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Independent mortgage broker

Velocity investors overwhelmingly prefer to work with an independent mortgage broker.

Velocity investors overwhelmingly prefer to work with an independent mortgage broker.

When it comes to their source of financing for investment properties, there is a significant split between Velocity investors and other investors. At 65 percent, Velocity investors are nearly two times more likely to work with an independent mortgage broker than other investors at 34 percent.  This ratio nearly reverses for other investors, who prefer to use a large bank, at 45%, versus Velocity investors at 27%.





Although lower in the overall rankings, Velocity investors are also 16 times more likely to use a hard money lender and nearly three times more likely to use a direct, non-bank lender.

As in the home loan market, direct, non-bank lenders are attracting the attention of borrowers and thereby stealing market share from other investment property financing resources, including brokers.

Implications

Often, the choice of a financing partner is determined by existing relationships.  Investors with cash on deposit at a large bank and a solid credit history are more likely to consider a large bank given the typically lower rates offered by banks.  Since brokers are responsible for finding the “best” mortgage program for their clients, a bank loan is most likely the right solution for investors who meet the required underwriting criteria.

However, banks are often limited in the types of properties, investors, and businesses they can finance based on the potential risk.  A 2017 survey conducted by the National Association of REALTORS among a random sample of realtors with an interest in commercial real estate loans found that 35 percent of commercial real estate loans are rejected for various reasons.  That 35 percent fallout represents a huge opportunity to attract new clients by servicing the specific needs of independent real estate investors and small business owners who often don’t qualify for a traditional bank loan.

Many independent real estate investors and small business owners don’t qualify for bank financing for a variety of reasons, some of which include minor issues like a lack of consistent personal income, a low debt-to-income ratio, or less than two years of business tax returns.  When banks turn down these applicants for an investment property loan, independent investors often turn to a hard money lender as a temporary, short-term solution to acquire the property.  Once they’re able to clear up the issues that prevented them from obtaining a bank loan, they often refinance with a bank.  However, this is an expensive solution for investors due to the high interest rates charged by hard money lenders and the need to refinance, typically within 12 to 18 months.

This very common scenario presents an enormous opportunity for mortgage brokers and a clear benefit for investors, particularly since 47% of Velocity investors indicate that they use a hard money lender to finance their investment properties.  Interest rates on Velocity’s mortgage programs typically fall in between those charged by banks and hard money lenders.  Velocity also provides mortgage programs with 30-year amortization schedules that don’t require investors to refinance their loan after 12 to 18 months.

Together, the lower rates and longer amortization schedule available through Velocity provides a distinct benefit over hard money lenders and an attractive business strategy for mortgage brokers.  When brokers can’t qualify investors for a traditional bank loan, they can offer a less expensive solution through Velocity that enables their clients to achieve their desired goal of acquiring the property with a lower interest rate than hard money.  Brokers can then work with their clients to clear up the issues that prevented them from obtaining a lower rate bank loan, and switch loans when the time is right on their schedule.  As a result, the client can acquire the property at a lower cost and then lower the cost even further by converting to a bank loan.  Meanwhile, the broker provides a business solution that creates a path forward for their client, plus the opportunity to sell two mortgage programs to the same client. However, independent mortgage brokers must also counteract the intrusion into the investment property market by direct, non-bank lenders who often offer quick, online conditional approvals for loans through software solutions that are unavailable to brokers.  To ensure its brokers stay competitive, Velocity provides access to an online portal where brokers can submit their loan scenarios, adjust their commission rate, and obtain a conditional loan approval for their clients in as little as 7 minutes.