Mortgage Brokers - Commission / Structuring Fee

[Ahsan Usmani]

Hi - I plan on doing my first apartment deal in DFW area this year and I am currently researching various banks and mortgage broker for Commercial loans. I have contacted couple of Mortgage Brokers and they told me that they charge a structuring fee of 2.5 - 2.7% of the financed amount (payable at closing). I want to know

- How much typically Mortgage Brokers charge? Is it common for them to charge a commission / fee of 2.5 to 2.7% of the financed amount?

- Is there any downside of using a Mortgage Broker for getting a Commercial Loan (besides paying them commission / fee)?

[Joel Owens]

What is the SIZE of your deal?

For example in commercial many mortgage brokers have a minimum fee of around 10,000. So if a borrower comes to them wanting to buy something at 700,000 and a loan of 500,000 then they would only make 5,000 charging a 1% fee. The small loan would be hard to source as not many lenders want to fund small loans. Not enough interest rate return spread on it to be worth their time and hard to sell off the note because location of property and quality size of property not that many buyers want the mortgage.

So in that case paying 2% on a 500,000 loan might be normal.

If your loan is really small then most local banks and credit unions might want that type of business. They usually do not like the really big loans as too much portfolio exposure in one property. Sometimes lender will do participation loans where if loan is 2 million they each put in 700k plus on a primary first note mortgage so limit exposure versus putting in the full 2 million.

2.5 to 2.7% for a mortgage broker fee on a 1 million plus deal is very high. You mention a (structuring fee). If the mortgage broker is lining up a financial backer if you are undercapitalized to guarantee the note and other type items then that may be providing more value than a usual list of items a mortgage broker performs.

No legal advice given.