Direct Lender vs Loan Marketplace for Apartment Loans

Short answer

Going directly to one lender is simpler, keeps one relationship and avoids a broker fee, but you see only that lender's pricing. A broker or marketplace collects several lenders' terms on the same numbers, showing real differences in sizing and prepayment, but adds a party and possibly a fee. How a broker is paid varies and should be disclosed.

The short version

There are two ways to shop an apartment loan. You can call a lender yourself: your bank, or an agency lender approved by Fannie Mae, Freddie Mac or HUD. Or you can work with an intermediary, a mortgage broker or a loan marketplace, that takes your building's numbers to several lenders and brings back their terms.

Neither is right for every owner. Going direct is usually best when you already know which program fits and which lender does it well. Using an intermediary is usually best when you are not sure which loan type fits, when the deal is unusual, or when you want to see how far apart lenders really are on the same building.

Side by side

Factor	Direct to one lender	Broker or marketplace
Programs you see	Only what that lender offers	Several lenders and often several loan types
Pricing evidence	One quote; you judge it alone	Several quotes on the same NOI and request
Relationship	Direct, and it can carry into the next loan	The intermediary manages it; you still meet the lender
Speed to a first quote	Fast if the lender wants the deal	Depends on how quickly lenders respond
Speed to closing	Set by the lender's process	Set by the same lender's process once chosen
Who pays the intermediary	No intermediary	Varies: borrower, lender or both; should be disclosed in the engagement
Work on your side	You package the deal and negotiate	The intermediary packages and negotiates; you supply documents
Who decides	The lender's credit team	The lender's credit team; an intermediary does not approve loans

The case for going direct

You keep one relationship. If you have a bank that has financed your buildings for years, it knows your history and may lend on that strength. A new lender, introduced by anyone, starts from zero.

You know the program. If your building is a clean, stabilized 5+ unit property and you want a Fannie Mae Small Loan, you can call a lender on Fannie Mae's published Small Loan roster yourself. Fannie Mae, Freddie Mac and HUD each publish lists of approved lenders, so finding one is not the hard part.

Fewer parties, fewer handoffs. Every additional party in a loan is another inbox and another set of questions. On a simple deal with a lender you trust, adding an intermediary may add little.

No intermediary fee. If a broker would be paid by you, going direct removes that cost. Many lenders charge their own origination fee either way, so ask.

The cost of going direct is the quote you never see. One lender's term sheet tells you what that lender will do, not what the market will do. A lender's own loan officer works for the lender and generally offers that lender's products.

The case for a broker or marketplace

You see the spread between lenders. On the same building, lenders often disagree on underwritten NOI, loan size, required reserves and prepayment terms. Those differences can matter more than the rate. You only see them when several lenders quote the same request.

You do not have to know the answer first. If you are not sure whether your building is an agency, bank, HUD or bridge deal, someone who works across lenders can test it against several before you spend money on reports.

Unusual deals find a home. Mixed-use buildings, low occupancy, a short operating history or a sponsor with a credit event can be declined by one lender and welcomed by another. An intermediary knows which lenders take which deals.

Someone else packages the loan. Lenders want a rent roll, a trailing-12 operating statement, a schedule of real estate owned and a personal financial statement in a usable form. A good intermediary assembles and explains them so the lender's questions get answered once.

The costs: another party, and possibly a fee. Arrangements vary. A broker may be paid by the borrower, by the lender, or by both, and the amount and who pays it should be set out in writing in your engagement before any work starts. Read that document closely.

What to ask a lender directly

Which of your programs fits this building, and which would you not offer it?
What NOI did you underwrite, and what adjustments did you make to mine?
What is the loan amount, and is it limited by LTV, DSCR or debt yield?
What are the prepayment terms, and what would it cost to exit in year three or five?
What fees do you charge, which deposits are refundable, and when are they due?
What escrows and reserves will you hold at closing and monthly?
Is this loan held on your balance sheet, sold to an agency or securitized, and who services it?

What to ask a broker or marketplace

How are you paid on this loan, by whom, and how much? Please put it in the engagement.
Which lenders will you send my deal to, and will you tell me who declined and why?
Do you have any ownership, affiliation or payment relationship with any of those lenders?
Is the engagement exclusive, for how long, and what do I owe if I close with a lender on my own?
Will I see every term sheet you receive, not only the one you recommend?
Who on your side handles the deal day to day through closing?

Whatever route you take, compare the quotes on one basis. The term sheet comparison converts two to four quotes into annual debt service and effective cost including fees over your expected hold.

A practical approach

Many owners do both. They ask their existing bank for a renewal or refinance quote directly, because the relationship is real, and they have an intermediary collect agency and alternative quotes at the same time. If the bank's terms are best, they take them. If not, they know why.

Whichever route, start early. Agency and HUD loans take longer than a bank renewal, and shopping takes time on top of that. Work back from your maturity with the maturity planner. For who is on each agency roster, see Fannie Mae DUS lenders and Freddie Mac Optigo lenders.

Janover Capital LLC is not a lender. We compare lenders and arrange financing for 5+ unit apartment buildings. The questions above apply to us as much as to anyone.

Frequently asked questions

Is it cheaper to go directly to a lender?

It can be, if a broker would otherwise be paid by you and the direct lender's quote is competitive. But the cheapest loan is not always the one with no intermediary fee. Differences between lenders in sizing, reserves and prepayment terms can outweigh a fee. The only way to know is to compare more than one quote on the same numbers and the same hold period.

How do apartment loan brokers get paid?

It varies by broker and by deal. A broker may be paid a fee by the borrower, compensation from the lender, or both. The amount, who pays it and when it is owed should be written into the engagement before any work begins. Ask directly, and ask whether the broker has any affiliation with the lenders it recommends.

Can I go to Fannie Mae or Freddie Mac directly?

Not as a borrower. Fannie Mae and Freddie Mac do not lend to owners directly on multifamily loans. They work through approved lenders: Fannie Mae's DUS and Small Loan lenders and Freddie Mac's Optigo lenders. Both publish their rosters, so you can contact an approved lender yourself or have an intermediary do it.

Will using a marketplace slow down my loan?

Collecting quotes takes some time at the start, because several lenders must review the deal. Once you choose a lender, closing runs on that lender's process: third-party reports, credit approval and legal. On a simple deal with a lender you already know, going direct can be faster. On an unusual deal, starting with the right lender often saves time.

Does a broker approve my loan?

No. A broker or marketplace presents your deal and negotiates terms, but the lender's credit team decides whether to make the loan and on what terms. A quote or term sheet is not a commitment. Approval comes after the lender's underwriting, third-party reports and credit review.