller ones when the big guys turn the dial up on rates.  I can cover the spread.  Banks sell their own rates, bankers sell their bank's rates, loan officers sell their employing lender's rates.  Brokers find you the best rate from a lot of lenders and aren't the lenders employee.  Furthermore, I have access to all the outside the box stuff too.  Investment DSCR loans, fix and flip, bridge loans, bank statement, etc.  A broker has better rates and more products.

So why don't you just find a local mortgage broker and let them figure it out for you?  Cheaper and easier for you, forget banks and lenders and let a broker deal with their crap for you because we're good at it.

P.S. No you can't just pull a rate from some banks webpage or bankrate.com and expect that's what they'd offer you.  Those rates are always off, could be higher or lower.  Don't window shop the internet for loans, talk to a professional.

Jason Wray · Answer

Peter,

Local banks are good if your doing an easy cookie cutter loan or what they call "A" paper.  The problem is most local banks are limited to funding certain deals and have strict "Overlays" and guide lines.  When you go online you can look at what the bank/lender offers and an idea of rates.  For example when a borrower wants to buy an investment property the rules/guide lines change.  They carry tougher credit risk requirements such as higher credit score thresholds and reserve requirements.  They also look more carefully at landlord experience depending on the number of units and loan size.

Typically you want to look for a "Fully Delegated" bank/lender who underwrites their own loans and is a "Direct Endorser" or Full eagle.  Just illustrates that the bank/lender approves their own loan files and does not need another investor to clear or approve the file.  This is where the "Online" bank/lender can be a good fit with less hassle.

Peter Beckwith · Answer

@Daniel Hennek

Thank you!

Peter Beckwith · Answer

@Jason Wray

Thanks for the feedback!

Local bank versus online lender?

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