Looking for Commercial Mortgage? Here’s what to consider when shopping for a Commercial Mortgage!
Today’s Commercial Mortgage Lenders
Buying or building a commercial property is a huge undertaking for you as an investor. Some lenders require personal guarantees, some look only for profitability; some may charge a very high-interest rate, etc. At such a stage, a basic understanding of the various types of commercial mortgage lenders and their terms will be really helpful! Everyone looks for competitive quotes from several capital sources and wants to compare all of their options before proceeding. Today, when shopping for a commercial mortgage, the borrowers have more choices than ever. Borrowers need not confine themselves to the limited choices.
This blog will share more about who the lenders are and what are the main differences between them:
One of the leading sources of commercial mortgage, commercial banks characteristically like good quality and cash-flowing properties. They prefer properties in good urban and suburban locations. They target big size loans of at least $1 million and mostly have short and intermediate loan terms of three to seven years.
They are one of the best sources when it comes to loans of smaller size and non-prime locations. They prefer lending in their local market and to the local borrowers. Local banks prefer undertaking a personal guarantee from the borrower and usually look for a deposit relationship as well.
Fannie Mae is actively engaged in multifamily lending for qualifying properties and strong borrowers. Agency loans have strict criteria where borrowers seeking agency loans should have excellent credit, personal net worth, liquidity, and experience. A good rental history of the property along with good condition is another qualifying criterion. Generally, properties with high turnover, vacancy or deferred maintenance do not qualify for loans by agency lenders.
Government Agency Lenders
The companies that are authorized to sell commercial loan products funded by government agencies come under government agency lenders. In addition to it, few national and local banks can also offer government-backed loan products alongside their own portfolio products. These government-backed commercial loans are pooled together, securitized and then sold to investors.
CMBS loans are made by Wall Street investment banking firms and these loans are pooled together and securities are issued and sold to bond buyers. In return the bond buyers provide liquidity. CMBS lenders generally target larger loans of at least $3 million and are usually written for 10 years. They are non-recourse.
Insurance companies have historically provided low rate and long-term loans on commercial real estate as part of their investment portfolios. These loans are underwritten with low loan to value ratios and are offered on strong properties and to strong borrowers. Insurance company rates do not fluctuate with each and every move in the market as these loans are tied to the company’s internal cost of funds. Also, they are known to originate more tailored loan packages that are outside the conventional lending box.
Many credit unions have started actively lending on the commercial real estate along with residential. These lenders typically like deals close to home and often compete with the local and community banks in the area. Most credit unions will expect recourse from their borrowers. Some may even require that the borrower become a credit union member.
The borrowers who do not qualify for traditional financing from the other sources, can choose from multiple private lenders. These loans are usually short-term and at rates considerably higher than conventional rates. Private lenders are usually more concerned with property value and potential cash flow than with borrower credit issues. For borrowers with credit or income problems, or those needing a faster timeline to closing, a private lender might be a good choice.
These lenders are usually comprised of national and local banks, credit unions, and corporations with a commercial lending division. They are called portfolio lenders because they maintain the commercial loans they originate on their balance sheet until maturity, rather than having them securitized.
Also, the banks in the US are witnessing lowest loss rates in commercial real estate and construction loans and are increasing their lending activity in this sector. The loss rates for construction and land development loans have fallen from 3.58% of average loan balances in December 2009 to 0.24% in the most recent quarter. Sageworks, a financial information company shared a data which stated there is an improving economy and increased competition in the commercial and industrial lending space. It has contributed to an increased sense of confidence in lending activity (in this sector). As per MBA, the commercial bank portfolio loans for commercial and multifamily mortgage loans increased 19% in the second quarter from a year earlier. Reports also share that other banks of all sizes have entered the lending space, which is very good news for the borrowers. Commercial real estate loans make up 24.68% of portfolios, compared to 19.55% as of March 2008 as per data by Sageworks. As lending conditions are eased, the share of transactions failing due to refinancing is also seeing a downward trend.
So borrowers can now choose from a variety of lender types. If you want to know how much a lender or bank would value your property, you can find through our platform, Clik. Our team has an experience of evaluating over $6 Billion in loans. You can request demo to know your assets worth instantly! Also, while the number and types of lenders are increasing, the winner will be the one which has an accelerated loan turn-around time for faster time to market. CRE lending is growing multi-fold, so why not automate the time-consuming tasks of loan analysis, loan package designing, loan delivery, etc. and stay competitive with improved top-lines in the lending ecosystem. Request Demo to know more!