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.