Direct lending is often positioned as a flexible, advantageous way for real estate investors to borrow money without facing financing delays and underwriting friction. But, what is direct lending exactly?
In this article, we’ll explain what direct lending is, how it works, and why many real estate investors find this loan type to be more flexible, reliable, and practical than other traditional options.
We will also compare direct loan options with mortgage brokers and banks, going over the ways that these different types of loans have very different impacts.
Key Takeaways
- Direct lending loans offer access to capital without an intermediary, with the same team underwriting, funding, and servicing each loan.
- This results in faster approvals and speed to close (often within 10-21 days), clearer communication, and more direct accountability.
- Many real estate investors find direct lending loans to be more in line with strategies like debt service coverage ratio (DSCR) and buy, rehab, rent, refinance, repeat (BRRRR) because they are more flexible and not based on personal income statements.
What Is Direct Lending?
Unlike brokered lending, where the borrower does not deal directly with the capital source, the direct lending model involves the underwriting, funding, and servicing of a loan in-house.
Direct lending eliminates the need for an intermediary. The result is faster approvals, more consistent communication, and loan structures that feel more investor-friendly.
These advantages make direct lending the preferred approach for many real estate investment loans, including fix and flip, new construction, debt service coverage ratio (DSCR) rentals, fix to rent, and portfolio financing.
How Direct Lender Loans Work
Real estate direct lender loans avoid any intermediary. Instead, they offer capital that is funded, underwritten, and serviced by the same company.
This creates a more predictable streamlined workflow that goes from application to closing.
The process typically starts with a quick prequalification assessment based on property details, investment strategy, and borrower experience. This contrasts with the process of traditional lending, which is usually determined by personal income verification.
When all decisions happen in-house, direct lenders can issue same-day quotes and begin underwriting immediately. This process is typically more reliable, efficient, and faster than the one offered by brokers or banks. It allows investors to effectively fund project milestones.
Direct lender loans also offer a flexibility that is especially tailored to investor needs, including higher leverage options and interest-only structures.
At LendingOne specifically, appraisals often run in parallel with underwriting. This means the documentation burden is minimal, and borrowers can close in as little as 10-21 business days, depending on loan type.
Direct Lender vs. Other Options
Direct loan lending is one of the options that real estate investors have at their disposal, but it’s not the only option. A closer, side-by-side look at the different types of loans makes the unique flexibility of direct lending even more obvious.
| Direct Lender | Mortgage Broker | Bank | |
| Who Provides the Capital | Funds loans in-house | Matches borrowers with outside lenders | Funds loans but with strict requirements |
| Speed to Close | Fastest (often 10-21 business days, depending on product) | Slower due to third-party involvement | Slowest due to underwriting layers and documentation |
| Underwriting Approach | Asset-based and investor-focused | Dependent on partner lenders | Highly conservative and income-based |
| Documentation Required | Streamlined, limited personal income verification | Varies by lender partners | Extensive (tax returns, W-2s, personal financials) |
| Communication Flow | Single team from quote to close | Broker communicates between borrower and lender | Multiple departments, slower updates |
| Flexibility | High flexibility in terms, leverage, and property types | Varies by lender; less control | Limited flexibility, strict guidelines |
| Best Fit For | Investors needing speed, leverage, and reliability | Borrowers rate shopping for consumer loan options | Investors prioritizing lowest rates and able to meet heavy requirements |
| Alignment With Investor Strategies | Strong: works well for fix and flip, DSCR, BRRRR, new construction | Moderate: depends on lender relationships | Weak: often not designed for value add or time-sensitive deals |
Direct Lender vs. Mortgage Broker vs. Banks
- Intermediary: Mortgage brokers discover and relay loan information but don’t offer the loan itself.
- Competitive Rates: Since mortgage brokers shop a loan to multiple lenders, they can sometimes find the best rates and terms.
- Time-Consuming: The comparison process takes time, which can be inconvenient for real estate investors who often work under a crunch.
- Less Control: Since they’re not the lender, brokers have less control over underwriting and communication.
- Risk of Misalignment: Investors might find a higher risk of miscommunication and a lack of accountability.
Overall, a mortgage broker makes the most sense for the borrower who wants to shop for rates for consumer-focused mortgages.
Banks:
- Lower Rates: Because they are more selective in their lending practices and take fewer risks, banks are often able to offer lower rates compared to other lenders.
- Heavy Documentation: In order to be approved, borrowers have to often go through a heavy documentation process that includes verification of personal income.
- Time-Consuming: Documentation verification can take a while, which makes bank loan approval time much longer than other lenders.
- Inflexible Underwriting: Bank underwriting is often not structured for many value-add projects that real estate investors gravitate towards, including buy, rehab, rent, refinance, repeat (BRRRR) strategies or fast-moving acquisitions.
Ultimately, banks are best suited for long-term projects where speed and leverage are not major concerns. This will likely only be the top choice for investors with ample liquidity and patience, who are more concerned with prioritizing the lowest rate over operational efficiency.
Direct Lender:
- No “Middle Man”: Direct lenders fund the loans themselves using their own balance sheet, which includes sources like institutional partners, private credit funds, and recycled capital.
- Full Control: Direct lenders enjoy full control over the entire lending process, including underwriting, pricing, and appraisals.
- Predictable: Due to this control, direct lenders often make decisions faster, and their decisions are often more consistent and predictable.
- Short Timeline: Many real estate investors choose to work with direct lenders when they’re working on a time-sensitive opportunity or repeat investments.
For borrowers looking to fund investment properties and favor speed, flexibility, and certainty, direct lending loans are likely the choice.
Benefits of Direct Lending for Real Estate Investors
One of the biggest benefits for investors is the speed of direct lending loans. Direct lending loans can close in as few as 10 business days and often close before the 21 business day mark.
The flexible underwriting process that centers around assets, not personal income, can also be enticing to investors who are newly scaling a rental portfolio.
One of the major ways real estate investing differs from a consumer real estate purchase is that investors more frequently rehabilitate or build new properties.
Direct lending loans come with a more flexible underwriting process that accounts for rehab and construction projects. As a matter of fact, direct lenders are often able to offer specialized investor products that are otherwise unavailable from traditional lenders.
As these details can get complicated, direct lending relies on transparent communication and a single point of accountability throughout the entire process.
Challenges and Considerations of Direct Lending
Direct lending is not without its challenges. The most obvious downside is that direct lenders may have higher rates than what a traditional bank would give. Many investors see this as the cost of speed, flexibility, and investor-focused underwriting.
Additionally, many of the products offered via direct lending are more catered towards the needs of investors. This might be alienating to some borrowers, especially those seeking traditional consumer-style mortgages.
Even if a loan is well-suited, its leverage and terms can vary greatly based on asset type, borrower experience, and overall market conditions.
It’s important that borrowers compare their options carefully and choose a direct lender who’s well-reviewed and reputable.
When to Choose a Direct Lender
For many real estate investors, a direct lender is often a good option. But, there might be some circumstances that make the choice more obvious than others. This includes competitive markets where waiting on funding could mean losing out on a lucrative deal.
In some cases, investors may be required to give clear explanations of how and when they plan to fund a project. In other cases, a direct lending loan can provide this documentation.
Also, some loan types, like BRRRR require seamless transitions from short-term to long-term, which direct lending loans can provide.
Builders who operate on tight construction timelines and need predictable draw schedules will also see the full benefits of a direct lender loan, as will investors who are looking to scale multiple properties.
Why Investors Work With LendingOne for Direct Lender Loans
Investors across 46 states choose LendingOne as their direct lender for execution certainty and flexibility. LendingOne only focuses on real estate investors, which means we can offer fast, predictable underwriting decisions.
Our business-purpose loans are underwritten to the asset, not personal income. This helps investors move more efficiently without lengthy documentation.
LendingOne offers high-leverage funding options across rental, rehab, and construction programs to support investor portfolio growth.
Investors who work with LendingOne enjoy streamlined closings, consistent communication, and reliable draw management that reduces friction throughout the life of a loan. Get your rate today.
FAQs About Direct Lending
1. Do Direct Lenders Require Personal Income Verification or Tax Returns?
Many direct lenders qualify loans based on the asset rather than the borrower’s personal income. LendingOne does not require W-2s or tax returns for investor loans, including fix and flip, new construction, DSCR, fix to rent, and portfolio financing.
2. Are Direct Lender Loans More Expensive Than Bank Loans?
Direct lenders may have higher rates than banks because they prioritize speed and flexible underwriting. The tradeoff for investors is certainty and fast closings.
LendingOne consistently closes in 10-21 business days, depending on the loan type, which is significantly faster than traditional banks.
3. Can Direct Lenders Finance Properties Held in an LLC?
Most direct lenders support LLC borrowing for asset protection and streamlined portfolio management. All LendingOne loans are business-purpose loans that can be closed under an investor’s LLC. This makes it easier to separate personal and investment finances.
4. Are Direct Lenders Regulated the Same Way Banks Are?
No. Direct lenders are non-bank lenders and operate under different licensing frameworks, allowing faster credit decisions and more flexible investor requirements. LendingOne is licensed or exempt in 46 states and focuses solely on non-owner-occupied real estate loans.
5. Can I Use a Direct Lender for Long-Term Rental Financing?
Some direct lenders only provide short-term capital, but others offer both. LendingOne provides 30-year DSCR loans, portfolio loans, and fix-to-rent structures that transition from rehab to long-term financing under one lender.
6. What Types of Properties Do Direct Lenders Typically Finance?
It varies by lender, but many focus on non-owner-occupied residential real estate. LendingOne finances single-family rentals (SFRs), condos, townhomes, and 2- to 4-unit properties across fix and flip, DSCR, new construction, fix to rent, and portfolio loan programs.
