Commercial Loan Terms

[Kelly M.]

Hi! I’m looking to refinance cash out of my three unit rental property.

I owe 140k and it’s appraised for 280k, so I’m looking to take out around 60k. Positive cash flow of around $1200 per month before refi.

My question is about the terms and “commercial fee agreement”.

1. The commercial lender took preliminary info about my credit score, property, cash flow, value, etc. He said everything looks good and I would likely be approved for a 3.75-4.25 rate with 10-20 year rate lock and 25-30 year amortization. This sounds great! Does it sound too good to be true? Which leads me to the next question:

2. The lender is requiring a $5000 "commercial fee agreement" before moving forward. It's basically a fee for them doing the underwriting. They get most of the fee ($3500) even if they don't provide a LOI or the LOI is not within the terms we discussed (above). So my second question is, is this fee normal? With no guarantee of a loan? I just pay them to tell me yes or no?

This lender was referred by my residential mortgage broker (who is also a friend). He says he’s never used them before, but thinks they are legitimate.

I also paid a fee with my previous commercial refi, I just don’t remember it being non refundable even if they can’t provide a loan.

Just looking for feedback on both questions above.

Thanks!

[Matty Foley]

@Kelly McMillan are you working with a commercial bank? It doesn’t add up for me.

1) The terms are FAR to aggressive for an investment property cash out refinance. I can’t imagine a scenario that they would offer you terms like this before underwriting. 10 year fixed is rare in itself for this asset type. Let alone 20, at 3.75%. Are any other lenders or investors seeing 20 year fixed rates below 4% doing a commercial loan? If so, the Bank is not going to be around very long

2) For a loan of this size, an upfront fee of that size is a big red flag. If anything you should be getting charged a a quarter point to full point origination fee due at closing. *Yes, for large deals an upfront fee does sometimes occur upon acceptance of the commitment letter; but it would be refunded as a credit towards the borrower at closing. The only reason the bank would keep the fee is if the borrower willfully decided to not go through with the loan. With that said, for large loans in the million + range, the upfront fee would be not much more than what they asked of you. Again, makes no sense to me.

It doesn’t have any traits of a typical commercial loan.