Broker Commercial Loan Mortgage question?
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.
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.
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).
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.