Direct Lender vs. Mortgage Broker for Commercial Real Estate

Commercial real estate is a premium real estate asset. That being the case, commercial real estate properties can sell at a premium price; it’s virtually guaranteed that you’ll need to seek financing options to acquire high-value commercial real estate.

Considering the importance financing has in commercial real estate, the more real estate investors know about their options, the better equipped they are to make the right financial decisions for their particular needs.

Explore the difference between a direct lender and a mortgage broker for commercial real estate with Loanbase; learn the details about financing that could make all the difference in your real estate investment strategy.

Financing for Commercial Real Estate: What To Expect?

Acquiring any property typically requires financing assistance through loans, particularly commercial real estate.

Homeowners are familiar with mortgages: they are financing options issued by lenders after the homeowner makes a sufficient down payment on the property. Residential properties are expensive, particularly in competitive markets.

Commercial real estate is even more expensive than residential properties. Commercial real estate investors should expect to utilize whatever financing options they can find to access their prospective investment properties.

Commercial real estate is generally calculated by the square footage—speaking to its high financial threshold. For instance, office space was valued at an average of 35 dollars per square foot in 2020; retail space was valued at $18.09 per square foot that year.

The listing price for commercial properties necessitates capital that may exceed the capability of even high-net-worth individuals.

To access commercial real estate, investors turn to financiers, a component of real estate investing that, while helpful, can be pretty complex. How investors connect with the capital they need depends on the avenue they take toward financing.

To demonstrate distinct approaches to financing commercial real estate acquisition, consider the difference between direct lenders and mortgage brokers.

What Is a Direct Lender?

Direct lenders are the financers behind the loan investors need to acquire their commercial real estate assets. Direct lenders may refer to financial institutions like banks, private investors, and investment companies supplying borrowers with competitive loans.

Borrowers who want a loan from a direct lender must collect pertinent financial information to establish their credibility. Financial information borrowers should consider when applying for a loan include tax information, credit scores, annual income, and other indications that they possess the sufficient financial capability for a loan.

When connecting with direct lenders on their own, it is incumbent on the borrower to research which rates suit them or to negotiate with lenders to find loans that fit their financial needs.

Establishing a rapport with a direct lender can help borrowers secure better loans; borrowers with a long history with a bank or investment company stand a better chance for bigger and better loan approvals.

What Is a Mortgage Broker?

Mortgage brokers function as intermediaries between borrowers and lenders. Investors who opt to go straight to direct lenders may find the task overwhelming.

Furthermore, investors who do not possess the same level of credibility with a given lender—they don’t have a personal history with a bank or investment company—may find a mortgage broker helpful in establishing their credibility.

Mortgage brokers will likely need the same financial information that direct lenders need to determine your loan approval. When presenting their financial information to direct lenders, borrowers won’t receive the assistance they’d get from a mortgage broker.

If borrowers don’t scrutinize their financial information before presenting it to a direct lender, they could hurt their chances for loan approval.

Mortgage brokers work with borrowers throughout the lending process. They aim to help connect borrowers with lenders to facilitate their loan approval. Working with a mortgage broker can help investors find direct investors suited to their financing needs and help borrowers curate their financial information for the best possible chance of approval.

What’s the Difference Between a Direct Lender & Mortgage Broker?

  • Financial Role
  • Duration of Process
  • Compensation and Fees

Financial Role

The clearest difference between a direct lender and a mortgage broker from a borrower’s standpoint is their role in the financing process. Mortgage brokers are middlemen in the financing process, whereas borrowers have the potential to reach out to direct investors if they feel confident in doing so.

Mortgage brokers are intermediaries between borrowers and lenders. While they aren’t necessarily integral to the financing process, borrowers that seek out a direct lender independently enter into a close relationship between borrower and lender.

Whether an investor needs a mortgage broker or goes straight to a direct investor depends on their particular financial needs.

Duration of Process

Generally speaking, a mortgage broker will take longer to get the loan processed than going to a direct lender. Working through a mortgage broker may draw out the process in some ways; you need to supply them with your financial information, which they will use to help you gain loan approval.

Going direct with a direct lender can be a more streamlined process, depending on how together your prepared financial information is.

Compensation & Fees

Mortgage brokers are hired to provide you with a service: connecting you with qualified lenders. Brokers often use a fee-based compensation schedule to determine their rates and charge you for their services. More often than not, mortgage brokers collect the origination fee from the lenders as part of their compensation package.

Going to a direct lender may have fewer fees than mortgage brokers. However, borrowers should still expect to pay some fees even when going straight to a direct lender.

The financial entity borrowers go to will likely collect the origination fee on their behalf, in addition to other closing fees associated with the loan.

When Should You Go to a Mortgage Broker?

Investors might consider going to a mortgage broker if they are unfamiliar with the financial institutions where they are seeking loans.

Additionally, if investors are embarking on their first couple of loans, mortgage brokers may be a good choice.

Mortgage brokers serve two key advantages for investors: they can quickly establish a rapport with lenders to increase the chances of loan approval, and they help borrowers compile requisite financial information.

Mortgage brokers are financial professionals investors turn to for better chances of loan approval; it’s their job to help you get a loan. If you’re a beginner investor unfamiliar with the financial institutions where you’re seeking a loan, it might benefit you to consult a mortgage broker.

When Should You Go to Direct Lender?

Seasoned borrowers confident in their financial capability might benefit from going to a direct lender. Opting for a direct lender could mean a faster loan approval process with fewer fees. The more capable borrowers are of securing a loan on their own, the more confident they can be about choosing the right fit.

Mortgage brokers can be a substantial benefit for new investors. But they can often rely on a pool of curated lenders that might not meet a borrower’s hyper-specific needs. Capable direct lenders can be more exact with their choices of lenders.

The Bottom Line: Knowing Your Financing Options Helps You Make Better Choices

Commercial real estate investments can be a massive undertaking. The potential for success is excellent, but to reach that potential, you need to be equipped with everything you need to succeed. Your financing options are a crucial part of your investing capability.

Therefore, knowing your avenues to the best possible loans can make all the difference; choosing a mortgage broker or going to a direct lender could considerably impact your investment’s success.


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