There are many different types of mortgage brokers - traditional brokers concentrating on retail customers, hard money lenders and private lenders (who are usually not mortgage brokers but useful in certain situations.)
Choosing the right broker really depends on what you are trying to accomplish. Some examples include
- Purchase a house at retail
- Purchase a foreclosed property
- Purchase a house at a wholesale rate
- Purchase a fixer upper
- Package your house for sale to an end buyer
Many times, the mortgage broker who excels at one situation will not be the one you should use for another situation. For instance, a broker who concentrates on traditional mortgage products will probably not be the person you approach for a 100% financing fixer upper situation.
Lets look at a few scenarios.
You are interested in rehabbing a house. Depending on your situation, you may choose to use a hard money lender to do the rehab with no money out of your pocket. But if you have some cash to work the deal, you may find that you get a much better deal from a traditional broker. In this situation, a traditional broker could save you several thousand dollars in fees and other expenses.
Also, since most of us eventually sell properties - especially single family properties - to end buyers, it is very useful to have a relationship with a mortgage broker who can work with these people. Unlike a traditional Realtor based sale, when you sell yourself, the buyer does not have a Realtor in the loop to suggest mortgage brokers and other people who will help the property close in a timely manner. That task falls to you. So in this situation, it is in your best interest to have an existing relationship with a broker who is familiar with working with the types of people you retail your houses to. If these people are typically somewhat credit challenged, be sure the broker knows the best programs to place your buyer into so that you have the very best chance of closing a deal.
Since different types of brokers serve different needs, it is good to build relationships with several before you actually need them. However, you should keep the list small because you will get much better service when the broker knows you will always come to him for a specific set of services. So, you might have one retail product broker and two or three hard money brokers in your team of support staff.
Until 2007, you would have wanted to have a relationship with several retail products brokers because there were so many subprime products on the market that you needed an array of brokers to cover all the products available. With the demise of the subprime market, you will find that almost all brokers are working with the same set of products. As such, the retail broker’s differentiation really is the service offered to you.
So how do you find good brokers?
The first place to start is by asking other investors who they have successfully used for various investment scenarios. If there is a local real estate club in your area, you will find many people who can make recommendations.
If you are not fortunate enough to live in or near a large city, you will find your local choices much more limiting and may need to extend beyond your local area to find brokers you like working with. This is especially true with hard money lenders. Fortunately, almost everything can be done by phone, fax and mail nowadays so the distance factor is not as important as it was.
Once you come up with a list of brokers - whether it be by referrals, the yellow pages or a search on the Internet - the next step is to check them all out before taking the time to call them. Start with the appropriate branch of the Better Business Bureau to see if there are any complaints against the company. Then do a google search on the company to see if anything comes up. Often, a company will have a clean BBB report but have some comments about them on a real estate investor’s board that you will find with google or your favorite search engine.
From these efforts, you will have a list of brokers to contact. Your next step is to call them all, explain what you do and let them tell you about the products they have which can benefit your business. Ask all the questions you have and get a feel for how knowledgeable the broker is.
- Are the answers coming quick and effortlessly?
- If a question is complex and the broker has to get back to you, does he get back to you in a timely manner?
- Did you feel rushed on the phone or in person?
- Did it seem the broker had better things to do than start to establish a relationship with you?
- Did the broker seem like someone you could work with on a long term basis?
- Do the products fit your investment objectives?
From this conversation, you will either form a good opinion or a bad opinion about the broker. If it is a good opinion, that broker should be added to your support team. If the opinion is bad, you should keep the name in a reject file so you don’t invest time with that person in the future. By doing this several times, you will develop a relationship with brokers that can help you with any real estate investment situation you are confronted with. And that means you can always negotiate from a position of strength because you will not have to worry about where the financing will come from. You will already know who you will be working with for that deal.
A mortgage broker is a key component of your real estate success team. In fact, as you have seen, it is good to actually have several mortgage brokers as part of your team. Just as each investment deal you negotiate is just a bit different, the products that are available from the different types of brokers are designed to fit different scenarios. Take the time up front to build this part of your team and you will find your investing will be a much smoother operation than if you wait till after you have a deal in hand.
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