I am currently shopping for a mortgage broker to add to my team. I would much rather have someone else help me with this part of the business so I can focus on other aspects.
I have heard more than once that I need to be careful about who I choose, that they are not all ethical and that some will actually “steal” deals out from under you.
Can I get some advice on how to shop for a good mortgage broker that I can build a good relationship with through trust and dependability.
Some background information:
I am a buy, fix and sell rehabber with 12 years experience as a home renovation contractor. I have a sizable equity line of credit to use. The last time I checked, my credit score was 720. So, I have experience, money and credit. I have been educating myself on REI and going to homes in my target areas to get a feel for the current values.
I have looking for wholesalers to buy from but am not having much luck with that - the only one’s I have located so far already seem to have strong buyer’s lists and I haven’t been able to obtain any leads through them yet. I have made the commitment to go ahead and locate the properties myself for now and see how it goes from there.
I would like to find a motgage broker that will represent me well by locating funds with the best value (rates, terms, etc.) available as fast as I need it so I can close quickly. I need to be able to depend on this person’s honesty, integrity and professionalism. I need someone who has multiple resources to tap into.
I haven’t found any seasoned investors yet who I feel have made a good recommendation (based on further questioning). Where do I start looking, besides my local REIA, and what type of questions should I be asking?
Finding the right mortgage consultant for your investments will be important for the growth of your business. Once you have found a professional whom you feel comfortable with he will need to pull credit to review over scores and tradelines. There may be a few short forms to complete as well so that he can intelligently discuss loan options with you. A credit check should not be needed again until another property is ready to be financed. (As a side note, when your credit is pulled by a mortgage broker or auto lender, the bureaus treat up to 15 hits within a 30 day period as one.) The consultant should be asking questions about your short and long term goals so that the appropriate mortgage terms can be matched to the subject property.
There are many lenders a broker can use and most of them offer the same programs. A handful will even allow 100% financing for 1-4 units. However the guidelines may be slightly different at each. Some of the key points lenders will consider are listed below.
How many properties are currently financed?
How many properties have been purchased in the past 6 months; in the past 24 months?
Does the borrower have landlord experience?
Will the subject property have a negative cash flow?
If the borrower doesn’t show enough income he may need to go stated, no ratio, or no doc
Usually a borrower will need 6 months of reserves. (6 months of principal/interest/taxes/insurance) If multiple properties are being financed, reserves for all may be required. This could also apply for properties purchased in the past 6 months. If funds are not available the borrower may need to go stated or no doc.
Will the client need cash out refinances with no title seasoning?
Will the client need rehab loans that cover 100% of the purchase + fix?
The variation of these is why long term goals need to be addressed. Certain lenders will need to be used first as their property restrictions will prevent financing. The lenders that allow unlimited properties usually have higher rates and should be used as the portfolio grows. In some cases, as the equity increases, investors will use a local bank to obtain a blanket refinance loan in the name of an LLC.
Speaking of an LLC, it will be important for you to be teamed up with other professionals who can give tax advice and estate planning advice. Your mortgage consultant can work hand and hand with them as well.
A great mortgage consultant should also be able to provide answers on how to qualify for 100% rehab financing. They should also be able to explain how lenders can approve 90% cash out refinances with no seasoning of title. This will be valuable if you complete a rehab or have purchased a property well below market value.
So far this only address the knowledge your consultant must have. Don’t forget about service. This includes communication with you and the real estate agents involved. Every transaction goes through the same process. Within this process there are some key events which can be updated to everyone. Part of service also includes helping you manage the terms on your portfolio. A professional should be aware of how mortgage backed securities affect interest rates and have an opinion on what direction the market is heading. As your consultant he can notify you periodically of new loan products or lower rates.
I hope this has helped give you an idea of the service that real estate investors are entitled to.
Wow! Talk about public service announcements! Ben your fingers have got to be ready to fall off!
I will respond with a Reader’s Digest version.
First, find someone that is experienced. Ask around at your locale REI club. I am sure that you can find some great leads there. I know that you will probably get about 50 emails from some of the Brokers on this site. Ask for references. That is the best place to start.
Secondly, make sure that they have experience in the REI segment of the industry. RE Investors have different needs than the average consumer. You want someone that understands and pays attention to your needs. Generally, your smaller shops will fit this need.
Finally, look for someone who has access to a large amount of lender’s. The more lender’s the better your chances of getting that niche product that you are looking for.
I got more than my money’s worth from your reply. It is great information - I will definitely be able to use this.
Thanks for the reply Mdhass -
I love the idea of getting referrals - I have been asking at the local REI clubs (I belong to two). I attend all the meetings for both. I haven’t been to impressed with my reponses, I think it is because I am having trouble getting “in” with the experienced investors. At one of the clubs I attend - they tend to “put up” their own particular vendor. I wanted to be able to shop around a bit more. This same club recommended a particular RE attorney who has several claims currently filed against him. It doesn’t inspire much confidence for me.
I was wondering about how I was going to be able to determine if a loan offer is not really the best deal for me (more to the broker’s advantage than mine). I don’t feel confident I am going to be able to tell if it isn’t a good deal that I am being offered. The financing aspect of investing is my weakest link. I’d like to be able to bulletproof myself a little better.
I really would prefer working with a local mortgage broker who I can sit down and talk with face to face with. I seem to have better results when I am face to face with people. I can tell quite a lot about a person from picking up on their non-verbal signals.
There is a new term in the mortgage business “UMB” Upfront Mortgage Broker. The idea is this:
You sign a contract with your mortgage broker to pay them a set fee in exchange for their services. The contract defines your relationship with the broker and what services and consideration are required in return for compensation paid. The broker shops your deal around their lender base and then brings all the findings back to you. You sit down with the broker go over the lender rate sheets and pick the loan that works best for you.
Why are people starting to use UMB’s? The brokers compensation is decided first thing that way the broker is not shoping your deal around to different lenders seeing who will pay them the most, but instead shop your deal around looking for a lender that will save you the most.
Mortgage brokers as a whole get a bad rap because a few bad apples like to shanghi their clients. They tell them that one program is better than another not because it is, but because the lender is paying them more in YSP (think of it as a kickback), or they will change rates, closing costs, etc., right before the closing because they feel they should be compensated more.
If you like, Google the term to find out more about UMB’s, but in all actuality any broker can be a UMB. It’s just a different way of doing business. Many brokers already conduct business this way and don’t even know there is a term for it.
This is perfect Patrick. I think this is just what I was looking for. Now I can get the broker fee part of the deal out of the way right off the break and get right into concentrating on the meat of things. I like it alot. I think this is definitely where I want to place my focus.
Thanks a bunch . . . that was truly helpful to me.