The difference between a loan broker and a direct lender

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In our business, we frequently have clients come to us with pre-approvals from direct lenders like Bank of America, Wells, etc.

The clients love the banks because they promise high loan amounts and low interest rates.

And, on simple deals where there are no real issues with the borrower or the property, the direct lenders do fine.

So, why do we strongly recommend to our clients that they use a loan broker instead of a direct lender?

Because, when problems come up in a deal, which they almost inevitably do when you’re wading through shit, the direct lenders just decline the loan and head for the hills.

Why do they do this? Bank of America does not care about closing your loan. They’re going to close a million loans. All the bank cares about is not doing anything non-standard so as to avoid upsetting regulators. So, when a problem pops up, it’s much better for the bank to run away. There’s always another loan to do.

Contrast this with a loan broker who gets paid to close deals. All he cares about is closing the loan. If the lender raises an issue with the property or the borrower, the loan broker is there to figure out a creative way to jam the loan through. Because, if she doesn’t, she doesn’t get paid. And, if she does jam a questionable loan through, it’s the bank’s problem, not the loan broker’s.

Now, it should be noted that you’re going to pay for a loan broker’s services. The loan may be a hair more expensive.

But you’re paying for a greater certainty of closing. And, in our business, where the problem is the lack of reasonable deals, the last thing you want to happen as you near the finish line is to have some drone at a big bank tell you they can’t close.

 

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