If you’re the DIY type, you may wonder why anyone bothers using a mortgage broker when they could just talk to lenders directly.
For some people, the direct path really is the best option.
The majority of new real estate investors, however, can benefit from working with a mortgage broker.
Here are four reasons you should consider using one.
1. Using a Mortgage Broker Can Save You Time
Comparing mortgage offers is one of the most important things that you can do when buying investment property, as people often find that they can find vastly different offers from different companies.
Some lenders may decide that you don’t meet their expectations, so they don’t want to give you a mortgage at all.
Other lenders, however, may decide that you’re just what they’re looking for, so they will give you a low interest rate.
This may sound ridiculous if you haven’t worked in real estate or finance before, but it’s actually quite common because lenders use different criteria to measure how risky borrowers are.
If you don’t use a mortgage broker, then you will have to fill out applications for dozens of lenders. This takes a lot of time, especially since each company has its own set of documents.
Using a mortgage broker makes this process considerably easier.
Instead of filling out documents for several lenders, you just work with one person.
You will still have to provide plenty of documentation to prove your creditworthiness, but you will only have to do it one time.
That’s a big time-saver when you consider that most lenders will want:
- W-2 forms from the last two years
- A copy of your most recent federal tax return
- Recent paycheck stubs
- Canceled checks showing you have made rent and mortgage payments on time
- A complete list of your assets and debts
If you own a business, then you will also need to supply loss and profit statements from your 1099 forms.
Renting property counts as owning a business, so you will need to give the lender this information if you already rent a property to tenants.
You will likely save hours of research on this issue by working with a mortgage broker.
2. Brokers May Have Access to More Loan Options
When you approach a lender, your loan officer will make certain assumptions about what you qualify for.
Even if you have a good credit history, the lender may choose to show you certain types of loans over others.
Mortgage brokers have enough experience to know what types of offers you can potentially use.
They also know what types of products lenders offer other clients. That could make it possible for you to access more loan options. They may not fit your needs, but at least you will get to consider them.
3. You’ll Likely Get Lower Interest and Other Costs
Since mortgage brokers have connections to a lot of lenders, they can often find loans with lower costs than the ones you would get by going directly to your bank. Having the option to look at more offers gives you an opportunity to lower the overall cost of borrowing money.
Lenders are also more likely to lower their interest rates and closing costs when working with brokers.
The lenders, after all, know that most mortgage brokers will work hard to find the best options for their clients.
This encourages lenders to compete with each other.
If they don’t lower their costs, then they aren’t likely to get much business from the broker.
In the long run, they can make more money by lowering interests, points and closing costs because that means the broker will get them more business.
Some real estate buyers worry that they will end up spending more money by using a mortgage broker. After all, the mortgage broker has to get paid.
However, this is unlikely to happen, especially since new regulations that went into effect in 2014 prevent brokers from making more money by selling expensive mortgages to their clients.
The new rules have also decreased the number of mortgage brokers. Considering that those brokers left the industry because they could only make good incomes by fleecing their clients, you should consider that a benefit.
4. A Mortgage Lender Can Give You Expert Advice
All investments come with some level of risk. Rental properties aren’t excluded from this.
Considering that you will likely spend $100,000 or more on your investment property, you will probably feel a little nervous about it.
Even if you know you can make money from the opportunity, it’s scary to hand such significant savings over to someone.
A mortgage lender can give you expert advice that will help you avoid common mistakes, and if nothing else, a good mortgage broker will help you feel more at ease. Sometimes, that’s all you need to move forward with an acquisition that will earn you steep profits.
Mortgage brokers aren’t right for everyone.
If you have a lot of experience in real estate and finance, then you may feel that you can do the job well on your own.
For most people, though, a broker offers experience and advice that can help them make smarter decisions when buying investment properties.