If you are a business owner, you have the choice of leasing a commercial space or buying one. Ideally, you should own your office or warehouse. The problem is that these commercial spaces are too expensive, and most business owners don’t have enough cash to acquire the property. In which case, a commercial mortgage loan might just be what you need.
Commercial mortgage loans allow you to borrow money in order to buy a property for commercial purposes. These include industrial warehouses, office buildings, shopping centers, and apartment complexes. You can also use these loans to further develop an existing property.
So where do you get a commercial mortgage? With so many types of commercial lenders out there, it’s best to work with a commercial mortgage broker like Clopton Capital help you navigate the different types of lenders.That being said, hereare the different types of commercial mortgage lenders:
Mortgage bankers are the most common commercial mortgage lenders. These lenders usually use their own funds or fund themselves by borrowing from warehouse lenders. After getting a mortgage, the mortgage banker can choose to keep it in a portfolio or sell it to an investor. They might also service the mortgage and sell its right to another institution. They earn money from the fees of loan processing.
The good thing about mortgage bankers is that they can provide large sums of money. However, since they work for a lending institution that provides this money, your loan application might undergo a strict and long process before its approval.
Retail lenders include mortgage bankers. However, they are also saving institutions, credit unions, and loan companies. They might also be third-party lenders that partner with retail businesses.
What makes them different from mortgage bankers is that they provide mortgages to consumers directly. Aside from mortgages, they also offer auto loans, personal loans, checking, and savings accounts.
Direct lenders make their own loans from their own funds or money they borrowed from somewhere else. Mortgage banks are sometimes considered direct lenders. However, what really makes them different from a bank lender and retail lender is that they specialize in mortgages.
While bank lenders tend to offer their products to institutions, direct lenders offer theirs to consumers directly.
While retail lenders can sell multiple products to consumers and work under strict rules, direct lenders are more flexible. Their niche being real estate, they can create guidelines and alternatives that fit the borrower best.
The downside to direct lenders is that they mostly exist online and have limited to no branch locations. Thus, if you prefer to process your loans face-to-face, they might not be the most ideal.
Like the direct lenders, portfolio lenders fund loans with the use of their own money. They are not obligated to meet the interests and demands of investors. Thus, they can easily set their own terms and guidelines. This is appealing to borrowers who are looking for flexibility.
Prospective commercial space buyers will find it easier to apply for mortgage loans from portfolio lenders. However, they have higher prepayment fees and interest rates.
Wholesale lenders are financial institutions and banks that offer mortgage loans via third parties like brokers and other banks. They don’t work with consumers directly but will fund, originate, and service loans to institutions.
While the fund will basically come from a third party, the name of the wholesale lender will still appear on loan documents because they are the ones that set the terms and guidelines for the loan. Wholesale lenders will usually sell loans on secondary markets after they close.
These lenders are not your usual type of lender. You don’t usually get to meet them when you make your loan as they only sell mortgages to investors or sponsors. The inventor or sponsor will sell the loan to the secondary market. Then, the correspondent lender will collect a fee from the loan during closing. Selling a loan to an investor or sponsor directly eliminates the risk of getting a default.
If you are getting a mortgage from a third-party lender, there’s a high chance that they are funded by correspondent lenders. The chance of you meeting them personally though is nil.
Warehouse lenders mainly help other mortgage lenders by funding their loans, usually through short-term funding. The fund that they lend will be used to purchase property.
Warehouse loans are usually repaid when the loan has been sold to a secondary market. Warehouse lenders, like correspondent lenders, don’t need to interact with the consumers themselves. They use mortgages as collateral until they get their money back.
Government sponsored institutions or entities are controlled by the federal government. Their sole purpose it to assist private financial dealings that will help the public. They are mostly interested in supporting housing and making it affordable. However, they can also originate low-cost loans for properties that fit their criteria.
Hard Money Lenders
If you really need a commercial mortgage and are running out of options, then you can run to hard money lenders. They are usually considered the last resort if you don’t qualify for any of the lenders mentioned above.
Hard money lenders are individuals or private companies with large cash reserves, which they can loan. Their loans can be repaid within a few years so they attract fix-and-flip investors who sell commercial spaces for a profit.
The good thing about hard money lenders is that they are flexible. They also tend to close mortgage loans quickly. However, they do come with high processing fees and high interest rates that can shoot up to 20%. They use property as collateral to the loan.
What type of commercial mortgage lender do you think will meet your needs most? Consider the type of business that you have and the commercial space that you wish to own first. Then, you can choose which lender will give you the terms that suit you best.