Paying a mortgage broker a few to find the mortgage?

Question

Fee* (not few)

So I've never gotten a commercial loan before, I'm wondering if other people have experience with this. The mortgage broker is asking for a few payed from us the buyer for finding the mortgage. Ive dealt with a residential broker before and they have the lender pay their fee... Is this expected for commercial loans?

The fee is 3% of the loan amount.

Lucia Rushton · Answer

@Kyle Keller my understanding is those types of mortgage brokers are scams. Please research them and ask to speak to previous clients and research them.

Keep interviewing lenders until you find an honorable one.

Best wishes

Caroline Gerardo · Answer

Depends on your financial situation. You have multifamily/ office/ retail properties on IRS returns in 2019 and 2020? Your net income is strong? Your mortgage middle FICO is above 720? If you are experienced and the A type property you propose cash flows you don't need to pay 3%.  If you have kinks in your armour then 2.25% is standard rate which is paid at closing not up front and disclosed as buyer paid. If you are looking at a fixer B property and you have flaws three points may be what you need to pay to find the lender/investor who likes your combination of dings. There are a thousand commercial lenders out there- finding the marriage for you deal, knowing what to submit that the "desk" likes, writing the explanation that sings their song, and providing the 100 pdf's needed comes with experience. Is this person experienced and communicates well with you?

Caroline Gerardo · Answer

Deal direct, by email, get everything in writing, verbal means nothing. All reputable commercial lenders have their ins and outs in writing of every Underwriting detail. Do not pay for anything but appraisal upfront. Appraisals start at $3000 you may need two depending on the whole deal.

Kyle Keller · Answer

@Lucia Rushton

This is a good idea as well, I'll have to look into the vendors that have been suggested.

Scott Wolf · Answer

@Kyle Keller 3% definitely seems high.  What is the property value and the loan amount you're looking for?  1-2% AT CLOSING is more typical.  There are a lot of reputable commercial brokers out there that can help. I'd search for more brokers.

Brad Hayden · Answer

I've been following this discussion for a while and thought I'd throw my two-cents-worth in. Full disclosure -- I am a commercial mortgage broker so I may be a little biased, but when someone asks why they should use a mortgage broker, I always respond with a few questions:

• How many deals have you underwritten in the past 6 months?•	How many lenders or commercial loan officers have you talked to in the past 6 months?•	Are you up-to-date on the current lending environment and all the options that might be available to you?•	Does your project have any unique issues that might make financing difficult?• Do you have the time and resources to complete detailed underwriting, prepare a comprehensive loan request, and manage communications and deliverables with multiple lenders?

I'm also an investor. I understand that buying a commercial property requires a significant investment and comes with inherent risk. To help mitigate those risks, we pay attorneys, accountants, contractors, and other professionals (mortgage brokers) for their time, effort, and specialized knowledge.

Final point -- I've been doing this for almost 10 years and have never once asked for an upfront fee. I get paid at closing. If I don't get you a loan, I don't get paid.

Jameson Sullivan · Answer

Brokers can be very useful. I would recommend speaking to a few, especially if you have a funky deal you're trying to fund. If you go to the local bank or CU, they are going to try to fit you in their "box" and if you don't fit, they can't help you... Going to a broker allows them to search for the lender with the best boxes to fit you in and a lot of time there's 10's of millions in funds out there that you never would have know about... That said, 3% is pretty high fee - how big is the loan?

Ronald Rohde · Answer

Brokers can be useful, but as noted, just be wary of any upfront fees. I say pay the toll on your first deal, then decide on the next one if you need to

Joel Owens · Answer

In the retail commercial space 1% of loan amount paid at closing WHEN IT FUNDS and DISPURSES is typical. It can be less when loan amounts get into the tens of millions or higher.

I never pay anyone, anything upfront EXCEPT when sending in lender deposit to verified lender. In commercial real estate fraud is rampant for loans.

Many years ago there was rampant fraud in residential and then all those short sales and foreclosures happened. There were lots of federal regulations put in place from the fall out so most of the fraudsters closed up shop and moved into the less regulated commercial space.

There are lots of so called point takers that are not really capital markets mortgage brokers just go betweens. Just remember this... If a capital markets mortgage broker feels strongly about a lenders ability to fund and close they will wait to get paid until closing. If they think 50/50 chance they might take some money upfront. If they think small chance they might want most of their fee upfront. Make sure you have aligned interests because if mortgage broker doesn't get paid until closing you bet they are going to heavily vet any lender to work with otherwise they get nothing for their time invested.

These tips are not foolproof but help weed out the fraudsters. Also if you can't find pictures of the person, can't do video calls with them, etc. (they are hiding behind a curtain) then that is a major red flag.

Fraudsters LOVE to get 10k to 20k or more out of buyers upfront because they know chasing them in court would cost a ton of time and more money so most write it off. Example putting 500 hours trying to collect from a deadbeat fraudster for 10k could cost someone 1 million in production time for income or their business.

My lenders I work with them because we have trust and they have never re-traded a deal and close on time.

If a loan sounds to good to be true it likely is. On rare occasion you can sometimes find a lender entering an asset class and wants to gain market share and so they will go above and beyond for rate and term to get initial business going but that is a small window that closes over time because eventually as they gain market share they bring more inline with what others are offering but still being a little better to keep being the top choice.

No legal advice given

Kyle Keller · Answer

@Caroline Gerardo

Awesome, will do! Good to know about the appraisal... Makes sense

Paying a mortgage broker a few to find the mortgage?

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