Broker wants a point on top of the lender's two. Trying to figure out what that point buys me

The borrower-paid versus lender-paid thing is the part I'd pin down. If his point is borrower-paid, you're writing that check at closing and it shows on your settlement statement. Some brokers can also get paid by the lender instead, which usually shows up as a slightly higher rate rather than a fee. Same money, different place. Ask him straight whether a lender-paid version of the same deal exists and what the rate would be.

Disclosure rules for who has to tell you what depend on whether the loan is treated as business purpose and on your state's licensing regime, so don't assume a consumer-style fee disclosure is coming.

Nobody's mentioned draws yet. On a job with a full electrical rerun you're going to be pulling money three or four times, and the difference between a lender who funds a draw in 48 hours after inspection and one who takes ten business days is worth more to you than half a point. My electrician does not wait ten business days.

Ask both lenders: who does the inspection, what does each draw cost, and what's the average turnaround. Get the number in writing.

Ran your numbers because I wanted the boring comparison.

Broker: 323k loan, 2 points is 6,460, plus 3,230 broker fee, plus 1,495 processing. Call it 11,185 in fees. Direct: 310k loan, 1.5 points is 4,650, plus whatever their processing fee is, which you didn't list. Say 1,000. Call it 5,650.

Interest, six months, average outstanding balance maybe 280k. Half a point of rate difference on 280k for six months is about 700.

So the broker path costs you roughly 6,200 more and leaves about 13,000 more cash in your pocket at closing. You're effectively borrowing 13k for six months at a very ugly rate. If the extra cash is the difference between finishing and stalling, that might still be the right trade. If it just sits in the account, it isn't.

The comparison depends almost entirely on one assumption: whether the direct lender actually closes on the terms in the portal quote.

Portal quotes on business purpose rehab loans are indicative. The final terms come after credit, background, entity docs, an appraisal or a desktop valuation, and a scope review. Leverage often moves at that stage. If the direct lender re-trades from 85% of purchase to 80% after their valuation comes in under contract price, your 13k cash gap becomes 26k and the comparison inverts. So the honest question isn't which quote is cheaper, it's how much confidence you have that each quote survives underwriting.

That's the specific thing a broker's fee can be paying for. A broker who has closed twenty files with a lender knows where that lender re-trades and can price the file to survive. A broker who forwarded your PDF cannot. The fee is identical either way, which is why @plumb's question about the four lenders matters more than the point count.

Two things to price that verity's math leaves out. Extension terms: on an eight month reality against a six month term, the cost of months seven and eight is a real line item, and extension fees are often a quarter to a full point plus a rate bump. Ask both for the extension language. Second, the exit. If you refinance into a rental hold rather than sell, the takeout lender's seasoning requirement governs when you can pull ARV-based proceeds, and that term is set by the takeout lender rather than by either of these two.

Confirm every one of these in writing before you sign anything, including the broker agreement, since the fee trigger in that document is usually broader than people expect.

On the licensing question, since I'm halfway through this myself: whether the person calling himself a broker needs a license to do your loan depends on your state and on whether the loan is business purpose to an entity. Some states exempt business purpose lending from mortgage licensing entirely, some do not. Look him up on the NMLS consumer access site anyway. Takes two minutes and if he isn't there, ask him why.

I'll defend the point, sort of. The broker earns it in week three when the appraisal comes in soft or the lender's credit committee gets nervous about your entity structure and the file needs to move somewhere else fast. Doing that yourself means starting the application over and eating another two weeks. A broker with the file already packaged moves it in a day.

Which means the point is insurance, and like all insurance most of the time you pay it and nothing happens. Whether that's a good buy depends on how tight your closing date is.

What's your second exit, harrow? You said sell at 430. If the market for that duplex is slow in month eight and you have to hold it as a rental, does the rent cover a refinanced payment? Because that answer changes which lender you want, and neither of these quotes is a rental loan.

Eight month reality on a six month term is the part I'd fix before I picked a lender. Ask for nine months up front and see who says yes. Extension fees are where these loans get expensive and nobody quotes them in the headline.

Picking vendors over five years of running a service business has taught me one thing, which is that the one who answers the phone on a Saturday is worth a lot more than the one who's 40 basis points cheaper. To be fair, cobalt is describing the good version of a broker and there are plenty of the other kind. The four lender names will tell you which one you've got.

Sorry, basic question. A point is one percent of the loan, right? So three points on a 323k loan is around ten grand paid at closing, and that's separate from the interest? That seems enormous for six months of money.

@rigging yes, one percent of the loan amount, paid at closing, on top of interest. It's enormous when you annualize it, which is why these loans are for projects with a short definite exit rather than for holding anything.

harrow, the number I'd want that isn't in your post is the extension fee on each. You said six month plan, eight month reality, and you said it like it's normal, so price the two extra months. On the broker loan at 10.75% that's roughly 5,000 in interest plus whatever the extension costs. That could be bigger than the difference everyone's arguing about.

Something I got wrong on my second project: I optimized the rehab loan and completely ignored the takeout. Ended up with a great bridge loan and then discovered the refinance lender wanted six months of seasoning from the completion date before they'd lend on appraised value. That was four months of holding a finished property at 10.5%.

If you're selling, ignore me. If there's any chance you hold, go get the takeout terms now, in writing.

Read the broker agreement before you read anything else. Everyone here is pricing a deal you haven't legally defined yet.

I'd ask for a line item fee sheet from both, with every charge named, including the ones they'll call third party. Processing, underwriting, doc prep, wire, inspection per draw, extension, exit fee. Put them in two columns. I've found that the cheaper headline is often carrying two or three hundred dollar items that the expensive one doesn't have, and occasionally the other way around.

Also, verity assumed 1,000 processing on the direct lender. That's a guess sitting in the middle of the comparison.

Genuinely curious, does the broker get paid if the deal falls apart at week three?

I'll be the dissent. I've done nine of these and I go direct every time. After the third deal with the same lender my points came down half a point and my leverage went up, because they know my scopes come in on budget. A broker was never going to get me that, because the relationship they build with the lender is theirs, not mine.

cobalt's insurance argument is real but it's an argument for having applied at two lenders at once, which costs you nothing but time. harrow, you're on your fourth project. Start building the direct relationship now and by deal seven you're the cheapest guy in the room. The point you pay today buys you nothing next year.

The broker agreement is where I'd spend the next hour. The clauses I'd read twice:

Fee trigger. Most of these say the fee is earned if you close with any lender the broker introduced you to, sometimes within 12 or 24 months. If one of his four lenders is the same shop as your portal application, you may owe him the point either way, and that argument is a lot cheaper to have before you sign.

Exclusivity. Some say you won't shop the file elsewhere while it's with him. You are currently shopping the file elsewhere.

How the fee gets paid. If it's collected on the settlement statement you have some visibility. If it's a separate invoice due at closing it can behave differently in a fallout.

Whether any of that is enforceable where you are is a question for a lawyer in your state, and the answer varies. But knowing what the document says is free.

@flint's point about relationship pricing is the one I'd weigh heaviest, and it isn't in anyone's spreadsheet.