Being an In-House Lender: Cons & Pros

The topic of in-house lending has come up several times lately, so my good buddy Steve Kyles and I decided to have a conversation about it. Every time the two of us get together, it’s a beautiful thing. Our minds work really well together.  

There really are pros and cons to it (or as I like to say, in this case—cons and pros). Even though I’m not a huge fan of in-house lending overall, this is not going to be a “don’t be an in-house lender” post. It’s good for some people and not so good for others, and we’ll tell you why we think that is.

Let’s talk about the cons first and then cover some of the pros. 

Some Things to Be Cautious About

Actually, instead of starting out with cons, we’re just going to share some things you need to be aware of—and questions you should ask—if you’re considering becoming an in-house lender for a real estate company. 

The pay to play can absolutely work. But if you’re getting ready to sign a contract, be careful to measure the results you’re getting. Not the traffic, but the actual results. And I would recommend that, at least in the beginning, you don’t do a long-term contract. Try it out for 90 days to start with. If you’re offered a two-year contract, I’d pass on that. 

If it’s a 90-day contract, and they’ve already got somebody, you want to know why they’re replacing that person. And how many loans did that person close being an in-house lender last year? In-house lenders capture about 22% of the deals, as a general rule, which means that 78% of deals don’t close with the in-house lender.

Steve says that sometimes it’s easy to forget to look at the metrics. It’s not just about access to the agents. What are you doing with the access? Is it converting back into leads? Are you getting enough credit pulls? Are those credit pulls turning into closings? If you’re not careful, you can get 90-120 days out and realize, “Oh my gosh, we’ve only closed x number of loans and we haven’t even paid for the marketing agreement.”

Here are some more questions to ask: 

  • What are the past results? 
  • What did the previous in-house lender close? 
  • What was their conversion rate? 
  • Why are you replacing them? 
  • Why do you want me to be here? 
  • What terms are you looking for? 
  • What would make it a win for you and your agents in such a way that they could get behind having an in-house lender? 
  • Is the broker going to get behind me?
  • What’s your commitment to ensure we’re closing enough loans to make it a profitable partnership?

If we can make this about them, we’ll get a higher conversion as the in-house lender for sure. These are the kinds of questions you need to ask and conversations you need to have. 

Street Business vs. Relocation

Steve told me that he has made the mistake in the past of not measuring a real estate agency’s street business vs. relocation. That’s another question you want to ask: how much of your business is relocation vs. street business?

If they’re a 70% relocation shop, your opportunity to get street business is very small, because even if the agents know they can trust you, you’re only going to get a shot at maybe half of those transactions. 

What do we mean when we say street business? Street business is relation-referred loans. If a major corporation relocates their people, they already have their in-house lender, and that relocation company does it. You want to focus on the business the agents are closing that are relational leads, not relocation leads. And you don’t want all their leads to be Zillow leads or other internet leads. You want warm, relation-based leads. 

My mortgage branch doesn’t have any partnerships with real estate agencies right now as in-house lenders. Not that I wouldn’t be open to it. But the relationships I had where I wasn’t the in-house lender felt more like real relationships. When I was an in-house lender, it felt like more of a paid friendship. 

Don’t Get Stuck Working with Low-Producing Agents

Another thing is that, if you’re sitting in the office, most of the high-producing agents are out working. I’ve found that 5 to 10% of the agents in an office with an in-house lender are doing most of the closings. These top producers tend to be a little bit of a renegade or a rebel to the in-house lender. 

The broker that owns the real estate shop is going to pressure their lower producers to use the in-house lender, but they’re not going to do that with the high producers. They don’t want to tell them what to do, because they don’t want them to leave. 

Those top producers tend to think, “the broker is already making good money on me. I’m going to use whatever loan officer I want.” Some will even go out of the way to not use the in-house lender. So, if you’re the in-house lender, the lower-producing agents are going to be the ones referring to you. 

The broker wanted us to be in the office all the time, because they wanted us to work on their bottom 80% that’s doing 20% of the business. The ones sitting in the office are the ones that don’t have a lot of clients. The brokers wanted us to train them and bring them up to par with the higher producers. 

I can tell you right now, that’s not going to happen. It doesn’t work like that. 

If they’re insistent about you working with the realtors on the bottom, tell them you’re probably not going to be a good match. You want to clarify with them at the very beginning that you want to work with the top 20% who are doing 80% of the business. Have them give you a list of agents, share their production stats, and make those introductions. Those are the people you want to work with.

Don’t let them sweet talk you into working with the lower-producing agents. A partnership needs to be exclusive, open door access and encouragement to all agents—especially the top producers—or you won’t see success. 

Now, do some of those bottom-producing agents rise above the noise? Of course they do. Steve and I started at the bottom and rose to the top, didn’t we? But you have no idea which one or two agents might be the ones to do that. 

A Better Way to Get Access to Qualified Agents

Loan officers become in-house lenders, because they think it’s going to give them access to realtors that they wouldn’t get otherwise, but that’s not true. Just get a qualified agent list, and start doing your Thor’s Hammer calls, and connect with them directly. 

We use the Thor’s Hammer script, a little script that helps us connect with real estate agents to get them to meet with us. Then we use a very unique conversation to get them to start actually referring deals to us. The whole thing has a very high success rate. 

Make those calls and set up meetings with those agents outside of the office. You’ll make more money and have more success. 

You might be wondering what to do if you’re working with an agent whose company has an in-house lender. Don’t worry about it. That has no effect on how you conduct your business. That in-house lender is only getting 22% of the business. I seriously doubt they’re doing follow-up calls or using our Daily Success Plan. When we do the DSP, we actually get more leads to refer back to the agents. So we develop those relationships that way.

So instead of jumping in a room with 50 agents as an in-house lender and trying to figure out which 5 are qualified, just get the qualified agent list, call those 5, and try to develop a relationship with them.

What Are Some Pros to Being an In-House Lender?

Obviously, I lean pretty heavily on the cons side of this, but let me wrap up by talking about a couple pros. What if I’m a branch manager and I have a loan officer that might need a little boost or a head start? I might consider putting them in an office as an in-house lender. But if I was the loan officer myself and was just getting started, I wouldn’t want to be put in one of those branches—not knowing what I know now. 

Like I said, you’re going to do better if you just do the Thor’s Hammer. If you do the Daily Success Plan, the odds are incredibly higher that you’re going to have much, much better, faster, easier, cheaper, cooler results than being an in-house lender. There are some people that do it successfully, but there are far more who don’t. It wouldn’t be my first choice. 

Steve gave me some pros (since I was having a hard time coming up with any). Right now he has four offices in four different areas of their market. He likes using it as a rental space. It solves a need. 

If the broker is fully behind you, he says it can be a good deal. It’s even better if the broker is also a producer and uses you for all their deals. You want whoever is managing that office to be solely committed to you. Steve’s loan officers have gotten a lot of commitment with all four of the managers where they’re working as in-house lenders. The people at the top are actively referring to his loan officers. That’s not typical though. 

Bottom line: it can work sometimes, but overall, it’s not usually the best way to go. Unless you already have connections—or better yet, friendships—with some of the high-producing agents (or the manager). If that’s the case, then that partnership could work out really well for you. 

Otherwise, probably not so much. 

Let me close with this. Always keep in mind that you’re the prize. There are a thousand realtors and one of you. You’re the prize. Remember that and act accordingly. 

If you’d like some help getting more leads and closing more loans, we can help. We’ll map out a customized plan for you, complete with who to call, when to call them, and what to say. Click HERE to schedule your FREE consultation TODAY.