Commercial building mortgage and commercial Mortgage Broker 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.
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.
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.
Yes, the low LTV (Loan To Value) will be beneficial. How beneficial is open
to debate, but it should help.
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.
IF (and that's a guarded "if") this guy is legitimate, then it would be
worth while to exchange an email on the side and get some phone numbers. The
way a broker works is to provide a loan with normal and customary closing
costs, then collect his commission either from the borrower if the borrower
wants the lowest possible rate, or from the bank (investors) if he wants the
lowest possible cost, or some combination of the two that meets the
borrower's expectations.
Let's say that 6.00% was the going rate for a Par Loan. The borrower would
pay all of the sales commission to arrange this loan. For the sake of
discussion, let's assume the sales commission is 2 points -- that's high but
it gives a place to illustrate the concept, and in some parts of the country
this is a reasonable and customary commission, depending upon the loan
amount.
So, to get a 6.00 loan, the borrower pays 2 points. But if the borrower
doesn't want to pay that much, then the rate can be jacked to -- for
example -- 6.25% and the borrower pays 1 point and the investor pays the
broker 1 point. OR, the borrower can take a loan at 6.50% and have no points
and the investor pays the broker 2 points to bring the loan package in.
On a 100,000 loan, 2 points isn't very much money, but on a 1,000,000 loan,
it's a ton of money. 1 point is 1% of the loan amount, so on 100 grand, it's
1,000, but on 1 million, it's 10,000. The work is arguably about the same,
and the 100,000 loan is typically more difficult because the borrower isn't
as savy. The bottom line is if the loan is very large, the points should
come down. Points are negotiable.
It would be cool if you guys could get some of the ground work laid here so
others could benefit from the discussion