Using A Mortgage Broker To Buy Loans

There are many investors who make loans to private individuals or companies. These loans, more often than not, are at a significantly greater interest rate than a bank would charge. Sometimes these loans are referred to as “Hard Money” loans. Although the interest is usually higher, so is the risk. Most people who are seeking these type loans either can’t qualify to borrow from an Institutional Lender, or in many cases, the property being used as collateral would not be accepted by a “regular” lender.

Case in point, and in my experience; Many of these loans are made to borrowers who are “rehabbing” a house or other property, commercial building, mobile home, etc. If the investors are prudent, they can receive much better yields on their money compared to buying CD’s, Bonds, and other so-called “Safe” investments.

In my opinion the greatest risk for the investor is finding a reliable borrower who will pay back the loan. The woods are full of frauds out there who can talk pretty slick, even sell vinyl siding to people with brick homes. For example, we loaned funds to an individual to buy and rehab a very nice old house in an historical district of San Antonio. The borrower then went to other people and solicited two more loans from private parties, secured by the same property. Apparently these other parties did not check the Title situation on the property.

The borrower defaulted on our loan so we foreclosed. The other two lenders got wiped out. We heard later that this “Slick” operator did this on several other properties. I have written in my Blog before about doing your due dilligence if you are going to make these type loans.

Now, I have another thought for you. You might want to consider using a Mortgage Broker to assist you in not only finding better quality borrowers but also helping you do the due diligence. There are Mortgage Brokers who specialize in brokering these kind of loans. Also, very often they already know of existing loans that you can buy at discount to give you a greater yield. In this capacity my company has brokered or sold thousands of loans to investors.

Now, if you want to use a broker to lessen your risk, you should check-out the broker before you use him/her. You could check the Better Business Bureau and so forth; however, I would check with Title companies or Attorneys who have closed loans in the past for investors. They will know who is active and who brokers many loans. They can recommend someone to you that they have had good experience with. We have received many referrals from attorneys, bankers and Title people. One point to remember; using a broker should NOT cost you any fees. Usually the broker is paid by the borrowers, just like with traditional Lenders.

These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.