New shop, 6.25 percent market: chase purchase volume or build the investor and private book first?

I want the basic thing spelled out here. In the conventional lane, who pays the broker, the borrower or the lender? And in the private lane are the points always paid by the borrower at closing? I ask because if the money comes from different places, the incentive to steer a borrower toward one product over another seems very different in the two lanes.

You're arguing about the wrong variable, and after five years running a service business that's my view. Both lanes live or die on where the files come from. Conventional means you are renting attention from agents who can drop you the day someone buys them better lunch. Investor files mean the borrower himself is the source and he stays yours as long as you keep closing.

That's the real asymmetry. One book is a list of gatekeepers, one book is a list of customers. I would build the one I own. It's slower and the first year is thin, and I've watched too many people build a referral book on somebody else's goodwill and then lose it in a quarter.

Some plain definitions first, since the two lanes use different vocabulary.

Conventional lending means loans that are not insured or guaranteed by a government agency. Most conventional loans conform to the standards set by Fannie Mae and Freddie Mac, which is what makes them saleable to the agencies; conventional loans outside those limits or guidelines are jumbo or non-QM. Government programs like FHA, VA and USDA are the separate government lane. Both lanes are heavily standardized, which is why a processor can handle most of a file, and in both the borrower qualifies mainly on personal income and credit.

The private and investor lane covers lenders using their own capital or fund capital. DSCR stands for debt service coverage ratio, and a DSCR loan qualifies the property's rent against the loan payment rather than the borrower's paycheck. Bridge and fix-and-flip loans are short term, usually with interest-only payments and a plan to sell or refinance at the end.

On @juniper's question, broker compensation on residential mortgages can be paid by the borrower at closing or by the lender, and the rules governing how it is set and disclosed differ by loan type. Private and business-purpose lending sits under a different regime again. Licensing requirements also vary by state, and which loans require a mortgage originator license depends on your state and on whether the loan is consumer or business purpose. Confirm both with your state regulator and a licensed compliance professional before you build a business plan around either lane.

One thing that argues for @lantern's second option regardless of the vote here. Repeat borrowers reduce marketing cost per file, and an active investor generates files in any rate environment. That doesn't make the answer obvious, since the first year of income is genuinely thinner.

Mid-licensing right now and the exam material is almost entirely consumer conventional, which tells you where the regulated volume is. Nothing in it prepared me for reading a bridge term sheet.

I'm voting for the split, mostly because I need something paying the rent while I learn the private bench, and the private bench takes real time. @thatch is right that the investor book is the one you own. It just doesn't feed you in month four.