Hard Money Loan Brokers vs Direct Lenders

A hard money broker does not lend. It takes your deal to one or more lenders, and is paid when the loan closes. A direct lender decides on and funds the loan itself. The difference is who you negotiate with and how many fees end up on the settlement statement. This page explains how the two work, how brokers are paid, and how to check a license. It does not list or recommend brokers.

How hard money loan brokers are paid

Lenders publish the broker side of their business, and it shows where the money comes from:

• Points in the term sheet. Yieldi, a hard money lender that works with brokers, says the broker sets a fee, typically 1 to 3 points on the loan, which goes in the term sheet and is paid at closing, and that the fee is visible to the borrower (Yieldi).
• Lender commissions. LendingOne offers brokers competitive commissions and a separate referral partner role that earns commissions without running the loan (LendingOne).
• Broker programs. Lima One says it works with 1,000+ brokers nationwide through a broker program with incentives (Lima One); Park Place Finance works with brokers and referral partners nationwide (Park Place).

What a broker costs you

On a $250,000 loan, a 1 to 3 point broker fee is $2,500 to $7,500. That is on top of the lender's own points: at Express Capital Financing's 2%+ that is another $5,000, for $7,500 to $12,500 in points before interest. A broker earns that by finding a lender that will do a deal you could not place yourself, or terms you would not have found. If your deal fits a lender's published box (see fix-and-flip loans compared), going direct removes the broker fee.

The fee scales with the loan, so it matters most on large deals:

Worked example: the same loan, direct or brokered

A $250,000 fix-and-flip loan held six months, priced at Express Capital Financing's published 9.99% starting rate and 2%+ points, with a broker fee at either end of Yieldi's typical range:

Points are paid once, so on a short loan they weigh more than they look. Spread over a six-month hold, each broker point adds about 2 percentage points a year to the cost of the money, so a 3-point fee adds about 6 points a year on this hold. If the loan is refinanced or the house sells in three months, the same fee costs twice as much per month held.

When a broker can be worth it

• The deal is outside every published box: an unusual property type, a state few lenders cover, or a loan size below most minimums.
• You need terms compared fast and do not have time to apply to several lenders yourself.
• The broker brings a lender relationship that gets a file reviewed that would otherwise be declined.

Red flags

• A fee demanded before you see a written term sheet.
• No license number, or a name that does not match the license record.
• A refusal to name the lender that will fund the loan.
• A broker fee that is not shown in the term sheet or settlement statement; Yieldi, for one, says the fee is visible to the borrower.

Do hard money brokers need a license?

It depends on the loan and the state. Federal rules under the SAFE Act require states to license individuals in the business of a loan originator for loans on a dwelling or residential real estate, with registration in the nationwide registry, NMLS (12 CFR 1008.103); the rule defines a residential mortgage loan as one primarily for personal, family or household use (12 CFR 1008.23). Regulation Z's rule against paying a loan originator based on the loan's terms covers consumer credit secured by a dwelling (12 CFR 1026.36(d)), and Regulation Z itself does not apply to credit primarily for a business purpose or to credit extended to an entity rather than a person (12 CFR 1026.3(a)). Most investor hard money loans are business-purpose loans, so whether a broker of one needs a license is set by each state's own law.

How to check a broker or lender license

1. Search NMLS Consumer Access. It holds licensing and registration records for mortgage companies and individuals licensed by participating state regulators, though not every state puts every license type on NMLS (NMLS Consumer Access).
2. Check the state regulator. In Texas, the Department of Savings and Mortgage Lending's consumer page has a license holder search (Texas SML).
3. Ask for the license number in writing and match the name on it to the company on your term sheet.

Broker or direct lender: how to tell

Ask one question: "Will this loan close in your name, with your money?" A direct lender says yes. Some lenders put it on their sites: Little City Investments in Austin says "We are not brokers" and Loan Ranger Capital calls itself a direct, balance-sheet lender (both on hard money lenders in Austin). A broker will name the lender it plans to use, or say it will shop your deal. Neither answer is wrong; you just want to know which fees you are paying.

Questions to ask a hard money broker

• What is your fee, in points or dollars, and is it in the term sheet?
• Which lender will fund the loan, and are you paid by that lender too?
• What is your license number, and which state issued it?
• Do you require an upfront or application fee before a term sheet?
• Who handles draws and servicing after closing?

If you would rather go direct, start with the lender comparison, how to get a hard money loan, and what a hard money loan costs.

Not legal advice. Licensing rules vary by state and loan type; confirm with your state regulator.

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