A good mortgage broker will help investors navigate the complex lending options available in the commercial real estate market. They act as mortgage advisors that find the best rates and terms for the purchase and refinancing of commercial properties. Even a few dozen basis points worth of interest can significantly affect the return that property owners see. Also, the ability to have secure financing options in place before bidding ensures that investors can remain competitive when bidding on properties. Given the complexity of appraising commercial properties, the lending options for commercial real estate are not nearly as boilerplate as those for residential properties. Likewise, the skill needed to help execute a commercial property purchase is significant.
Navigating the multitude of lending options for commercial properties without the services of the best mortgage broker you can find is prohibitive for even the simplest multifamily properties. PropertyCashin can ensure that you find a top-rated mortgage broker in your area who will help to buy an income generating property you want to add to your portfolio. We provide a current national directory that lists highly recommended mortgage broker companies in your location to help you find a reputable professional suited for your investing strategy. PropertyCashin removes the risk of hiring the wrong professional during the search process.
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By definition, a mortgage broker’s role is being an intermediary that brings borrowers (property buyers) and mortgage underwriters (banks and other lending companies) together. They are specialists that determine a buyer’s needs and ability to borrow. Then they find the most competitive interest rates and terms to match the buyer’s needs.
Interest rates, down payment percentages and whether the commercial loans are non-recourse (i.e. whether the property owner has to personally guarantee the loan or whether liability ends with the business entity that is purchasing the property) are just some of the negotiable elements of a commercial mortgage loan.
Commercial mortgage brokers gather the necessary documentation to show that a borrower is able to finance property, and then present that documentation directly to the banks that are best suited to the borrower’s needs.
Using a competent commercial mortgage broker is almost always a good idea when purchasing a commercial property if you are using a conventional commercial loan. Different banks will have wildly different appetites for lending on different types of commercial properties.
It’s well worth the money for a property owner to hire a professional to execute that search process. A commercial mortgage broker should act as an advisor that has national reach to different underwriters across the USA or your state. Often, your local lender isn’t going to be the best fit for certain types of commercial properties.
While residential mortgage brokers generally earn all of their income through closing fees for loans they successfully broker, commercial mortgage brokers sometimes also charge clients fees before helping their clients find lending options. These initial fees are usually much smaller than the fees commercial mortgage loan brokers receive for successfully closing a loan.
Like residential mortgage brokers, commercial mortgage brokerage firms receive an upfront commission for each loan they close, with rates averaging between 1%-2% of the total loan. Additionally, they often receive a trail commission from the bank for every month that the borrower is still paying on that loan.
Finally, some mortgage brokers will charge clients initial consulting fees that average between $500-$1,200 before starting the loan search process. These initial costs to the borrower are usually refundable upon the closing of the loan.
Licensing requirements for commercial mortgage brokers are regulated by state, and are actually less stringent in most states than requirements for residential mortgage brokers. The rationale is that buyers of commercial properties are generally more sophisticated as investors and don’t require the same level of protection against predatory lenders.
In about eight states, commercial mortgage brokers adhere to the same licensing requirements as residential mortgage brokers. The remaining states usually require that commercial mortgage brokers hold a real estate license, although a few states have no licensing requirements.
Mortgage bankers and mortgage brokers are both types of mortgage agents, but mortgage bankers work directly for banks while mortgage brokers work solely on behalf of the borrowers.
When you reach out directly to an underwriter, they will match you with a mortgage banker that will function in much the same way as a mortgage broker, except that they are only brokering loans that are provided by their institution.
The issue with using a mortgage banker is that they have no incentive to find you lending options that might exist outside of their bank. Commercial mortgage brokers, however, are independent from being tied to a single lending institution.
There are several pros and cons between working with mortgage brokers vs banks. Mortgage brokers have the ability to cast a much wider net to ensure that you get better rates and terms. However, they also charge fees during the closing of a loan.
If an investor has the time and expertise to reach out to and compare different direct lenders, they can sometimes find better deals by avoiding the fees that brokers would charge. Note that mortgage brokers have hundreds of lenders and their products in their database. It’s likely that they will easily find a better loan for you than the one you could find yourself, even after the most thorough research.
Also, remember that getting the best mortgage for your investment property is almost always going to be well worth any fees. Worry about getting the best loan facility first and foremost.
Like with most professionals, focusing on experience and reputation is the best strategy for finding a good mortgage broker. When first speaking with a commercial mortgage broker, try to get a sense of their understanding for the type of property that you are looking to purchase. If they can’t offer any initial insights and say they need to go do more research, then they are likely lacking experience.
When choosing a mortgage broker, it is usually wise to avoid brokers that charge upfront fees before even searching for a loan. Mortgage brokers that are paid based on successfully closing a loan will almost always have incentives that better align with the client.
A buyer is completely free to use multiple commercial brokers at the same time to “shop around” for the best rates and services. The buyer should still be judicious about not wasting their time or the time of their mortgage brokers and also be careful to make sure that they are aware of any upfront fees a commercial mortgage broker might charge. But using more than three commercial mortgage brokers at the same time would likely be excessive.
Mortgage brokers only act as a middleman between you and the mortgage underwriter. Mortgage brokers gather and review all of the necessary documentation before sending it to the bank’s mortgage underwriters, but are unable to actually approve loans.
A pre-approval letter is something issued by banks or licensed commercial mortgage brokers. Because a pre-approval provided by a mortgage-broker is not as compelling as one made by an actual lender, a good commercial mortgage broker will acquire a pre-approval letter from one or more lenders before their client begins making offers on a property.
Much of commercial mortgage underwriting is based on the property itself (e.g. looking at the property’s net rental income), so underwriters will usually write pre-approval letters based on a combination of the buyer’s financial profile alongside the value of the actual property.
Remember, a pre-approval letter is not actually a commitment to issue a loan. It simply means that a commercial mortgage broker or lender has reviewed the necessary documentation to indicate that the buyer should be able to qualify for the type of loan indicated.