When my wife and I purchased a home we used to live in, which was a duplex, the only financing we could find for the property was through a mortgage broker.
Many of the lenders that looked at doing the loan didn’t believe we were going to live in the property because the price per unit was lower than the house that we were selling and we were real estate investors. The mortgage broker was our only way to finance the purchase. We ended up living in the property for about ten years.
This article is about using a mortgage broker to finance the purchase of a rental property in Oklahoma City.
I also wrote an article about financing the purchase of OKC rental real estate using a local bank.
What is a Mortgage Broker?
A mortgage broker arranges long-term financing through many different lenders for a fee (10 year to 30 year amortization). To get financing for investment properties, your credit must be fair to good.
For a beginning real estate investor, it is easier to get financing through a mortgage company than through a bank. If you want to get financing through a small, local bank, a mortgage broker is a good stepping stone.
The properties that a mortgage company will finance need to pass at least a cursory inspection. It also needs to appraise. What that means is that most mortgages offered through mortgage brokers are not for renovation projects.
When to use a mortgage broker.
Sometimes mortgage brokers offer the best financing packages for a particular situation. For example, if you are getting financing as a homeowner, you can likely get an FHA loan with very good terms. FHA loans are government backed. Recently, the Federal government has expanded the FHA program. FHA currently borrows for up to 4 units if you live in one of the units.
NEVER use a mortgage broker without first visiting with a local banker. I’m not telling you not to use mortgage brokers. I’m just telling you to find out what your options are first. What I’ve found is that mortgage brokers tend to have higher lending fees.
Example of using a mortgage broker.
Limitations of using a mortgage broker.
Mortgage brokers do what they do for a fee; you can’t hold that against them. However, the fees they charge may be higher than you are willing to pay for the use of the money.
Make sure to get a disclosure of all fees (called a “truth in lending statement”) far in advance of the closing. One tactic sometimes used by unethical mortgage brokers is to drag out getting you a truth-in lending statement until the actual closing. Another tactic to watch for is trying to have you pay for an appraisal before you have the information on their fees so you have a financial stake in getting a loan through them.
Subprime financing is just not available in the market at this time. If you have poor credit, you are not likely to get financing from a mortgage broker.
Mortgage companies will limit you to a certain number of loans. Some mortgage companies will not loan money to investors once they own a certain number of investment properties.