Better Mortgage is one of the leading mortgage providers in the United States. They know how to differentiate themselves from their competitors by offering superior products and services.
Have you ever wondered what motivates Better Mortgage to exist? What is their business strategy? Is it profitable? Are these just some of the questions that we will attempt to address in this article?
Better Mortgage operates on an investment platform model. It provides fully digitized, commission-free mortgages to borrowers but earns its revenue by selling them into the secondary loan marketplace.
Examples of end investors in the secondary loan markets include Chase Fannie Mae (FNM), Wells Fargo (WFC), and Bank of America (BAC).
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About Better Mortgage
BetterMortgages.com is a fully digital, commission-free, online lender offering loans for anything from mortgages to auto loans to personal loans to student loans. We offer everything under one roof.
BetterMortgage offers better rates than most competitors because they charge lower interest rates and offer an easier application experience.
Instead of making its profits from the back of home buyers, Better Mortgage makes use of a unique approach to generating revenue and next-generation technology to ease the pain for everyone involved.
Business Model of Better Mortgage
Better Mortgage is a new online loan marketplace where people who want to borrow money from lenders go to get loans for free. They connect lenders and potential customers through their online platform.
Better Mortgage is a company that helps people get mortgages by acting as a middleman between lenders and borrowers.
Better Mortgage offers loans without charging commissions and charges. It also includes real estate brokerage, title insurance, and homeowner’s insurance.
Most other mortgage brokers don’t have these shortcomings:
- They are not fully-digitized
- They bombard home buyers with costly fees
Unlike most real estate agents and loan officers, Better Loan doesn’t seek to make a profit by selling homes.
Better Mortgage has been using both direct mail and online advertising to market its service.
- digital marketing to homebuyers
- word-of-mouth to end-investors
Because Better Mortgage has been covered by the press and has had reasonable revenue and valuation levels, Better Mortgage has little difficulty attracting new buyers.
Investors who invest at the end of an ICO usually need a different strategy than investors who invest during the ICO.
Due to Better Mortgage’s increasing valuation and strong backing from its backers, word-of-mouth should be enough to attract end investments because the brand has already become established.
As long as Better Mortgage has the capability to offer loans directly to borrowers, they don’t need to be a bank and do not need to maintain a physical location.
Because being digitalized is an important part of their model, digitizing companies don’t need to spend a lot of money on office space and paper documents.
However, they do not have the costs associated with most fully digitized businesses: webmasters, writers, digital marketers, and so forth.
They also outsource a lot of their physical store operations to their affiliates.
- real estate brokers
- title insurance providers
- home insurance providers
Because of its unique business model, Better Mortgages looks for investors who seek not to make profits from borrowers, but rather from secondary lenders in the mortgage industry.
Because it offers a wide variety of loan options at competitive rates, Better Mortgage attracts investors from across the country.
- no commissions or fees for mortgages
- competitive interest rate mortgages
- rate quotes within seconds
- Competitive pricing for homes
- streamlined, fully-digitized, bundled services
Moreover, investor confidence is improved because Better Mortgage serves as the guaranty for the borrowers and has backing from some major players.
- Goldman Sachs
- Citibank
- American Express
- Ally
- SoftBank
How Does Better Mortgage Make Money?
Its most important service is to provide loans for people who want to buy homes. It sells these loans to investors.
Selling Loans
Because Better Mortgage offers a high degree of service at an affordable rate, they can make a large number of mortgages for borrowers.
They don’t actually lend out the money directly; instead, they act as an intermediary between the borrower and the investor.
Better Mortgage is one of the few truly digital mortgage brokers out there. Their digitization creates a high degree of services and verifications, which attracts a growing number of qualified buyers, meaning reliable homebuyers.
Despite the fact that they’re sold, Better Mortgage still serves as the guarantor. So, some of the best investors in the industry buy Better.com loans at prices that are still profitable for them. They’re more than happy to take advantage of that situation.
Mortgage
Because they don’t collect any fees from borrowers, the mortgages they offer aren’t considered a direct source of revenue for them.
Their mortgages are an indirect source of income for them because their high-value, low-cost mortgages attract the loans in the first instance. Without attracting loans, their mortgages would not be available to purchase by lenders.
As opposed to charging lenders a fee for each loan they offer, Better Mortgage doesn’t need to pay lenders any commissions. This allows them to provide better deals than traditional mortgage brokers.
These lender fees include:
- application fees
- processing fees
- origination fees
- underwriting fees
Real Estate
If buyers want to hire their own real estate agent or don’t want one at all, they can continue using mortgage financing and other services provided by Better Mortgage.
Likewise, if they want to use a realtor who was recommended by Better but they don’t want to use any financing from Better, that is also a possibility.
Better Mortgage doesn’t require the homebuyers to pay any fee for its real estate agent referrals, but the agents may choose to collect their own commission and fees from the buyers.
However, Better claims that its services only work with real estate professionals who charge lower commission rates and fees while still providing high-quality customer service, stating that they can help buyers cut their costs by up to 1%.
Even though Better Mortgage doesn’t charge any fees or commissions for its services, it doesn’t say that it doesn’t get paid by the realtors who use its service either.
Real estate transactions can be quite complex, so there is actually some room for making a lot of money on them. However, Better insists that its fees must be low.
However, there is still enough room for Better to charge fees and commissions from the agents and still offer incentives to them to become co-partner in these transactions.
As a result, Better can make some extra cash by acting as an intermediary between homebuyer clients and real estate agents.
Title Insurance
To become legally recognized as the owner of a house, you need a clear deed of ownership. If there are any outstanding loans against the property, they may prevent you from becoming the rightful owner.
Title companies perform extensive due diligence on properties to ensure they’re free from liens and encumbrances. They can help resolve any issues that may arise during the sale process.
Title insurance protects the buyer or borrower against potential claims arising out of events that occurred in the past, but was unknown at the time of sale or refinance.
Homeowners must ensure their homes when purchasing new ones or refinancing existing mortgages.
Better Mortgage has an affiliated company that provides mortgage services. While the fees for the homebuyers are reasonable, there is a charge for the service provided by Better’s affiliated company.
Homeowners Insurance
Homeowner’s insurance companies usually charge high rates. However, better can help you save up to 50% off the average cost of homeowner’s insurance.
Better don’t charge home buyers for its services. The insurer does, however, have rates for the insurance and Better doesn’t say that it doesn’t get paid by the insurer.
Better Mortgage Funding, Valuation, and Revenue
As of now, Better.com‘s valuation has almost doubled within just one year. Because the business is partnered with SPAC, it will be able to get even more funds once it goes public.
Is Better Mortgage Profitable?
Better Mortgage has grown steadily since its founding in 2009. In 2020, the firm reported revenues of $850 million and a net income of $250 million.
As a result of the coronavirus outbreak, Better Mortgage’s fully digitized mortgage application process has enabled them to serve the stampedes of borrowers who were seeking mortgages at historically low-interest rate levels.
By the end of 2020, Better Mortgage had funded $25 billion worth of mortgages, which was nearly double what they did in 2019. And by the end of Q1 in 2021, they’d already surpassed their 2019 totals.
Before the COVID-19 outbreak, Better Mortgage was generating $115 million in annual revenues, which equates to an increase of 5 times from 2019. As per WSJ, the company claims that it will generate $1 billion of annual profits on $5.1 billion of annual revenues by 2023. That is nearly 50X in revenues from 2019!
According to the Wall Street Journal, Softbank agreed to invest $1/2 billion into Better Mortgage earlier this month, giving all of its voting rights over to CEO and founder Vishal Gar.
It means that they have full faith in the company’s leadership.
Conclusion: How Does Better Mortgage Make Money?
That’s it for today.
We hope you’ve enjoyed reading this and felt we’ve delivered on our promise of sharing how Better.com earns its revenue. We covered all possible ways that help us generate profit for the business.
To create a better home loan process for their clients, Better Mortgage developed a multi-faceted mortgage lender model that allows them to charge different types of products and services to their clients.
They’ve laid out their plan well and created a solid base from which to begin their campaign. Their results will depend on whether they spend enough time on their marketing efforts and if they’re passionate about helping others achieve financial freedom through real estate investments.
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