Yearly Archives: 2013

1 – The Basics: The Three Options for Financing Your Property

Three Options for Financing Your Property

So how do you go about getting the best possible loan for your property? Whether or not you ever do business with us, you should know the answer to this question.

Getting the best possible loan for your property is kind of like completing a challenging crossword puzzle. The words going across the page and the words going down the page have to mesh perfectly together in order to complete the puzzle.

The same is true for getting the best loan your property. All the financing steps in the process need to come together perfectly in order to insure an optimal outcome. Getting good rates and terms truly isn’t rocket science. It’s mostly common sense but surprisingly few people understand how to go about it.

In this e-book I’m going to share the secrets I’ve learned over the 25 years I’ve been in the commercial mortgage business. Also sprinkled throughout this e-book will be other interesting tidbits that you need to know in order to get the best possible loan for your property without getting ripped off by some unprincipled or incompetent amateur in the commercial mortgage business.

So let’s get started by stating the obvious: When shopping for a commercial mortgage loan you have three basic options to choose from. Which option you choose depends on the advantages and disadvantages important to you. You can choose to:

  1. Finance your property with a lender you have already done business with (assuming you’ve done this before), or you can,
  2. Shop the mortgage market on your own, or you can,
  3. Employ the services of a commercial mortgage broker to shop the market for you.

For most property owners the option that significantly improves their chances of getting the best possible loan for their property is using the services of a mortgage broker. I’ll explain why that is true later but if you decide to find financing on your own I’ll tell you how to improve your chances of getting a better loan than what you would have gotten on your own by applying several common sense principles that I’ve learned the hard way over the years. I’ve learned the hard way but there is no reason you have to. So if you want to learn the secrets of the commercial mortgage business, then read my ebook. I will tell you as plainly as possible how you go about it.

But using a commercial mortgage broker in most instances will improve your chances even further. I invite you to draw your own conclusions as I outline the “do’s and don’ts” of each of the three options.

The next chapter will explain why it may be a good idea to finance your property with a lender you’ve already done business with.The Pros & Cons of Using a Lender You've Already Done Business With

2 – The Pros & Cons of Using a Lender You’ve Already Done Business With

The Pros & Cons of Using a Lender You’ve Already Done Business With

When I talk to owners of commercial property about financing, it’s not uncommon for them to say something like, “I take all my banking needs to my favorite lender.” Now there could be two reasons for their response: 1) I haven’t gained their trust and their response is just an easy way to get rid of me. If that’s the case then I got what I deserved. You don’t ask for someone’s business until you’ve got their trust; or 2) they actually believe what they say. And if that’s the case then I think to myself, and I try my hardest not to say it out loud, “Are you really that foolish?”

Is convenience or loyalty so important to you that you would accept a less competitive loan with your existing lender than what a mortgage broker can find for you? Or in other words, if a mortgage broker can save you $50,000 in interest expense, net of his loan fee, over the life of the loan why wouldn’t you take it? How long does it take you to gather the appropriate documents for a mortgage broker to go through the exercise of getting you a lender quote? A couple of hours maybe? Is being inconvenienced a couple of hours more important to you than saving $50,000. You would be surprised how often a borrower would rather stay with their existing lender because to check out what’s available in the market may inconvenience them a few hours in gathering the information. It happens more often than you’d think.

Let’s back up for a moment. Financing your property with your current lender assumes three things that may or may not be true. It assumes that your favorite lender is still in business, that he’s still lending and that their rates and terms have not changed, at least not adversely.

But in today’s lending environment, your favorite lender of choice may no longer exist. If they do exist they may not be lending and if they are lending, their rates and terms may not be as good as they once were.

But let’s assume your favorite lender is still lending, then convenience is the primary advantage of financing your property with a lender you’ve already done business with. It certainly is the path of least resistance and in most cases it should be the quickest way to get the job done.

The disadvantage of this approach is that you’ll never know whether you received the best rates and terms currently in the market. Just think about it for a moment. What are the chances that your existing lender has the best financing available of all the potential lenders to choose from? That would be the equivalent of picking the proverbial needle out of a haystack. Not likely is it?

However, if convenience and ease of doing business are your top priorities in choosing a loan, you need go no further than back to a previous lender you’ve already done business with.

Personally, I don’t see why anyone would go back to their existing lender without at least calling a mortgage broker to get their opinion. A quick conversation over the phone with a good mortgage broker should give you a pretty good understanding of how your existing lender’s rate and terms compare to the market. Just say something like this to the mortgage broker: “I don’t want to waste your time so let me tell you the quote I’ve already received from my favorite lender and then you tell me whether that’s competitive or not.” Then tell him the proposed rate and terms. The mortgage broker will appreciate that you realize his time is valuable and he will likely know if the quote you have from your existing lender is competitive. If he thinks he can improve on your quote, he’ll tell you. And if he knows that he can’t he’ll tell you that too as he doesn’t want to waste his time shopping the market if he already knows it’s unlikely he can improve upon your quote.

If he tells you that he can improve upon the quote you’re not obligated to use his services. But if you want the best loan possible for your property, you owe it to yourself to shop the market. And this is where it gets interesting. You have a choice to make: Do you shop the market on your own or do you use a mortgage broker? The next four chapters will give you the steps you need to follow if you plan to shop the mortgage market on your own. Keep reading!

 

 

3 – The Initial Phone Call – How to Get Lenders Interested in Your Loan

How to Get Lenders Interested in Your Loan

In the previous chapter I discussed why you should shop the mortgage market rather than just going back to an existing lender you’ve already done business with. The advantage of this option is that you have a higher probability of finding better loan terms than financing your property with your existing lender. The disadvantage is that it will take considerably more time and effort on your part.

But, if you’re going to shop the market without the services of a mortgage broker you need to do it the right way. So how do you go about contacting lenders for loan quotes?

I have two important tips to improve your chances of getting the best loan possible. They are: do your homework to find the most competitive lenders available and be sure to sound like a professional over the phone. So let’s discuss these in detail.

  1. Do your homework to find the most competitive lenders. That’s the obvious first step isn’t it? But how do you find out which lenders are the most competitive for your specific property type? Do you just Google lenders in your local area? Try it. See how that works. Take it from me, it’ll get you nowhere. There are no shortcuts that you can take to find lenders with competitive financing. It isn’t easy but it’s critical that you take whatever time it takes to do a thorough search of the market to find the most competitive lenders. I would start by contacting other commercial real estate professionals (real estate brokers, appraisers, escrow officers, and real estate attorneys) or better yet other owners of commercial real estate who may be able to recommend their lenders to you. While this sounds like a good, sensible approach to finding the right lender, you’d be surprised how few people (even real estate professionals) know where to go for financing. This will take some time so be persistent. Follow all the leads given and, if you’re fortunate, you may discover that one or two lenders appear to be recommended more often than all the others. That’s a clue you may be on the right path.
  2.  Sound professional when talking to lenders over the phone about your loan request or you’re “toast.” Make sure when you call your potential lenders that you can explain your loan request very succinctly and to the point. Let me tell you a little secret: Loan officers can be abrasive over the phone and generally don’t suffer fools gladly.

But in fairness to them, you need to look at the conversation from the loan officer’s perspective. Understand that most loan officers are paid a very modest salary along with a commission based on loan volume. So to them, time is money. They receive hundreds of telephone calls a year and they use the first 60 seconds of the call to determine whether it is worth their time to continue the conversation. If they don’t know you, their inclination will be to get you off the phone as fast as possible with a quick “no.”

So you have to be prepared. You need to have the equivalent of an “elevator speech” prepared in advance that explains in bullet point fashion why your loan proposal is perfect for them to finance. Get to the point quickly in a business-like manner with just the facts, such as:

  •  Property type
  • Proposed loan amount
  • Whether this is a refinance or an acquisition
  • The property’s Net Operating Income
  • Loan to Value based on what you think is a reasonable cap rate
  • The property’s Debt Coverage Ratio
  • Your net worth, liquidity, and real estate experience, and
  • Anything else that gives them a quick understanding of the loan proposal

And you better know how to talk their language – NOI, DCRs, LTVs, cap rates, to name just a few. If you don’t come off professionally over the phone, the conversation will come to an abrupt ending. 

If you would like a quick primer on these terms and many others go to my website: www.marshallcf.com. Go to the Terms & Definitions tab and there you’ll see the definitions of over 30 of the most commonly used commercial real estate and financing terms that’ll make you sound like a pro over the phone.

So let’s say you get their attention in your opening pitch. Great! You then go into further details of the deal. Be sure to tell them the “hair” that’s on the deal. There’s almost always some critical issue on every deal, especially in today’s market. Your motto should be “disclose, disclose, disclose.” It’s better to get a quick “no” because you admitted the major issue up front than to surprise them later and lose all trust with the lender. And it’s also easier to sleep at night too. If you’re up front with the loan officer he should be able to tell you in the first couple of minutes of the conversation whether or not he’ll want to receive a loan package from you.

The next chapter will explain how to assemble a preliminary loan package that will maximize your chances of getting the lender’s interest in providing you a loan quote.

 

4 – How to Entice Lenders with a Professional Looking Loan Package

How to Entice Lenders with a Professional Looking Loan Package

So you’ve decided to shop the mortgage market on your own because you realize you have a higher probability of finding better loan terms than financing your property with your existing lender. The disadvantage is that it will take considerably more time and effort on your part.

In the previous chapter I explained how you go about finding the most competitive lenders to contact. I also discussed the do’s and don’ts of phone etiquette to maximize your chances of getting a lender to ask for more information about your loan proposal.

The next step is to send a preliminary loan package to those lenders who expressed initial interest in financing your property. But what exactly is a lender looking for? To begin with, a lender wants you to answer the question, “Why would I want to put a loan on this property?” The loan package should answer that question as completely as possible.

And maybe just as importantly your loan package should exude professionalism. You would be shocked at how often loan officers receive a sloppy looking loan package that screams out to them, “I take no pride in my work and I’m clueless as to what you’re looking for in a good loan.”

Think about it for a moment. Other than the initial phone call, no other source of communication speaks more clearly as to who you are than your preliminary loan package. If it comes across as being poorly put together what does that infer about you? The property and the loan request may be right down a lender’s strike zone, but if it looks like you don’t know what you’re doing, you’ve significantly reduced your chances of getting the lender’s interest.

Remember this vital piece of advice: Perception is often times more important than reality. You’re asking a lender to lend you lots of money. You better have a package that tells them that you’re worth the risk. If not, you’re wasting your time.

So what should a loan package include? At the very minimum it should include the following documentation:

PROPERTY INFORMATION

  1.  A one page executive summary summarizing the loan request.
  2. A pro forma of income and expenses that can be justified by the historical operating statements
  3. Two full years plus the current YTD operating history on the property
  4. A current rent roll
  5. Photos of the property

BORROWER INFORMATION (on all borrowers with managing control of the ownership entity or 20% or more interest in the property)

  1. Personal financial statement
  2. A real estate owned schedule
  3. Copies of all bank/brokerage statements that verify the liquidity that is shown on the borrower’s personal financial statement
  4. Two years of personal tax returns
  5. A brief resume on the owners

Provide a complete preliminary loan package or risk being considered a lightweight. 

Once they’ve reviewed your package and hopefully expressed interest in your loan request, the lender should be willing to provide you a letter of interest, or as it is called in the business, an LOI. Fight the urge to accept a loan quote over the phone. A loan quote over the phone is meaningless. Get it in writing. If they aren’t willing to do so, they’re not really interested. Drop them like a hot potato and move on to the next lender. Once you’ve received two or more written loan quotes, the fun begins.

5 – How to Significantly Improve Your Loan Quotes

Significantly Improve Your Loan Quotes

In the last chapter you had progressed to the point where you had two or more written loan quotes to choose from. Congratulations! That’s no easy feat to accomplish. But now the fun begins. If you negotiate well with your lenders you may be able to significantly improve your rates and terms. There are three things you must do to improve your loan quotes.

The first step is to get the lenders competing against one another to get your business. It’s not uncommon, even in today’s lending environment, that if a lender knows he doesn’t have the best quote on the table, he will go back to his underwriter and see if they can tweak the quote to make it more competitive. Asking for an improvement on a loan quote should be done tactfully. If done in a heavy-handed manner, it will only irritate the lenders which in all likelihood will backfire. So be very careful.

However, if you do it tactfully, you may be pleasantly surprised by how much a lender can sweeten his proposal if he thinks he’s going to lose the deal to one of his competitors. So it doesn’t hurt to casually mention who he’s competing against. Understand that the loan officer knows in most instances his competitors personally and, if he has any ounce of competitiveness flowing in his veins, he’ll do what he can to win the business just for the pure satisfaction of winning a deal from one of his arch rivals.

Secondly, negotiate before signing the loan application, not after. A critical mistake borrowers can make is trying to negotiate an important issue after they’ve signed the loan application. Once you’ve signed the loan application you’ve given up your negotiating
power. The time to negotiate is before signing the application. At that point, you share negotiating power with the lender.

If you do a good job with this negotiation, the lender doesn’t know whether he is going to lose the deal if he doesn’t comply with your request. Tell him that you’re still deciding between his loan proposal and one of his competitors. Identify in your mind what is the critical issue that needs to be resolved favorably. That’s what should be driving your negotiations. Then tell the loan officer that you would like to choose his loan proposal but you have this one issue that needs to be resolved before you can sign the loan application. And don’t get greedy. Pick the key issue that needs improvement.

If you frame the discussion this way, the loan officer will do whatever he can to satisfy your issue because he is now emotionally more committed to getting this loan under application than you are. Or at least, that is what you want him to think. So if your negotiating point is within reasonable bounds of something they can do, you’re likely to get agreement in your favor.

The final thing you must do to get a better loan quote has nothing to do with negotiating with your lenders, it has everything to do with wisely choosing which lender quote is the best for you. So don’t focus too heavily on one loan parameter. That’s really not a good approach for choosing a lender and here’s why:

A better approach is to review the pros and cons of each loan quote and then decide. For example, many borrowers’ “hot button” is getting the lowest interest rate. But many times the lowest interest rate comes with an onerous yield maintenance prepayment penalty. Or maybe it comes with a shorter amortization which cuts deeply into the property’s cash flow. Does the borrower still want the lowest rate? Maybe not. In fact, it’s not uncommon that when comparing the loan quotes in detail, another lender is chosen rather than the one originally considered the borrower’s first choice.

The next chapter will discuss two important tips that will significantly improve your chances of the loan closing in a timely manner with the rate and terms outlined in your original letter of interest.

6 – How to Keep Your Loan From Going to the Bottom of the Pile, or Worse

Keep Your Loan From Going to the Bottom of the Pile, or Worse

In the last chapter we discussed how to negotiate between two or more lenders for a more favorable letter of interest. Then you decided by carefully analyzing all of the pros and cons of each loan quote, which lender had the best rate and terms for you. Congratulations! You’ve come a long way.

Go ahead and sign the loan application and write the lender a check for the application deposit. But your only half way to the finish line: the loan needs to close in a timely fashion and with the rate and terms shown on the letter of interest. In other words, it’s one thing to get the loan application that you wanted, now you’ve got to get it closed in a timely fashion.

I have two very important tips that will significantly improve your chances of that happening. First of all, do not dribble the loan documentation to the lender. Once you have chosen your lender, one of the most important tips I can give you is to make the loan process as easy as possible for the lender. Complete the lender’s forms quickly, thoroughly and accurately.

Most lender forms are, at best, poorly worded and many times, just plain inane. Accept that as being true and fill in every box on the form to the best of your ability, no matter how silly or irrelevant. Your goal should be to complete all of the lender forms within the first two weeks of signing the loan application. You want everything thoroughly completed well before the appraisal is completed so that you don’t cause a delay in the underwriting process.

A borrower who is unwilling to focus on getting the forms to the lender in a timely manner is putting his loan at risk by increasing the chances that the underwriter will cool to doing his loan. At best your loan closing will be unnecessarily delayed. If they don’t have your documentation by the time the appraisal comes in, your deal will go directly to the bottom of the pile. At worst, depending on the length of the delay it could kill your loan. I’m not exaggerating. The saying, “Strike when the iron is hot,” applies to commercial lending. When the lender is emotionally in favor of your deal, make sure he has everything he needs so he can get you a quick approval.

The second thing you need to in order to get the loan closed in a timely manner is to not violate the “golden rule” of lending, which is, “He who has the gold makes the rules.” Each lender has its own unique way of underwriting, processing and closing loans. Don’t get into an argument about their process. To do so is futile as you will not win. All it’s going to do is to create bad feelings and that is not what you want to do with those who have the ability to approve or decline your loan. Provide them with what they are asking for, in the manner they have requested it, and you’ll be better off in the end.

The next two chapters will describe four reasons for using a commercial mortgage broker.

7 – Two Good Reasons for Using a Commercial Mortgage Broker

Two Good Reasons for Using a Commercial Mortgage Broker

So let’s review before proceeding today. In Part 1 of this series I started off with the obvious by stating there are three options to choose from when financing a property:

First of all, you can go back to a lender that you’ve already done business with. The advantages and disadvantages of this option were discussed in Chapter 2. Then I talked in detail about shopping the mortgage market on your own. Parts 3 through 6 discussed specifically what you had to do in order to improve your chances of getting the best loan possible for your property. Though this is a significant improvement over just going back to your existing lender, this option also requires a lot more effort on your part.

Today’s chapter and the next one in the series are going to focus on the last option and I believe the best option: employing the services of a commercial mortgage broker. I believe using a mortgage broker will optimize your chances of getting the best possible loan for your property. But I invite you to draw your own conclusions. So let’s get started.

There are four distinct advantages of using a commercial mortgage broker. The first reason to use a mortgage broker is: He knows more lending sources than you do. Recall the first step in shopping for a loan on your own was finding which lenders had the most competitive rates and loan terms. Believe me, that is not an easy undertaking. The primary advantage of using a mortgage broker is that he knows the lenders that have the most competitive rates and terms. Not all lenders who are lending are interested in your specific loan, but he likely knows those lenders who are. It’s his job to know.

A good mortgage broker regularly works with 5 to 15 lenders depending on who is the most competitive at the moment for a particular property type. Sometimes he knows that his most trusted lending sources do not have the rate and terms he needs to win the business. When that happens a good mortgage broker has another 20 or more lenders that he has called on over the years that would be eager to do business with him again. He will find the most competitive loan terms because if he doesn’t, he doesn’t get your business.

The second reason for using a mortgage broker is that he has already established a relationship based on trust with his lending sources. This is one of the most overlooked advantages of employing the services of a mortgage broker. Developing trust between the borrower and the lender is essential for insuring a successful loan outcome. In commercial real estate, trust is everything. It is absolutely vital for getting a transaction completed.

If you’ve never worked with a particular lender, a trust relationship has not been established. On the other hand, a commercial mortgage broker may have worked on several loans with this lender. They know each other. They know each other’s idiosyncrasies and because of their prior relationship, there is a higher probability of getting the loan closed with a mortgage broker than by going directly to the same lender.

Let me say that again, so I’m sure you understand what I’m saying. You the borrower can go to the same lender and be turned down for a loan because you have no relationship with the lender. He doesn’t know you from Adam. The mortgage broker on the other hand, has done several deals with this lender and because they know each other and a trust relationship has already been established the lender is willing to proceed with a loan application. It’s as simple as that. As a borrower, why not take advantage of these established relationships between the mortgage broker and the lender? Why not leverage those relationships?

Now some will say that using a commercial mortgage broker will cost you an additional loan fee. That could happen but it may not. It just depends on the lender. Let’s assume for the moment that it does. Many times because the mortgage broker knows where to go to get the best rates and terms, any additional fee is more than offset by a lower interest rate, a longer amortization, or more loan dollars than what you would have found shopping the mortgage market on your own. Not using the services of a mortgage broker because he charges an additional loan fee reminds me of the old saying “Penny wise, pound foolish.”

In summary, you go to a mortgage broker because he knows more lending sources than you do and because he has already established a trust relationship with the lender. If those are not enough reasons to proceed with a mortgage broker, the next chapter will explain two more very important reasons for using a commercial mortgage broker instead of shopping the mortgage market on your own. Stay tuned.

8 – Two More Reasons for Using A Commercial Mortgage Broker

More Reasons for Using A Commercial Mortgage Broker

This chapter and the previous one focus on the last option, and I believe the best option, for financing your property: employing the services of a commercial mortgage broker. And here’s why.

There are four distinct advantages of using a mortgage broker. We discussed the first two advantages in the previous chapter:

  1. He knows more lending sources than you do.
  2. The mortgage broker and the lender have already established a relationship based on trust. And trust in this business is everything.

There are two more reasons for using a mortgage broker:

Compared to shopping the market on your own, this option takes significantly less time and effort on the part of the owner. Recall all of the steps you have to go through when shopping the market on your own. There’s a lot of work to do! But if you use a mortgage broker much of the “heavy lifting” of finding the right lender and processing of the loan is performed by him, not by you.

The fourth and final reason for using a mortgage broker is: He can be your best advocate if things go wrong. There are times in the loan process where you need someone to be your advocate, someone who strenuously defends your best interests.

This can best be accomplished by a mortgage broker who has an established relationship with the lender. The lender wants to keep the mortgage broker happy because they don’t want to jeopardize their relationship. He brings them deals, which is in their best interest. They want him to continue bringing deals to them so they know they better be fair to his clients or next time he’ll go to one of their competitors. Now compare the mortgage
broker’s importance to the lender to your importance to the lender. In most instances they likely see you as a “one-off” transaction and don’t consider the loss of your loan as having anywhere near the impact of losing a valued mortgage broker relationship. Now let’s consider the loan officer. Can the lender’s loan officer adequately fill this role of advocate if something were to go wrong with the loan? He works for the lender. He is being paid by the lender. Whose best interest do you think he is looking after? Your’s, or the bank’s? So the mortgage broker is the best choice for being your advocate if things go wrong with your loan, not you and not the loan officer.

A good mortgage broker will “go nuclear” if the actions of the lender are so egregious that it requires drastic measures. Years ago, a lender approved a loan for one of my clients as proposed on the letter of interest. But prior to closing the loan they changed their minds without notifying the borrower or me that they had reduced the amortization from 25 years down to 15 years, effectively killing the property’s cash flow. The reduced amortization was only revealed at closing. I told my client to walk out of the closing without signing anything. Needless to say, the borrower was distraught.

I then wrote the loan officer’s superior a letter that included a copy of an e-mail from the loan officer stating the loan was approved with a 25 year amortization. I went on to say in my letter that if the borrower decides to litigate this matter, I would be more than willing to testify on his behalf. Bottom line: the lender decided to honor the original 25 year amortization and because I chose to go to bat for my client, I lost what had been a good lending relationship. But a good mortgage broker does what he has to do to protect his client.

These are the four reasons why I believe you should use a mortgage broker. I rest my case. You decide. But if you choose to employ the services of a mortgage broker the next chapter tells you the three things you need to do in order to choose the right one.

9 – How To Choose a Mortgage Broker Who Will Work Best for You

Choose a Mortgage Broker Who Will Work Best for You

In the last two chapters I discussed four very compelling reasons why you should employ the services of a commercial mortgage broker. And since you are reading this chapter you probably agree with my assessment. Congratulations! Great minds think alike!

I’m going to let you in on a secret: not all commercial mortgage brokers are equally trustworthy, competent, and likeable. So if you’ve decided to use a commercial mortgage broker then I have three very important suggestions.

First of all, when selecting a commercial mortgage broker, absolutely do not consider using a residential mortgage broker. Residential mortgages and commercial real estate mortgages are completely different loan products. A residential mortgage broker does not have the expertise to finance commercial real estate loans. They will be totally out of their element and they will completely screw it up.

Secondly, don’t just choose a mortgage broker. Interview some and then decide. They will be representing you and you want the best qualified and most enjoyable person to help you through this process. Where do you find mortgage broker candidates to interview? Ask around. Specifically ask other property owners if they used a mortgage broker that they could recommend. And I would also contact other real estate professionals: real estate brokers, escrow officers, and attorneys, to name just a few. Prepare several questions ahead of time including some of the following:

  • What are your qualifications?
  • How long have you been in business?
  • How many lending sources do you generally work with?
  • Can you give me the names and contact information for three property owners that have recently used your services?

Through the course of the interview determine, as best you can, whether you can trust him, whether he is competent and maybe most important whether he is likeable. Everything be equal you would rather do business with someone you like so determine whether they are likeable. Finish your interview with this question: “How are you different than your competition?”

There are several ways a mortgage broker can differentiate himself from his competition but I’ve got two ways that will help “separate the sheep from the goats.”

First of all ask him or her, “How do you go about comparing loan quotes?” A good mortgage broker will provide his clients a side-by-side comparison of the lender quotes he receives. A lazy one won’t do it because it requires more effort on his part than he’ll want to do. And you don’t want to hire lazy people. If you would like to see an example of a loan quote comparison that I’ve done for my clients go to my website: www.marshallcf.com. Go to the Mortgage Solutions tab and scroll down to the Mortgage Solutions Archive where you will see several loan quote comparisons to choose from. Click on one and you’ll see how much easier it is to compare loan quotes when they shown side by side.

A loan quote comparison will have at the top of the page the names of the lenders. Down the side of the page will be all the loan parameters a borrower needs to know in order to make an informed decision, such as loan amount, interest rate, loan term, amortization, loan fee, other financing costs, type of prepayment penalty, etc. to name just a few. Reviewing individual loan quotes can be confusing so a side-by-side comparison will help draw out the differences between each of the lender proposals making it much easier for you decide which loan is best for you.

Ask each mortgage broker to bring to the interview an example of what he provides his clients to compare loan quotes. If he does not show you some type of loan quote comparison spreadsheet, then I would suggest you not choose him as your mortgage broker. It’s that important.

Secondly, ask the interviewee whether they disclose to their client when they receive lender rebates? Many borrowers are unaware that some lenders pay rebates to mortgage brokers outside of closing. And the vast majority of mortgage brokers do not disclose to their clients that they’re receiving these rebates. As a result a borrower thinks he is being charged a 1.0% loan fee from the broker when in fact the lender is paying an additional fee to the mortgage broker of a half a point or more outside of escrow. In order to do this some lenders charge a higher interest rate to the borrower to compensate for the additional fee provided to the mortgage broker. So you, the borrower, without your knowledge maybe paying for the undisclosed loan fee through a higher interest rate. You want someone who is above reproach in this area. Choose a mortgage broker who discloses when and how much of a rebate he’s receiving from his lending sources and whether the rebate is increasing your interest rate.

My last bit of advice to you: Be loyal to the mortgage broker you choose. Once you’ve completed your interviews choose one and only one mortgage broker to represent you. Be loyal to your mortgage broker by using him exclusively. If you do, it will work to your advantage and here’s why:

When a borrower uses the services of more than one mortgage broker, without their knowledge, all trust between the borrower and the broker evaporates. And as I’ve said before, trust is everything in this business. For example let’s say you’ve decided to use Mortgage Broker A. If he calls one of his lending sources and discovers that Mortgage Broker B has already talked to them about your loan request, do you think Mortgage Broker A is going to work very hard getting you the best rates and terms possible? Not a chance. He’ll feel betrayed and rightly so. You’ve just shot yourself in the foot. Don’t do it!

And when a lender receives telephone calls from different mortgage brokers for the same property it’s a big “turn-off.” It signals to them that the property is being shopped to death. As a result they lose interest and put only a minimal effort into their loan quote. The best approach is to decide which mortgage broker you want to represent you and then stick with him to the get the best rates and terms possible.

There you have it – my suggestions on choosing a commercial mortgage broker, the questions to ask them in the interview process and how best to work with them once you’ve chosen who you want representing you. The last part in this e-book will briefly summarize the pros and cons of each option for getting the best possible loan for your property but you already know my recommendation.

 

10 – Decision Time: Which Option Works Best for You

Which Option Works Best for You?

Congratulations! You’ve made it to this point. Welcome to the 10th and final chapter in the series titled, Secrets of a Commercial Mortgage Broker: How to Get the Best Possible Loan for Your Property.

I hope you’ve found this e-book informative and helpful in your quest to get the best possible loan for your property.

We’ve now discussed the three options you have for financing your property. You can:

  1.  Finance your property with a lender you’ve already done business with, or you can
  2. Shop the mortgage market on your own, or you can
  3. Employ, the services of a commercial mortgage broker.

Let’s summarize each of the options:

The first option is to finance with a lender you’ve already done business with. The advantage of this option is that it’s convenient and probably the quickest way to refinance but it’s unlikely you’ll get the best rate and terms in the market and you won’t know what you “left on the table.”

The second option is to shop the mortgage market on your own. With this option you have a higher probability of getting better rates and terms than going back to a previous lender but it will take considerably more time and effort on your part than using a mortgage broker.

The third and final option is to employ the services of a commercial mortgage broker.

There are four advantages for using a mortgage broker –

  1. He or she knows more lending sources than you do, which means she will likely find better rates and terms
  2. The mortgage broker and lender already know each other and trust one another – and in this business trust is everything
  3. Compared to shopping the mortgage market on your own it should take significantly less time and effort on your part
  4. If things go wrong, and they do sometimes, the mortgage broker can be your best advocate to represent you with the lender

Which of the three options you ultimately choose depends on which advantages and disadvantages are most important to you.

As I’ve said throughout this e-book, I firmly believe that a mortgage broker’s counsel far outweighs the possible cost of a loan fee for his services. And this overlooks the very real possibility that the mortgage broker will actually save you money because they likely know where to get better rates and terms than you do. Even if they can only get you a slightly lower interest rate it will more than pay for their loan fee.

* But the mortgage broker can represent you better to the lender than you can represent yourself

* They can help a borrower avoid serious pitfalls when shopping for a loan,

  • They know the lender’s language
  • They know what they look for in a loan
  • They know how to prepare the loan package to optimize your chances a lender will want to finance your property

In these uncertain times where lenders are being overly cautious about lending on a property, or to a borrower with a checkered past no matter how minor the issue may be, it is more important than ever to employ the services of a mortgage broker with a proven track record.

A wise man once said, “Plans fail for lack of counsel, but with many advisers they succeed.” If you have any questions about how to get the best possible loan for your property, please do not hesitate to contact me. My contact information is shown below. Good luck and God bless.

 

Douglas G. Marshall, CCIM

Marshall Commercial Funding, Inc.

Phone No: (503) 614-1808

E-mail: doug@marshallcf.com

 

 

 

 

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