There are regular banks — those that have the branch offices, drive-up teller windows, and ATMs — and there are mortgage banks. Mortgage banks only deal in real-estate loans. Mortgage brokers specialize in arranging loans for their clients.

You will often find totally different treatment from mortgage banks and mortgage brokers compared to the treatment you get from a regular bank. The loan officer at a traditional bank will smile and offer sympathy but will not grant your NOO loan unless you have a substantial down payment and pristine credit. Give a reason not to make the loan, such as one or two dings on your credit report, and expect a fast but polite rejection of your loan application.

On the other hand, mortgage banks and mortgage brokers will gladly seek your business. Although you might not get as good a deal as someone with perfect credit, most likely you will get the financing you need. Some mortgage banks deal directly with the public, while others originate loans only through mortgage brokers.

Most mortgage brokers have special programs for the real-estate investor needing an NOO loan. The mortgage broker is compensated by receiving a commission for matching the borrower with a lender. The mortgage broker usually performs some or most of the loan processing functions such as taking the loan application and ordering a credit report, appraisal, and title report. The mortgage broker does not underwrite the loan but rather presents it to a lender for approval.

Loans for Every Type of Borrower

Borrowers with damaged or imperfect credit, or with an unusual loan need, turn to a mortgage broker to help them find a loan. Because a broker has multiple contacts with different lenders, the broker can usually locate a loan program that works for the borrower.

Mortgage brokers have expanded their business over the past decades, and now they compete with your local bank for business. Mortgage brokers offer A loans (perfect credit), Alt-A (loans to those with almost perfect credit but perhaps with a few small blemishes), B, and C loans. Most local regular banks will only lend on A or Alt-A loans.

Loans for Real-Estate Investors

Mortgage brokers match loans for real-estate investors. For example, fewer banks are willing to make a loan for the acquisition of a mixed-use property, such as a building with retail space on the first floor and residential units on the second floor. Mortgage brokers can secure the financing for these types of investment properties.

A mortgage broker receives compensation when the loan closes. The broker receives origination fees (points) from you or a yield spread premium (YSP). This is a fee paid by the lender for originating the loan based on the interest rate of the loan. For example, a loan with a 9 percent rate might pay the broker two points of the loan amount in a yield spread premium. The same loan with an 8 percent rate might pay just one point, while a 7 percent rate may pay the broker nothing. You should never pay a retainer or any other fee up front to a mortgage broker. The only money a loan applicant should give to a broker on making application for financing is an amount sufficient to pay for the formal credit report and an appraisal. As an active real-estate investor, most mortgage brokers should be interested in your business because you offer the opportunity for repeat loans.

The states license mortgage brokers where they operate. They must comply with their state as well as federal regulations. A benefit to using mortgage brokers is that they are more likely used to dealing with problem applications. They have the experience to assist a borrower with credit problems or other issues. Do not overlook the value a mortgage broker can offer to you in finding suitable financing.