Should You Use a Commercial Loan Broker?
When it comes to buying a rental property, the first person you should reach out to is a professional real estate agent. However, since purchasing a investment property usually requires a loan, it's important to contact a commercial loan brokerage like Chiles Capital to make it affordable.
Instead of immediately going to your local bank to apply for a mortgage, it's often a better choice to work with a specialized mortgage broker. Unlike banks, who typically offer one interest rate and set of mortgage terms, a commercial broker can shop around with different lenders and funding sources that are not accessible by the general public. This ensures you find the best rate and conditions that suit your specific funding scenario.
What Does a Loan Broker Have to Offer?
A commercial loan broker serves as a valuable link between you and the lender who is willing to provide funding for your property investment. They take care of all the necessary tasks on your behalf, diligently searching for the ideal mortgage with interest rates and terms that suit your financial situation. By handling the time-consuming task of comparing offers from different lenders, commercial loan brokers save you precious time and help secure lower interest rates, ultimately leading to significant savings.
What Exactly Does a Commercial Loan Broker Do?
Once you've given your consent to your loan broker to find the most favorable mortgage rate and terms on your behalf, you will be required to provide a variety of essential documents. These documents will include a worksheet of real estate owed with rent rolls, an income statement, a credit report, and a detailed list of your current assets. The purpose of these documents is to assist your mortgage broker in assessing your eligibility to afford a mortgage and determine the type of interest rate you qualify for. This step is essentially the same as what a typical retail bank would undertake.
Upon careful examination of these documents, your commercial loan broker will be better equipped to determine the most suitable loan and package that would work best for your specific situation. This may involve determining an appropriate loan amount and calculating the loan-to-value ratio, which compares the value of your loan to the value of your property.
Commercial Loan Brokers Take the Guesswork Out of the Application Process
The commercial lending process can be a complex one, so your broker will help you iron out all the details and explain all the stipulations of the loan in terms that are easy to understand. While a number of lenders will be approached by the broker, only one loan application will need to be filled out.
Once all of the necessary paperwork is filled out in detail and completion, your loan broker will shop around with many different funding sources to find the best rates and terms available. This is the key benefit of using loan brokers, as they have the ability to get in touch with a number of lenders and banks within their network.
Loan officers from conventional retail banks are only able to offer loan programs and interest rates from their specific bank. This would significantly reduce the odds of you being able to find out all the other options that are out there. Instead of applying for a mortgage repeatedly with a number of different banks, your mortgage broker will take all of that legwork out of the equation by approaching various lenders simultaneously on your behalf.
It’s your loan broker’s job to locate the best interest rate customized for you. For instance, if you can’t afford any more than a 5% down payment with a 30-year fixed-rate mortgage, your loan broker should approach lenders that offer those specific terms.
It should be noted that loan brokers will vary in the number of lenders that they have access to within their particular networks, since brokers will need to be approved to work with each lender. Of course, the more contacts that a mortgage broker has, the better. Chiles Capital utilizes their network of 100+ lenders in addition to a number of private equity funds and family offices which allows them the flexibility to structure almost any scenario so that it is a win-win for all involved.
How Much Does It Cost to Use Their Services?
Mortgage brokers, unlike loan officers at retail banks, operate independently and are required to be licensed. While they provide valuable services, it's important to understand how they are compensated. These fees are paid by either the investor or funding source, usually amounting to a small percentage of the total loan amount, typically between 1% and 4% depending on a number of factors.
You may be responsible for paying the fee, which can be paid upfront or incorporated into the loan payments. commercial loan brokers may also offer no-cost loans by using a lender credit, which slightly increases the interest rate but eliminates any out-of-pocket costs.
It's crucial that all fees are transparently disclosed by the lender upfront, with each fee detailed and explained to you. To regulate how loa brokers are paid and how fees are communicated, the Dodd-Frank Act was implemented. Under this act, mortgage brokers are prohibited from charging hidden fees or incorporating their payment into the loan's interest rate. They are also not allowed to receive payment for directing borrowers to affiliated businesses, nor can they collect payment from both the borrower and the lender. Generally, unless upfront fees were paid, brokers only receive payment when a deal is successfully closed.
Depending on the size of the loan and the details involved, the fees can vary. As such, it’s important to ask questions prior to agreeing to work with a specific commercial loan broker.
Will Commercial Loan Brokers Help Me Get a Better Price and Rate on My Loan?
One of the jobs of a loan broker is to shop around with a number of lenders and funding sources to help find one that is willing to provide the lowest rate possible. This is in stark contrast to a retail bank, which will only extend a rate that they have to offer.
Unless there are major issues with your credit or financial history, brokers are much better able to get you a lower rate on your mortgage because they are shopping around with various lenders, as opposed to banks that are only able to offer you their own rates and packages.