Choosing a mortgage lender
There are three main sources for obtaining a commercial mortgage: banks, third-party lenders, and commercial mortgage brokers.
Banks are the most common choice. They typically offer the lowest rates, but may only work with certain industries or purchases. They also require the most documentation and may charge more fees than other lending sources.
Third-party lenders (also known as hard money lenders) can provide mortgages more quickly and with less documentation. The money comes from private sources, insurance companies, or warehouse lines of credit. Third-party lenders charge a significantly higher interest rate than banks.
Commercial mortgage brokers don't provide mortgages directly. Instead, they investigate many banks and lenders to find you the right mortgage at the most competitive price. The broker fosters relationships with lenders so they can get you deals you might not be able to get on your own. Brokers also do much of the research and background checking which saves you the time and effort of shopping around.
However, broker service comes at a price. Unlike brokers for residential mortgages, commercial mortgage brokers receive a commission based on a percentage of the total amount borrowed in addition to your mortgage-related expenses. Brokers that specialize in specific industries may also charge more for services. If you have a reliable lender in mind, or you're willing to invest the time to do research, you can shop several lenders without paying broker fees.
Selecting the right lender
Consider the size and experience of each commercial mortgage broker. Businesses that offer both residential and commercial loans may be less expensive, but may not offer the same success rates and experience as a dedicated commercial mortgage company. Also, if a mortgage company has offered commercial loans for many years, it's usually a strong indicator that they provide solid service.
When looking for the right mortgage source, look for specialist lenders or brokers that focus on the types of buildings you're looking to buy. If you're purchasing an apartment complex, for example, a lender with previous experience working with apartment building sales may find you better mortgage rates and terms. It may cost you more, but the added guidance and time savings can make up for the expense.
Don't automatically work with the first lender a commercial mortgage broker matches you to. Make sure the broker provides you with three to five potential lenders. Then perform some due diligence of your own to find out about each lender's history, corporate stability, and lending policies and procedures before selecting one that best fits your interests. If possible, get references from those lenders and talk to those borrowers about their experiences to help make your final decision.
Lenders should be willing to negotiate. While mortgage rates are often non-negotiable, reliable lenders may be able eliminate or reduce certain fees to earn your business. However, don't shop on cost alone. If a lender can't budge on costs, but offers the best service from beginning to end, it may be worth the additional cost.
Avoid working with any lender that discourages you from shopping around. Reputable lenders want to earn your business by offering competitive terms and excellent service - not by preventing you from talking to competitors.
Finally, if a commercial mortgage broker already provided you a rate in writing, make sure to let subsequent lenders know. The lenders don't want to spend a great deal of time and resources processing lengthy paperwork if you are simply shopping around.