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Table of Contents
Should you go directly to your local bank or to a loan broker for your loan?
- Banks provide financing through retail pricing channels.
- Brokers provide financing through wholesale pricing channels.
When I worked for a large nationwide bank as a construction loan officer there were two things that customer never knew.
First I was told by the bank that I had to charge every customer a 1 point origination fee (this fee is the same as the 1 point broker fee). The reason I had to charge every customer the same fee was because the bank couldn't discriminate from charging one customer one fee and another customer another fee.
The second thing was that banks could charge a higher rate without having to show the customer their profit (yield spread premium).
Unlike the bank the broker has the ability to negotiate their fees and must disclose their profit (yield spread premium) spread. The broker also has the ability to provide financing from many different banks (one stop shopping).
A broker is a representative for hundreds of banks. Although the broker appears to serve as the middle-man, his or her services will not cost you anything extra. That's because brokers obtain loans through wholesale channels. If you walk directly into a bank that provides construction loan financing the loan is adjusted at retail pricing.
In fact many brokers are able to offer their clients better rates and pricing depending on the level of difficulty of your loan request.
A broker can charge whatever you negotiate. I once traded a set of Callaway golf clubs with an executive of Callaway Inc. and if you went directly to the bank they would have told you that it cannot be done. By the way my client also provided 4 dozen golf balls and a Callaway golf bag. The new golf clubs didn't help my game much but it was fun to make that deal.
With an experienced construction loan broker you can shop dozens of the most competitive banks nationwide, obtain wholesale pricing and can negotiate on rates and pricing.
To prove it to you please send me a copy of any quote/good faith estimate from any lender and I will pick it apart for you. I will show you how the loan officer and bank is getting paid. I will also show you how I can beat their pricing and offer a better interest rate and program.
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