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Posted by Drew on December 1, 2005, 9:26 pm
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A friend of mine owns a building with a retail store space in the front and
offices in the back. The value of the property is probably 1.1 million or a
little less. He wants to refinance the property. He currently has a
mortgage on the property with a balance of about $300,000. What he wants to
do is refinance the property for $500,000 -- enough to pay off the existing
mortgage and use the rest to pay off an IRS bill for penalties and late fees
and repay a personal loan from a family member. He operates a service
business out of the retail space and that plus the office rents is his
source of income. And, his credit score is probably low.
Here's my questions:
1) Would it make more sense for him to contact one or more mortgage brokers
to see what they have available instead of going to a local bank for the
mortgage? If this were a home mortgage, I would say use a mortgage broker,
but this is a mortgage on a commercial building which I assume would be
harder to find.
2) Since the mortgage would only be for 50% of the value of the building,
would that mean it would be fairly easy to get a mortgage even with a
not-so-great credit score? I think that would be true for a home mortgage,
but I don't know how it works with a commercial building mortgage.
3) Assuming he should go to a mortgage broker (that would be my vote), is
there a particular type of mortgage broker to look for? I assume most of
them do primarily home mortgages and wouldn't be too familiar with
commercial building mortgages.
Thanks.
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Posted by Jeff Strickland on December 3, 2005, 2:48 pm
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>A friend of mine owns a building with a retail store space in the front and
>offices in the back. The value of the property is probably 1.1 million or
>a little less. He wants to refinance the property. He currently has a
>mortgage on the property with a balance of about $300,000. What he wants
>to do is refinance the property for $500,000 -- enough to pay off the
>existing mortgage and use the rest to pay off an IRS bill for penalties and
>late fees and repay a personal loan from a family member. He operates a
>service business out of the retail space and that plus the office rents is
>his source of income. And, his credit score is probably low.
>
> Here's my questions:
>
> 1) Would it make more sense for him to contact one or more mortgage
> brokers to see what they have available instead of going to a local bank
> for the mortgage? If this were a home mortgage, I would say use a
> mortgage broker, but this is a mortgage on a commercial building which I
> assume would be harder to find.
>
Yes, it would make sense to contact multiple brokers. The problem is, he
needs to focus on commercial lenders, and not waste anybody's time talking
to residential lenders.
> 2) Since the mortgage would only be for 50% of the value of the building,
> would that mean it would be fairly easy to get a mortgage even with a
> not-so-great credit score? I think that would be true for a home
> mortgage, but I don't know how it works with a commercial building
> mortgage.
>
Yes, the low LTV (Loan To Value) will be beneficial. How beneficial is open
to debate, but it should help.
> 3) Assuming he should go to a mortgage broker (that would be my vote), is
> there a particular type of mortgage broker to look for? I assume most of
> them do primarily home mortgages and wouldn't be too familiar with
> commercial building mortgages.
Familiarity with commercial lending isn't the issue, it's the loan packages
that can be sold by residential lenders. He specifically needs a commercial
lender.
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Posted by Drew on December 3, 2005, 7:28 pm
Please log in for more thread options > .........
> Yes, it would make sense to contact multiple brokers. The problem is, he
> needs to focus on commercial lenders, and not waste anybody's time talking
> to residential lenders.
> ............
> Familiarity with commercial lending isn't the issue, it's the loan
> packages that can be sold by residential lenders. He specifically needs a
> commercial lender.
Thanks for responding.
I hate to seem so dense, but I can't quite figure out what you mean. You
mentioned "brokers", "residential lenders", and "commercial lenders". I
assume they are three different things, and that brokers represent lenders
(either residential lenders or commercial lenders) -- and my friend should
contact brokers that represent commercial lenders. But, when I look in the
Yellow Pages (we're in New Jersey)under mortgages, all I see is stuff about
home mortgages. Is there some way to find brokers who represent commercial
lenders without calling each broker and asking them? Part of the reason
that I am asking is because English is a second language for my friend, and
that makes it more difficult for him to explain what he is looking for. So,
I'd like to be able to say, "Here's a list of 4 or 5 brokers I found who say
they represent commercial mortgage lenders". It would be even better if I
could say, "Here's the Yellow Pages listing of mortgage brokers who handle
commercial mortgage loans".
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Posted by Jeff Strickland on December 3, 2005, 10:16 pm
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>> .........
>> Yes, it would make sense to contact multiple brokers. The problem is, he
>> needs to focus on commercial lenders, and not waste anybody's time
>> talking to residential lenders.
>> ............
>> Familiarity with commercial lending isn't the issue, it's the loan
>> packages that can be sold by residential lenders. He specifically needs a
>> commercial lender.
>
> Thanks for responding.
>
> I hate to seem so dense, but I can't quite figure out what you mean. You
> mentioned "brokers", "residential lenders", and "commercial lenders".
Sorry. Most of us deal with brokers or lenders that deal in residental
properties, you need to focus your search for a borker or lender that deals
in commercial properties.
A broker is a person -- or company -- that deals in lending products from
lots of various lenders, whereas the lenders themselves only deal in their
own products. For example, a broker can scour rate sheets -- pricing guides
that are published regularly -- and locate a loan product that fits your
specific needs and pays the broker some of all of his commission, any given
lender can only offer his own product. If you go to a broker, he'll qualify
you and find a loan package from any of the lenders he deals with. If you go
to the lender, he'll qualify you, but he only has one or two products to
offer. The broker is good because if the loan goes sideways for some reason,
he can flip the package to another lender with looser guidelines. this can
have a bit of a higher rate, but the choices become no loan or one with a
slightly higher rate than you were hoping for.
So, a broker has a variety of loan products to present you with, the lender
only has his own product(s).
I
> assume they are three different things, and that brokers represent lenders
> (either residential lenders or commercial lenders) -- and my friend should
> contact brokers that represent commercial lenders.
Frankly, most commerical loans are written directly by the bank. The
residential brokers do have connections with commercial lenders, so caling a
couple of brokers wouldn't be a complete waste of time. I'm in California,
and we have rules here that do not allow residential lenders to deal
directly in commercial paper, so when we get these kinds of calls, we refer
them to a commercial guy that comes around our office.
Yes, brokers represent lots of lenders, either residential of commercial.
And, yes, you guys need to find a commerical source of your money. Using
Calif. as the example, it's a residential loan if there are from 1 to 4
dwelling units that are being financed, you have no dwelling units and you
know the property is used for business purposes, so you couldn't get a loan
on this property from a residential broker or lender in this state.
But, when I look in the
> Yellow Pages (we're in New Jersey)under mortgages, all I see is stuff
> about home mortgages. Is there some way to find brokers who represent
> commercial lenders without calling each broker and asking them? Part of
> the reason that I am asking is because English is a second language for my
> friend, and that makes it more difficult for him to explain what he is
> looking for. So, I'd like to be able to say, "Here's a list of 4 or 5
> brokers I found who say they represent commercial mortgage lenders". It
> would be even better if I could say, "Here's the Yellow Pages listing of
> mortgage brokers who handle commercial mortgage loans".
>
Well, the language barrier isn't going to help matters at all unless the
language is common, Spanish or French (I guess that French might be common
in your area, given the relative closeness to Canada) and then it won't be a
particular problem, but if the language is neither of these and isn't widely
spoken in your community, then it will slow him down a bit.
Given the fact that most commercial paper is written directly by the banks,
I think you should call one in the nieghborhood where the property is.
Commercial lenders like to see exactly what they are writing for, and they
tend to stick pretty close to home. I think I'd stick to banks within a 10
or 15 mile radius. The closer the bank to the project, the beter the chances
for loan approval. This process sounds like it won't be easy, given the
language barrier, credit profile, and property type but you haven't given me
any reason to think it won't happen, it'll just be a bit of work.
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Posted by Drew on December 5, 2005, 10:43 am
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> Given the fact that most commercial paper is written directly by the
banks,
> I think you should call one in the nieghborhood where the property is.
> Commercial lenders like to see exactly what they are writing for, and they
> tend to stick pretty close to home. I think I'd stick to banks within a 10
> or 15 mile radius. The closer the bank to the project, the beter the
chances
> for loan approval.
Thanks again for taking the time to explain all of this. I always learn a
lot by reading your posts here, and I often find myself passing on what I
learn to others (an example would be your explanations of the potential
advantages of an 80-15 mortgage on a home versus a single 95% loan).
Unfortunately, I'm in New Jersey and you're in California, and I know from
your past posts that you can't write loans in New Jersey. If you did, I
would already have been calling you about my own mortgages.
For my friend, the language barrier is a problem, and since it's an Asian
language, finding a bi-lingual commercial loan broker isn't an option.
Ironically, his plan already is to contact local banks for financing.
The good news is that he has been in the same line of business for many
years and has also been at his present location for a long time. But, when
he said he was going to go from bank to bank about the loan, I thought,
"Wouldn't it be great if he could just go through a broker who could match
the right commercial lender to his situation and needs?" That's when I
decided to post the question here.
The bad news is that what I thought was true for residential mortgage
brokers apparently is not true for commercial loan brokers. I just figured
that he could find one or more brokers who represent commercial lenders and
they could figure out the rest. But I guess that ain't gonna happen.
In terms of location, we are in New Jersey, just East of Philadelphia, PA.
Just in case there are some commercial loan brokers in this area, do you
know of any particular way of locating them? I tried the Yellow Pages but
saw nothing.
One final note: I do know to stay away from those "pay me up front and I'll
get you a loan" people.
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