Mortgage Rates Newsletter - Market Analysis

Provided courtesy of: http://www.mortgagenewsdaily.com/reports/mortgage_rates/archive

Mortgage Rates Maintain Recent Lows
Mon, 19 Nov 2018 23:06:12 GMT - Mortgage rates unexpectedly dropped to their lowest levels in more than a month as of last Friday. That assertion is at odds with quite a few media reports that cited Freddie Mac's weekly survey data saying that rates were essentially unchanged from the previous week. This occurred because Freddie's survey only captures the first few days of any given week and most of last week's improvement took place on Thursday and Friday. As such, this week's Freddie surveys should reflect that nice drop in rates. How nice is "nice?" In absolute terms, we're talking about something slightly less than an eighth of a percentage point in terms of a typical 30yr fixed rate from the average lender. That's actually a fairly quick move relative to the average pace of mortgage rate movement. In any event, it's
Mortgage Rates Lowest in a Month
Sat, 17 Nov 2018 00:23:41 GMT - Mortgage rates hit their lowest levels of THE month yesterday, and the lowest levels in A month today. It's a bit of a technicality, really. As of yesterday, there were a few days in mid-to-late October that saw lower rates. Today's drop means we'd need to go back to early October to see anything lower. What's the significance of being at the lowest levels in a month? None, really. It's just really fun to be able to say such things in an environment where such things haven't been easily said for quite some time! Perhaps more relevant and more tangible is the fact that we can say rates are nearly an eighth of a percentage point lower on the week, and that's a decent move regardless of the environment. Next week brings the Thanksgiving holiday, which tends to make mortgage lenders set rates more
Lowest Mortgage Rates This Month!
Thu, 15 Nov 2018 23:00:05 GMT - Mortgage rates hit their lowest levels of the month today! Sure, that's only 10 business days for the mortgage world, but we'll take every little victory we can get these days. Why is that? Because "these days" have been pretty rough. Exactly one week ago, rates were at their highest levels in nearly 8 years. The assertion about today's rates runs counter to quite a few news stories. Major media outlets are reporting rates as being 'unchanged' this week. That wasn't necessarily incorrect until today. In those cases, reporters are relying on Freddie Mac's weekly survey data. The survey only collects responses from Monday through Wednesday and the results tend to over-represent Monday and Tuesday's rates on any given week. Long story short, as of yesterday, it would have been fair to say rates
Afternoon Mortgage Rate Improvements For Most Lenders
Wed, 14 Nov 2018 21:57:08 GMT - Mortgage rates began the day in roughly unchanged territory. Some lenders were microscopically stronger or weaker compared to yesterday, but not enough to impact the average mortgage borrower. For the first few hours of the day, it looked as if rates would stay unchanged or possibly move slightly higher. That all changed when stocks began losing ground. It's always worth remembering (and this will be especially true when the next time it's proven) that there's no magic rule that says stock prices and interest rates must move in the same direction. It is true that there are frequent examples of such correlation, but there are plenty of other examples where the correlation complete breaks down. All that to say that stock losses helped rates today, but will not always necessarily help rates in
Token Improvement For Mortgage Rates
Tue, 13 Nov 2018 21:50:38 GMT - Mortgage rates improved by what could only be described as a token amount today. In other words, we're not talking about any major changes. In fact, mortgage rates themselves will be unchanged from Friday for almost any scenario. As is so often the case, we can only measure the change in terms of "effective rates" (which take upfront costs into consideration). In general, changes in mortgage rates are reserved for big market moves whereas upfront costs and effective rates allow for smaller changes in the overall cost of financing. The bond markets that underlie mortgage rates were closed yesterday for the Veterans Day holiday. In the meantime, the stock market lost ground rather abruptly . At times, bonds (rates) will take cues from stocks--especially when the latter is making a big move lower
Commercial Mortgage Loan

Commercial Mortgage Loan

What to Expect when Applying for a Commercial Mortgage Loan:
Banks and Private Alternatives

If you have never borrowed money for your business before, you may be in for a surprise. Whether you want to borrow working capital to expand your business or leverage equity in a commercial real estate venture, you will soon find out the commercial loan process is very different from the more common home mortgage process. Commercial loans, unlike the vast majority of residential mortgages, are not ultimately backed by a governmental entity such as Fannie Mae. Consequently, most commercial lenders are risk-averse; they charge higher interests rate than on a comparable home loan. Some lenders go a step further, scrutinizing the borrower's business as well as the commercial property that will serve as collateral for the loan. This means that the business borrower should have different expectations when applying for a loan against his commercial property than he would have for a loan secured by his or her primary residence.

Following is a list of questions the borrower should ask himself and the lender before applying for a commercial loan.

1. How am I going to meet the loan repayment terms?

Typically, bank loans require the borrower to repay his or her entire business loan much earlier than its stated due date. Banks do this by requiring most of their loans to include a balloon repayment. This means the borrower will pay interest and principal on his 30-year mortgage at the stated interest rate for the first few years (generally 3, 5 or 10 years) and then repay the entire balance in one balloon payment.

Many borrowers do not save enough in such a short time frame, so they must either re-qualify for their loan or refinance the loan at the end of the balloon term. If the business happens to have any cash-flow problems in the years immediately preceding the balloon term, the lender may require a higher interest rate, or the borrower may not qualify for a loan at all. If this happens, the borrower runs the risk of being turned down for financing altogether and the property may be in jeopardy of foreclosure.

A balloon loan has other risks as well. If the borrower's business is in a "risky" industry at the time the balloon is due (think of the oil and gas bust in the 1980s or the telecom implosion of the 2000s), the lender may back out of all refinancing for the enterprise. Alternatively, a lender simply may decide its loan portfolio has too many loans in a given industry, so he will deny future refinancing within that trade.

Non-bank lenders generally offer less stringent credit requirements for commercial loans. Some non-bank lenders will make long-term commercial loans without requiring the early balloon repayment. These loans, which may carry a slightly higher interest rate, work like a typical home loan. They allow a steady repayment over twenty or thirty years. It is often worth paying a one- or two-point higher interest rate for a fixed-term loan in order to ensure the security of a long-term loan commitment.

2. How much can or should I borrow?

Most bank loans prohibit second mortgages, so the borrower should go into the loan process intending to borrow enough to meet current business needs, or enough to sufficiently leverage real estate investments. For a traditional acquisition loan in which the borrower is buying a new property, banks usually require a down payment of 20-25%. So for a $600,000 acquisition, the borrower will need to come up with $120,000-$150,000 for the down payment.

Some non-traditional loans will allow the borrower to make a smaller down payment, maximizing the loan-to-value (LTV) at 85-90%. Such loans are generally not bank loans, but are offered by direct commercial lenders or pools of commercial investors. If the customer wants to borrow the maximum amount possible, the interest rate on such loans may be a point or two higher than typical bank loans. Before deciding how much to borrow, potential borrowers should:

  • Evaluate how much cash they are likely to need
  • Analyze their ability to repay the loan as it is structured

Research has consistently shown that the number one reason behind the failures of most small businesses is the lack of adequate capital to meet cash-flow needs. Because of this it may actually be safer for a small business to leave a larger cushion against unforeseen events by borrowing more money at the slightly higher rate.

The amount of the loan requested has an effect on which commercial lenders will fund the loan. Small businesses borrowing less than $2,000,000 will visit a different pool of potential lenders than those seeking loans of over $5 million. Small business loans are generally made by direct commercial lenders (easily located by internet searches) or by small local banks. Larger loans are generally made by regional banks, and very large loans are made by mega-banks or Wall Street lenders.

3. How long will it take to get a commercial loan?

Borrowers generally start the loan process by contacting their bank. Unfortunately, it is difficult to secure business loans from most banks. Besides, bank loans:

  • Contain the most stringent requirements
  • Impose the most loan covenants
  • Take the longest time to secure the loan.

Bank loans go through several phases of review. First, they will look at your historical income statements, balance sheets and statements of cash flow. Then they will review 5 years of tax returns on the borrower and all owners who will guarantee the loan.

Generally, it takes several weeks before the borrower can get a verbal or written commitment letter from a bank. Even after the loan commitment, the bank's credit committee may veto the loan. The business will then have to start the process over with a new lender. If a firm has very good credit rating, a good relationship with its bank, a solid and confirmable history of earnings and profits, and is not in a hurry, a local bank will probably give them the lowest stated interest rate on the loan.

If you need to be pre-qualified quickly, you should shop for credit over the Internet or look at non-bank sources of funds first. Once you secure a commitment from a direct lender, then you may start a parallel process with your bank. Some direct non-bank lenders can give you a verbal commitment in a few days, but keep in mind that you are only searching for "commercial" loans-offers from Internet companies may often be for residential property, so you will need to screen your searches.

Keep in mind the parameters of the terms you will accept: Will you take a balloon loan? What about a covenant or condition on the loan?

If you know that your profit and loss statements are not provable and solid, or you do not have a high credit score, applying at banks is generally a waste of time. Instead, go directly to non-bank commercial lenders.

4. What kind of covenants and conditions are required?

Many borrowers are not aware that much more may be required than simply making regular monthly payments on time. Many loans ask you to provide quarterly or annual income statements, balance sheets and tax returns. Some loans will require covenants-promises that your business will meet certain tests in the future. They may require a certain positive cash flow, or a certain debt-to-cash-flow ratio, or other financial criteria. During a downturn in your industry or the economy, your business may face temporary cash flow or profit shortages.

If your business falls short of the terms and conditions contained in the loan covenants, your bank may deem that your loan has entered into default. Default triggers numerous penalties. It may require that you pay back the loan immediately. This can cause you to have to find another lender very quickly, or face foreclosure on the property.

Different lenders require different conditions, so ask the lender up front what conditions or covenants apply. Some non-bank loans charge a slightly higher interest rate but will waive all covenants and conditions except for timely repayment of the loan. If you feel that your business cash flow is uncertain, you might want to consider these non-bank loans first.

If your business does not have its financial statements certified regularly by one of the larger CPA firms, you may opt for a slightly higher interest rate loan. This may relax the reporting process or not require future covenants. Likewise, if losing your business or property to the bank is likely because of the financial test requirements, then find another lender. Ask any real estate developer who has managed to stay in the business for 20-30 years about the risks inherent with traditional bank commercial property loans; he will name many other developers who lost all their assets during lean times in the industry.

5. What kind of documentation will be required?

Traditional lenders require 3-5 years of financial statements, income tax returns, and other documentation. This may include:

  • Leases
  • Asset statements
  • Original corporate documents
  • Personal financial records of the business owners

Keep in mind that many small businesses do not have the level of income documentation some lenders require. If you ask ahead of time, it will save you numerous headaches from delays or rejected loan applications. The documentation required and the timelines for approval are related-the more information required, the slower the loan approval and funding process.

6. What if I want to sell the property?

If your business booms, you may want to repay the loan early or sell the property and move to a larger space. Commercial mortgages, unlike residential loans, usually have pre-payment penalties. However, some lenders will allow the purchaser of the property to assume the mortgage by taking over the seller's payments. An assumable loan is an excellent selling point, because it provides built-in financing for the buyer

7. What are the "hidden" or total costs of the loan?

The stated interest rate is often artificially low when one considers all the costs of a loan. Points, for example, are direct percentages of the loan that the lender deducts from your loan. If your interest rate is 9% with two points that means your real cost of the loan is 11%. The extra 2% comes right off the top into the lender's pockets. Other costs may include:

  • Legal fees,
  • Survey charges,
  • loan application fees,
  • Appraisal charges
  • Every item that will be charged against your loan or that must be pre-paid.

For some loans, these charges can be tens of thousands of dollars. They often must be pre-paid before the loan will be approved or rejected. You will need to know whether you are likely to be approved before spending money just to qualify for a commercial loan.

Other questions to ask

  • Will my interest rate go up if U.S. interest rates go up in general?
  • Is a fixed-rate alternative available?
  • Can I get a discount for paying your mortgage faithfully and consistently over a period of time?

Some lenders allow for decreases in the interest rates over time if you pay the mortgage on time. But if you want to refinance and repay your mortgage early, the lender may penalize you and charge extra interest. All of these details are important, and they can seem overwhelming.

Keep in mind how you expect your business to perform in the future and how you plan to repay the loan. Do not ignore worst-case scenarios. You do not want to be so optimistic about the possibilities that you lose sight of the fact that the lender may take away your business or livelihood if you do not meet all the terms. Sometimes the lowest interest rates represent the riskiest loans.

The Best Lender

When considering a commercial mortgage, borrowers should seek out lenders who are willing to fund the loan under acceptable time constraints, keeping in mind their general creditworthiness. Borrowers should look at both bank and non-bank funding in order to get their needs met in a timely manner. Asking questions and obtaining unbiased evaluations will reduce delay and frustration. Fortunately, new lenders have emerged to challenge banks on their traditional terms, so borrowers have more leverage now than ever before when seeking commercial loans. The best place to start is at iWantaBetterMortgage.Com.

 

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