by Trevor Calton
President of Evergreen Capital Advisors and founder of Real Estate Finance Academy
There are many benefits to having a commercial mortgage broker on your team. Today we will talk about what they do and the role that they play in the lending process.
Real estate investors almost always eventually use bank financing for their portfolio. When that time comes, whether refinancing or purchasing, borrowers have a choice as to how they are going to source that financing. The borrower can choose to shop around for a loan themselves by going directly to each of the banks to see if they lend on the types of properties in their portfolio, or they can engage a Commercial Mortgage Broker to help.
The most important thing to know is that a mortgage broker is different than a mortgage banker. A mortgage banker is a loan officer who works for a bank, and their job is to originate loans that fit into their bank’s portfolio. A mortgage broker is an independent professional who works for the borrower, not for the bank, and they specialize in helping the borrower work with banks by doing four things:
They help the borrower shop around all of the mortgage banks in the market for the most competitive loan programs for their particular property.
They help the borrower analyze & compare the advantages and disadvantages of different loan quotes from competing lenders.
They help the borrower compile and prepare a complete loan proposal package for the underwriters.
They help facilitate and manage the loan process on behalf of the borrower all the way up until closing and funding.
Here are some things to consider when deciding whether or not to use a commercial mortgage broker.
Cost Effective
It's important to know is that there is usually little to no additional cost to use a commercial mortgage broker. That’s right, the borrower typically does NOT pay extra to use a broker. The reason for this is because banks typically waive or reduce their origination fees so that the broker can collect that fee instead. So the borrower gets the advantage of having someone representing their interests, instead of the bank's, and it’s typically at no additional cost to the borrower.
Knowledge and Expertise
The next thing to consider is market knowledge and expertise in the current lending environment. Most real estate investors have just a handful of relationships with local lenders in their market. A good commercial mortgage broker handles dozens of transactions each year, and typically deals with a wide array of local and national lenders every day.
These lenders run the gamut from mortgage banks, commercial banks, HUD lenders, investment banks, insurance companies, pension funds, and credit unions, to hedge funds, agency lenders, government agencies, and private lenders. A good commercial mortgage broker will have a far broader understanding of which lender and loan would be the best fit for any given transaction. They also understand the current lending environment, market conditions, and underwriting guidelines, all of which are constantly changing as the market goes through its typical cycles.
Increased Certainty of Funding
The next thing to consider is certainty of execution. A good commercial mortgage broker has familiarity with the process each lender prefers, and the best way to prepare a loan submission package for each particular lender. A typical lender sees far more requests than they can possibly review and approve. A good commercial mortgage broker knows how to prepare a loan request package that will be given the best consideration and quick response by lenders. They know what information is key to obtaining loan approval from a lender.
Analysis and Consulting
Another thing to consider is the analysis and consulting that you get when utilizing someone with expertise on all of the various ways that commercial loans can be structured, how certain terms affect the other terms of the loan, and which of those terms are negotiable.
Too many borrowers focus only on the interest rate. A commercial mortgage broker will help negotiate many other deal points, including the maximum loan amount, the loan term, amortization period, whether the loan is recourse or non-recourse, prepayment penalties, closing conditions, post-closing and/or ongoing annual requirements such as inspections or financial reporting, etc. There are many, many moving parts in a commercial mortgage transaction, and a good commercial mortgage broker will be able to negotiate the best deals for their clients.
A Commercial Mortgage Broker Gives You More Financing Options
Most likely, a commercial mortgage broker will be able to offer different choices and more loan options, which can make a huge difference in the borrower’s cash flow.
Most large real estate investment firms have in-house asset managers to handle commercial mortgage loans, but individual investors and smaller real estate firms usually don’t have the bandwidth to perform all of these duties on a full-time basis. These investors are almost always going to be better served by hiring a competent commercial mortgage broker.
To find the best loan for you, as well as a complimentary portfolio analysis on your existing real estate investments, contact Evergreen Capital at 877.325.4001 or email info@evergreen.llc
Trevor T. Calton, MBA is the President of Evergreen Capital Advisors and founder of Real Estate Finance Academy. A longtime industry veteran and former Professor of Real Estate Finance, he has analyzed, acquired, or sold more than $5 billion of commercial real estate assets, financed over 500 commercial investment properties, and overseen the asset management of over 6000 units of multifamily housing.