Mortgage Rates Newsletter - Market Analysis

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

Mortgage Rates Lowest Since Halloween
Wed, 20 Nov 2019 22:09:28 GMT - Mortgage rates are in the midst of a winning streak of moderate size and duration. Specifically, rates have improved by at least an eighth of a percentage point for the average lender since the beginning of last week and have moved lower on all but one of the days between now and then. That brings them to the lowest levels since October 31st. As far as rate rallies go, that qualifies as just a bit longer than average and just a bit better than average. Notably, it comes at the expense of weaker rate momentum for nearly the entire month of October. In the bigger picture, however, rates are staggeringly lower than they were this time last year. Despite having risen from multi-year lows in September, we're still in a very solid ball park. In the coming weeks, we'll be watching closely for signs
Mortgage Rates Hold Steady
Tue, 19 Nov 2019 22:13:06 GMT - Mortgage rates had a great week last week and haven't done anything to jeopardize that so far this week. Today was the first time during these 2 weeks where rates have merely held steady as opposed to move lower. The recent winning streak requires a caveat , however. It was largely made possible by the losing streak that preceded it. But if we're going to play that game, we could just as easily say that the losing streak was largely a reaction to the even bigger winning streak that's characterized most of 2019. The takeaway from the back and forth above is that rate momentum can often adhere to considerations that are almost like the laws of physics (you know... equal and opposite reactions?). Generally speaking, the longer and stronger any given move has been, the more likely it becomes that
Lowest Mortgage Rates in 2 Weeks
Mon, 18 Nov 2019 21:51:26 GMT - Mortgage rates added to last week's improvement with another modest drop today. That brings the average lender to the best levels in exactly 2 weeks--a welcome change after hitting the highest levels in more than 3 months on Friday November 8th. US/China trade relations have been a key source of volatility , but markets are also eager to see how economic data unfolds as 2019 draws to a close. The combination of a phase 1 US/China trade deal and reasonably resilient economic data could push rates much higher and confirm a rising rate trend for the next several months. Conversely, if the trade deal looks shaky and if economic data deteriorates, rates could take another run at the long-term lows seen in early September. This isn't a narrative that will play out today, tomorrow, or even any time
Much Better Week For Rates, But Bigger Picture Risks Remain
Sat, 16 Nov 2019 00:06:01 GMT - Mortgage rates finished the week in much better territory compared to last Friday. Today only added modestly to that move, but the simple act of moving in a friendly direction feels like a major victory after coming toe to toe with the highest rates in more than 3 months (last week). There weren't any obvious reasons for today's meager gains. In fact, the underlying bond market was slightly weaker on the day (which usually implies higher rates). But lenders were still getting caught up with the week's previous bond market gains and thus managed to overlook the contrary cues from the market. In the slightly bigger picture, this week can be seen as the bond market's way of saying it's not quite ready yet to embark on a panicked race back toward higher rates . The question remains: is that sort
Mortgage Rates Are Actually LOWER This Week
Thu, 14 Nov 2019 21:57:29 GMT - Mortgage rates moved lower again today. Whereas it was a bit easier to be dismissive about recent improvements, they're starting to add up at this point. Granted, we're not talking about anything other than a return to the rates seen on November 6th, but for anyone who was rate shopping at the end of last week, that's a welcome change. As if often the case on Thursdays, there is a major discrepancy between much of today's mortgage rate news and what I'm telling you here. Specifically, whereas I'm telling you rates are lower today and as low as they've been in more than a week, the average major media outlet is saying rates are HIGHER this week. As usual (at least when it comes to rates on Thursdays), I'm right and they're wrong. Actually, I'm right in a timely way and they're right if the goal
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.

 

Privacy policy | Sitemap | Terms of use

© iWantaBetterMortgage.Com | Suite 261 631 N. Stephanie Street Henderson, NV 89014

Better Business Bureau