Finding the best mortgage lenders can be difficult. When you type mortgage lenders into your search engine, you will see page after page of results. With the thousands of mortgage lenders available, finding a lender is easy, but finding the best lender for you can be a difficult task. With every lender claiming to have the best programs, how can you determine which programs really are the best? Let us take a look at the different types of loans available and what you can do to ensure the lender you are talking to is going to be one of the best mortgage lenders for your individual scenario.
Table of Contents:
- Full Doc Loans (Conventional conforming, High Balance, Jumbo)
- Fix n’ Flip Loans
- Alt-QM/Non-QM Loans (Bank Statement, No Doc Investor, Asset Depletion, Foreign National)
- Commercial Loans
- Hard Money Loans
Full Doc Loans:
Full Doc Loans are your typical loans provided by most banks and major lending institutions. They typically take around 30 days to close.
These loans are going to typically require the following:
- 1 to 2 years tax returns
- W2’s if you are not self-employed and 30-days’ pay stubs
- Financial statements, e.g. brokerage statements, 401k statements, mortgage statements for any properties owned, etc.
- DTI calculation (Debt to Income is your current monthly debt obligations vs. your income. 43% is the typical number you will see as your max DTI, though some lenders will allow up to 50% and some as low as 35%. It will all be based upon the individual lender and your individual scenario.)
- Letters of Explanation for any negative items on your credit report, any credit checks within the last 60 to 90 days, and any past credit events, such as bankruptcy, foreclosure, etc.
- Typical items for most loans, e.g. Driver’s License, Soc. Security card, 1 to 3 months bank statements, Homeowners insurance, etc.
Primary Residence Purchase/Refinance Conforming Loan Amounts
Purchases or Refinances of your primary residence is where you usually are going to see the best rates. As of 5/20/2020 Mortgage News Daily has the average 30yr fixed rate at 3.04%! For top tier borrowers, the best mortgage lenders are currently down in the high 2’s on rate. Now is definitely the time to refinance your home if you have the ability. If you have a second home or vacation home, you can typically get similar rates. Some lenders may tack on a small increase to the rate for these, but it’s usually minuscule.
When shopping for a full doc loan, here are some things you want to look for to narrow down the best mortgage lenders for your scenario:
Do your tax returns substantiate the monthly payments you will be making?
Do you make $100k per year, but after write-offs have an adjusted gross income of $65k? This is going to make a very big difference in the size of the loan the banks will give you. Keep that in mind when you fluff up those numbers at the end of the year. Different lenders have different guidelines on income that may or may not be counted. If you are a business owner and have K1 distributions, a property owner with rental income, investment income from stocks and dividends, etc., some lenders may count more of that income than others. Many banks that hold the loans and do not sell them on the secondary market may have more flexibility as everything is in house and exceptions can sometimes be easier to get if needed.
If your tax returns do not substantiate the loan amount, you may need some sort of alternative financing, which I will go over below. Just because you think you make enough for the loan; some banks may not agree. If you are turned down by one bank, do not give up. Keep shopping around with alternative lenders and you may find a bank or lending institution that can meet your needs.
Is the lender charging points?
Typically, you will not be charged points for full doc Primary residence loans, but that’s not always the case. You can also pay points to buy the rate down with most lenders. If you have the lender calculate your payment at the standard (par) rate, and the buy down rate, in many cases you will pay less in the long term buy buying the rate down. I typically see the break-even period for a buy down at 3 to 5 years. You will want to make sure that you are keeping the loan longer than this break-even period to realize your savings. Selling it before your break even period will actually cost you more with a buy down, so make sure you look at all of your options and know what your short or long term plan is for the subject property.
Here is a good example of how buying down the rate can actually benefit you:
If you are taking a loan for $500,000 for 30 years at a rate of 4%, your monthly payment would be $2,387.08. If you pay 1 point (1% of loan amount) to buy that rate down to 3.5%, the point costs you $5,000 and your new monthly payment is $2,245.22. Not a big difference, but if you take the difference of $141.86 per month and divide that into the $5,000 you paid to buy down the rate, you will get 35.32 months. This means that your break-even period is basically right at 3 years. What that means is that after that 3-year period you will be saving $141.86 per month versus what you would have spent with the higher rate loan. If you keep the loan for the full 30 years, that is a total savings of $45,962.64.
Keep this in mind if you plan on keeping your loan long term.
Can your lender perform?
Most lenders have their turn times listed on their websites. This is the amount of time it takes them during each step of the loan process. You might see Underwriting 24-48 hours, Loan Estimate 24 hours, Closing Disclosures, Loan Docs, Funding, Etc. A lender may have certain numbers posted, but it doesn’t mean they are always going to meet that numbers, and in some cases, they may rarely meet those numbers. If you check the lenders reviews and they have an abundance of negative reviews regarding turn times, you may be dealing with a lender that works very slow and can’t perform in the time frame you need.
When you are purchasing a home and have a contractual close of escrow date set, hitting your contingency milestones and closing the loan on time are very important and can get very costly for you as a borrower if not completed on time.
What type of property are you buying?
Most primary residences are SFRs (Single Family Residences), but residential homes are considered 1-4 units. You may want to buy a duplex to live in one side and rent out the other for extra income. Each lender has their own guidelines regarding bumps to your rate based on the number of units.
Some lenders will not raise your rate for 2 units, but the vast majority are going to bump your rate on a 3- to 4-unit property. Some will have a higher rate bump than others, so find the one that gets you the best price. You may also run into issues if the property you are purchasing is in a very rural area or has over a certain number of acres of land. Make sure you double check with your lender, if the property you are purchasing has either of those features, to ensure that they can still do the loan for you.
Are you taking Cash Out?
There are a lot of variables when you are taking cash out of your property. This will typically lower the total Loan to Value (LTV) that the lender will allow. If you know you need a certain amount of cash, make sure that the lender’s guidelines allow them to go up the LTV you need. Lenders also will have caps on the amount of cash out you can take based upon their offered programs and the investors being used for those programs.
Many times, I have seen a lender say that they can do $500k cash out only to have them come back and say “Oh sorry, this program only allows $300k cash out.” You do not want to be 25 days into your 30-day loan when you find this out. It can be a real nightmare. Always ensure up front that the Account Executive double checks their guidelines and can get you exactly what you need.
Is your lender responsive?
Communication is key. It is the worst feeling to be in the middle of a loan with a lender who never answers or returns you calls. If it took the lender 3 days to respond to your initial inquiry, it very well might take them 3 days to respond to any questions you have throughout the process. When choosing a lender, make sure you choose someone who is professional and responsive. This can save you a lot of heartache and stress throughout the process.
Click here for more information on how to find the best mortgage lenders for Full Doc loans.
1-4 Residential Investment Property Purchase/Refi Conforming Loan Amounts
For 1-4 unit investment properties, you are going to lookout for most of the same things as listed above for primary residence purchases and refi’s. Rates will be higher for investment properties than primary residences, but you can still get some pretty decent rates for full doc investment loans. For well qualified borrowers with lower LTVs, the best mortgage lenders have rates down into the low 3’s for investment property purchases and refinances. If you want to pull cash out of your property it may be a different story.
With the current market, some lenders have temporarily suspended cash out on invest properties. Most lenders have substantially lowered the LTVs for cash out. The average that I am seeing at this time is between 60 to 65% LTV for cash out refinances. As stated above, make sure that the lender cap on cash out amount isn’t less than the amount you need to take out. Lenders that are still allowing cash out have, for the most part, substantially increased the rate due to current market conditions.
Hopefully once the country starts to get back to normal, you will see more investors coming back into the market, creating more competition, and getting rates closer to where we were back at the beginning of 2020. There is no guarantee that things will head back in that direction, so if you need the cash now, it may be better to take what you can get now than to wait for something that may not happen.
Primary residence loans are staying steady at the time being in regard to rates and terms, while rates and terms for investment properties are fluctuating daily. If you can’t currently get the terms you want, it may be a good idea to find a good lender or broker, explain what you are looking for to them, and have them contact you once the market gets closer to the rates and terms you are looking for.
Final Note
The bottom line is when searching out a lender for your full doc loan, make sure you do not just go with the first option you run across. Many sites list the top 10 or top 20 best lenders, but how do you know that is truly the case and what is the criteria they used to determine which lenders are the best? With a little due diligence, you may be able to find something better out there. Some lenders specialize in different areas.
There are currently lenders out there that will quote you 5%+ for a well-qualified full doc loan on your primary residence, while there are others that will quote you at 3.25%. If you can save just .25% on your loan, over 30 years, that can lead to a substantial savings.
Let’s look at an example:
On a loan of $500k at 3.5% and 3.75% the difference in monthly payment is only $70.36 per month. Over a full 30-year term, that is a savings of $25,329.60! I highly recommend that you search out multiple lenders or find a broker who already has a substantial network of lenders that they use. Many lenders have a wholesale and retail channel. Retail channels are direct to consumer and wholesale channels are for brokers. In most instances brokers using the wholesale channel can get discounted rates that are lower than what you can get by contacting the lender directly, so do not be scared to use a broker.
Full Doc Jumbo Investment and Primary Residence Loans
Jumbo loans are loan amounts over the conforming and high balance limits. These limits can differ by county, so just do a google search to see the limits in your area. Jumbo loans look much different now than they did 3 to 4 months ago. Pre-pandemic Jumbo loans were creeping down into the low 3’s and in some cases high 2’s on rate. Now I’m consistently seeing best case of low to mid 4’s. Jumbo loans could also be obtained with as little as 5% to 10% down and lender paid mortgage insurance up to $2.5 to $3 million. Over $3 million, down payments increase substantially. In the current market, I do see a few lenders advertising 5% down up to $850k to $1m loan amounts, but I have never personally worked with these lenders and cannot attest to their performance.
Many lenders have currently suspended their jumbo lending programs until further notice and most of the lenders I still see doing jumbo loans are requiring at minimum 10% to 20% down. LTVs for cash out are averaging between 55% to 65% from what I have seen. For Jumbo loans, you definitely want to do your research as there is a pretty big gap, across the spectrum of lenders, between the best and worst rates. As always, make sure you find the lender who has the best deal for you and can get it done.
Click here for more information on how to find the best mortgage lenders for Jumbo Loans
Fix n’ Flip Loans:
Fix n’ Flip loans are loans used to purchase and rehab a property to then resell at a higher value. The Fix n’ Flip lending market has been jumbled up quite a bit in the past few months. If you are an experienced flipper, you may notice that your old go to lender has substantially lowered their LTVs and increased their rates. Many of the well-known lenders for flipper loans have either done this or suspended their flipper loans indefinitely. Well fear not, I am receiving emails daily from lenders who seem to be stepping in to fill that gap.
Multiple lenders are still doing 80/100 (80% of purchase and 100% of rehab) with rates in the 8’s and 9’s. If your old lender is now telling you they will only give you 70% of purchase and 80% of rehab, and your rates have gone up to 10%+, it may be time to search elsewhere. Loyalty is an honorable thing, but when it comes to your hard-earned money you do not want to throw away and extra 10, 20, or 30 grand staying with a lender when there may be better options out there.
Here are some key things to look for when searching for the best mortgage lenders for a Flipper/Rehab:
What is your ARV?
ARV is After Rehab Value. Lenders are typically between 60% to 70% of your ARV. If you have a home you purchased to flip and your plan is to sell it for $1,000,000 upon completion, then your max loan amount at 65% ARV is $650,000.
If you find a lender who will give you 80/100 on a flipper loan and you are purchasing the property for $700,000 and doing $100,000 in rehab, then your total loan amount would be $660k + closing costs and fees. $700k * .80 = $560k + $100k rehab = $660k. With the same $1,000,000 sale price, a lender offering 65% ARV will not work, but a lender offering 70% will.
Make sure you account for this when working up your budget and searching for the right lender.
How is interest charged?
Lenders may charge Dutch or Non-Dutch interest. Dutch interest means that the lender is charging you interest on the full loan amount from day one. Non-Dutch interest means that the lender will only charge you interest on the funds already disbursed. This can make a substantial difference in the total amount paid back to the lender throughout the life of the loan. In my experience, the majority of flipper lenders do charge Dutch interest. Once again, make sure you account for this when writing up your budget.
What are the draw fees and how does the draw work?
Most lenders do a reimbursement draw. They will reimburse you the money after the work has been completed. If you pay your contractor $10,000 a new kitchen, you bring the receipts to the lender and they will approve the work done and then reimburse you the costs. There are some lenders who will advance the money to you, but I have not seen this very often. Many times, if lenders will advance you the money it is going to be based on your track record and number of projects done.
You also want to keep in mind what the lenders draw fees are. This could be a specific draw fee, inspection fees, wire fees, etc. Draw fees can vary substantially with each lender, so make sure you know what you are going to be charged. It is often a good practice to keep your draws to a maximum of 4 to 5 per project to avoid paying a lot of extra money in draw fees.
How experienced are you?
This is going to be the key factor in the rate and terms that you get. When flipping a house, your experience is going to far outweigh your credit and most other determining factors for a loan. If you have a buddy who has been flipping houses for years and you think you are going to jump right into the game and get the rates and terms he is, think again.
All lenders are going to vary when it comes to how much experience you need for their top tier programs. With at least one flip under your belt at or around the same value as your current project, you can usually see a substantial jump in LTV and rehab amounts that the lender will provide. Some lenders will consider you top tier with 5 flips in two years and some require as many as 20 in two to three years to reach top tier. Getting to a lenders top tier will typically allow you to put less money down, have better interest rates, and potentially lower the origination costs of the loan. Each lenders tiers are different, so make sure you know where you fit in their guidelines.
How many points are they charging?
Surprisingly, I have had many clients come to me to refinance out of their flip and they have told me that they paid 4 or even 5+ points!!! That is pretty expensive. Unless it is your first time and you have a poor credit score and a lot of hair on the deal, you should not be paying that much. In some cases, it is the lender charging too much, and in others it may be the broker getting greedy. A typical flipper loan will fall between 2 to 3 points. If you do multiple loans with a certain lender or broker, you may be able to get those points even lower.
How long do they take to close?
The Fix n’ Flip market is competitive. In many cases, you will want to have a fast easy close to beat out the competition. If you come in with the same offer as someone else, and you can close in 7 days compared to their 14-day close, you have a pretty good shot at having the winning offer. I have seen lenders close a flipper loan in 3-5 days and I have seen them close in 3+ weeks. Having a lender that can perform in a quick and efficient manner can make a huge difference in getting the properties you want. Losing a property with good profit potential can be frustrating.
Final Note
Flipping houses can be a good way to make some extra money on the side. It can also be a good full-time business to get into if you do it right. Make sure you know the above questions when you start your lender search. You will want to know all the fees the lender charges upfront and throughout the loan to ensure they fit into your budget and don’t cut into you profit.
If you become a proficient flipper and are churning out flips every 3 months, you will probably want to look for lower points as opposed to lower interest rates. It can also be a huge benefit to go down to the county building and get familiar with the persons in charge of permitting. Getting stuck waiting for permits can be a very costly nightmare. Knowing how the process works and being on a first name basis with the permitting office can help you prevent future headaches.
Alt-QM/Non-QM Lenders:
A Non-QM loan is a Non-Qualified Mortgage. This means that the loan does not comply with the CFPB’s current rules on qualified mortgages. (See Rule Here) A few of the loan types that fall into the Non-QM category are as follows:
- Bank Statement Loans
- Stated Income Loans
- No Income Investor Loans
- Asset Depletion Loans
- Foreign National Loans
There are many reasons you may need to use a Non-QM lender. Let’s take a look at each type and see what to look for when searching for the best mortgage lenders.
Bank Statement Loans
Bank Statement loans are similar to full doc loans. The main difference is that you will be using your bank statements as income in lieu of your tax returns. If you are writing off large amounts of income to lower your tax burden, then this is a good option for you. This type of loan allows you to use 50% up to 100% of your bank statement deposits as income. This will be determined by your business and typical overhead costs for your industry. You MUST be self-employed to do this loan and in business for a minimum of two years. If you own a side business for extra income and have W2 income, you can still use this type of loan with some lenders. This is a great loan for small business owners, realtors, 1099 contract workers, etc.
What to look when searching for the best mortgage lenders for your Bank Statement Loans:
Are points being charged?
Points may be charged on bank statement loans. Make sure that your lender or broker up front if points are being charged and how much they are charging.
What is the lenders DTI requirements?
Just like Full-Doc Loans, Bank Statement lenders will be calculating your DTI. You will need to know what percentage of your deposits the lender will count to determine your DTI.
What percentage of deposits does the lender allow?
Most bank statement lenders will default you to a 50% business expense ratio for deposits made into a business bank account. This means that 50% of your income goes towards the costs of running your business. In many cases, this may not be realistic. If you are a 1099 contractor and work for a real estate office, your overhead costs may be exceptionally low. Typically, you can provide a profit and loss statement and/or a CPA letter stating your business expense ratio. This will allow you to count more of your income if needed. If your DTI is low enough that you can use a 50% expense factor, then it may be easier to just leave it at the default. This will save you on time and paperwork. If you are using a personal and not business bank account, lenders will typically allow 100% of deposits.
What LTV will the lender allow?
Before the pandemic, bank statement lenders were going up to 90% of loan to value. That does not appear to be the case now. Many bank statement lenders are currently capping out between 65 to 70% of loan to value. This means you will need to bring in 30 to 35% down to purchase your property. I believe that we will see the guidelines for each lender start to creep back up to where we were 3 months ago as the economy gets back on track. Remember to make sure that the lender can get you the LTV that you need, and in the current market make sure to ask if they expect any significant changes in the coming weeks that could stop your loan in its tracks.
What is the interest rate?!
This is a big one. This can potentially save or cost you thousands if not tens of thousands of dollars over the life of your loan. Three months ago, I was able to get bank statement loans for my clients down in the high 3’s on rate. With the current volatility in the secondary market, bank statement rates have made very big adjustments. The absolute best rates I am seeing right now are in the 5’s. When searching for full doc loans, lenders tend to be very similar with their rates. When searching for a bank statement loan, lenders can be all over the place with their rates. You may call one lender with your scenario and get quote of 5.25% and then call another that quotes you at 6.25% and then another at 7.25%. Make sure you get the best rates available to you.
What programs do they offer?
Bank statement loans usually have 2 different options and some lenders offer a 3rd. 12- and 24-month options are the standard, but some lenders will allow just 3 months of statements. This will depend on their guidelines if they are funding the loan in-house, or their investors guidelines if it is not funded in-house. If you are coming up just short on your DTI calculation, you may be able to switch from a 12- to 24-month program, or vice versa, to bump your income up. Maybe you had better income the prior year, using 24 months could boost your monthly income. If you had better income this year, using 12 months could give you the higher income.
To get your income, the lender will take your total deposits over the 12 or 24 months and divide it by the same number of months. This will give them your average monthly deposits, which will be used to calculate your income. If the lender offers a 3-month program and your business has done very well in the last 3 months, this could also be a good option. When going with the 3-month option, the lenders are going to want a Profit and Loss statement. Some may allow a borrower prepared P&L and some may require you get it through your CPA.
Is there a prepayment penalty?
If your loan is for your primary residence, there will not be a prepayment penalty. If you are using a bank statement loan for an investment property, then there will almost always be a PPP. Make sure you find out the lender’s guidelines for the PPP. The typical PPP is 3 years. Some lenders may default to a lesser amount, but 3 years seems to be the standard. If you do not plan to keep the loan long term and do not want a PPP, most lenders will allow you to buy it down at a hit to the rate. Some lenders will allow you to lower the PPP at a small bump to the rate, while others may substantially increase the rate. Make sure you pick the lender that best fits your needs.
It’s always good to find out if your PPP is a HARD or SOFT prepay. A hard prepay means that if you pay off the loan early, for any reason, you will have to pay the penalty. A soft prepay means that if you sell your property during the PPP window, you will not have to pay the penalty, but if you refinance, you will have to pay it. Some lenders will do a combination of 1-year hard PPP and 2 years soft PPP. Always know what you are getting into.
Click here for more information on how to find the best mortgage lenders for Bank Statement Loans
True Stated Income Loans
Stated income loans are just that. You state your income on your loan application and the lender is, to some extent, taking you at your word. When searching for the best mortgage lenders for a stated income loan, you’ll want to look out for the same items listed above for bank statement loans. Lenders for this type of loan will want Profit and Loss statements and will almost always charge points of some kind. These loans are usually capped at 65 to 70% LTV. In the current market, many of these lenders are capped at 55 to 60% LTV. The benefits to these loans is that rates are comparable to bank statement loans while requiring slightly less documentation and you won’t be calculating all of your income and DTI based off of your bank statements, which can be a tedious process.
No Income Investor loans
No doc investor loans are loans that are given to an individual without calculating their income and are based solely on the income of the subject property. If the rents for the subject property cover the PITI (principal, interest, taxes, and insurance) and you meet the lenders credit requirements, then you are good to go. This is a great loan for investors as it only takes 2 to 3 weeks to close and rates are much better than hard money. If you currently have any 1-4 residential properties with a hard money loan on them, this could be a loan to refinance out of those higher rates. If your income is not very good, this is another good loan to use to pick up a rental property for extra income. These loans are for investment properties ONLY.
What to look for when searching out the best mortgage lenders for No Income Investor Loans:
What are the lenders DSCR requirements?
Debt service coverage is basically your rents divided by the PITI. DSCR requirement vary by lender but are typically between 1.0 to 1.25. If your PITI is $3,000 per month, and the debt cover needs to be 1.25, then your rents need to be 1.25 x the PITI. In this case 1.25 x $3000 = $3,750
What is the prepayment penalty?
This type of loan will always have a prepayment penalty. This can typically be bought down.
What term are you looking for?
This is not a short-term loan like a bridge loan. Most lenders offer 3/1, 5/1, and 7/1 arms as well as 15- and 30-year fixed options.
Final Note
This type of loan was becoming very prevalent before the economy shut down. Just about every lender that was doing these loans has now suspended or completely dissolved the programs. We are seeing some lenders slowly bring these investor loans back, but I don’t envision this getting back into full swing for quite some time if at all. The few lenders who have started this program again are doing so at much higher rates and in limited areas.
Click here for more information on how to find the best mortgage lenders for No Income Investor Loans
Asset Depletion Loans
For Asset Depletion Loans you should look out for each of the question noted in the above loans when searching for best mortgage lenders. The only real difference in the Asset Depletion loan is how your income is calculated. If you have $500,000 cash in the bank and $500,000 in stocks and bonds, the lender will use a calculation that gives you a pseudo monthly income for calculating your DTI. Lenders can vary on how they breakdown your assets into this income amount and many have worksheets that you can just plug your numbers into. This loan will just use your assets as income in place of your taxes or bank statements. Everything other than income calculation will be very similar with asset depletion loans when compared to full doc and bank statement loans. Some lenders will allow you to combine asset depletion with other real income you may have.
Foreign National Loans
I see many people get mixed up with foreign national loans. To be a true foreign national, you cannot live or work in the United States. If you are here on a work visa, you are a green card holder, or you have some sort of ITIN or social for tax purposes, then you would not use a foreign national loan. Foreign national loans have a lower LTV and higher interest rate due to the higher risk.
When searching for the best mortgage lenders for foreign national loans, here are a few things to look for:
Do you need translated tax returns?
Depending on what country the borrower is from and reports income in, the lender may require you to get a translated copy of one- or two-years tax returns. Make sure to ask this question up front as it can be a potentially time-consuming process.
Does the borrower own any other properties in the U.S.?
If you are purchasing a vacation home, this should not matter. Often, when foreign nationals purchase property in the U.S. it is for investment purposes. If the borrower is purchasing an investment property, most lenders will want to see a track record with proven experience that the borrower can operate and manage this type of asset. From my experience, 99% of lenders will not count properties in their home country as experience as there is no way for the lender to verify that they own the asset or its actual performance. No all lenders will require experience if they are putting enough money down.
What is the LTV limit?
As stated above, due to the higher risk, the lender will require the borrower to bring substantially more into the deal. The typical LTV that I have seen for foreign national loans is around 60 to 65%. I have seen lenders go to 70%, but nothing above that. Lenders with higher leverages for this type of loan may be out there, you will just have to do some digging.
What is the interest rate?
Rates can vary greatly with foreign national loans. I have seen rates as low as the high 4’s and mid 5’s all the way up to the 8’s and 9’s. Finding the right lender for yourself or your client can save you a substantial amount of many on this type of transaction.
Final Note
Foreign national loans can be a bit tricky, and dependent upon the asset type you are purchasing and other factors, hard money may be the only option available. Make sure you search out different lender to find the best deal as some are far better than others.
Whereas full doc loans are typically sold to on the secondary market to major government backed entities, like Fannie and Freddie, who have a standard set guidelines, Non-QM loans are typically sold on the secondary market to Wall Street, individual investors, and private funds. Because there are no standard guidelines between these private investors, each Non-QM lender may vary substantially in pricing and loan terms. Always shop around to find the best mortgage lenders for your specific scenario. When navigating the Non-QM market, I recommend using a broker as they may have already narrowed down the best lenders in this market and can save you a lot of time and effort.
Commercial Loans:
Commercial lending is still somewhat the wild west of lending. The vast government oversight that you see with residential lending is not nearly as prevalent in commercial lending. Due to this fact, lenders can get much more creative when funding commercial loans. While you may see certain standards throughout the market with different asset types, many private lenders, family offices, and non-institutional lenders can work up some highly creative terms to get you deal funded.
There are so many different types of commercial assets and such a vast amount of lending products to fund commercial loans, that I will not get too much into this asset type. My blog is already long enough! Realistically, when you are searching for a commercial loan, unless you already have a good relationship with a bank, I would suggest finding a commercial broker who already has a good relationship with multiple banks and family offices. Yes, you will pay for the broker’s services, but they may save you much more than their fee and will surely save you a lot of time and headache.
Commercial lenders can vary greatly in all aspects of the loan. When searching out the best mortgage lenders, make sure you do your due diligence. It can mean potentially saving thousands of dollars for most projects, or even millions for large commercial and construction projects.
Click here for more information on how to find the best mortgage lenders for commercial loans.
Hard Money/Bridge Loans:
Hard money loans are typically loans that close very quickly with very minimal documentation and have many good uses. When a borrower needs to close quickly to beat out the competition, they can use a hard money loan and refinance after they have purchased the property. If your 20 days into escrow and your lender suddenly can’t perform, hard money is a good way to save your deal and potentially protect you from losing your earnest money. If your credit score isn’t good, you aren’t able to achieve the required DTI, or your deal has some hair on it, hard money is a good option to use until you get to a point where you can refinance out into a lower rate.
Here are a few things to look for when searching for the best mortgage lenders for Hard Money:
What LTV does the lender allow?
You can see some pretty big swings with hard money lenders in all aspects of the deal. Some lenders may allow you to go up to 80% LTV and others may cap out as low as 60%. This will vary based on the asset type. Land loans are typically capped at 50% LTV.
What is the interest rate?
When dealing with hard money it is especially important to know who you are working with. The typical range that I have seen for hard money loans is between 7.99 to 10%. For land, special purpose assets, and 2nd or 3rd position loans, rates will usually jump up to between 9.99 and 11.99%. This is due to the extra risk involved for the lender. There are hard money lenders out there who prey on uninformed borrowers. I have seen people paying 13.99 up to 16.99% interest rates. Unless you have a horrible deal and extremely poor credit, you should not be paying that much. If a lender presents you with those terms, do not take them without doing some more searching.
What are the points?
Just as with the interest rates, make sure you are not getting reamed on the points. In my experience 2 to 3 points seems to be typical. Once you get above this, you may need to ask questions or look elsewhere. There are some cases where more points may be warranted and in those scenarios your broker or lender should be able to give you a good explanation. Truthfully, some brokers/lenders can get greedy.
I’ve had multiple calls from other brokers, who could not find a source for a deal, asking for assistance. When I ask them how many points they are charging, they tell me 3 points!!!! That means they are charging you 3 points on top of any other points being charged. This could be up to 5, 6, or even 7 points. That is ridiculous. If you are being charged that many points, your broker may not have a source and has started what is called a “broker chain” sending your deal to another broker who has a source to fund the deal. Try to avoid broker chains if you can as they can get very costly. If you do find yourself in a broker chain, negotiate with the brokers involved. Try to get the numbers down to something that is fair and makes everyone happy.
What are the lenders requirements and timeframes?
Some hard money lender can close deals in 5 days, some take 3 weeks. Some of these lenders may require appraisals while others may not. The documentation required for each lender will be different. Some may require P&L’s, some may want to look at your tax returns, and some may just need a loan application, a license, and a bank statement and you are good to go. Make sure you search out the best mortgage lenders for your specific scenario.
What type of asset do you have?
Asset type is going to determine many things when looking for hard money loans. Again, land is typically a much lower LTV and much higher rate. If somebody defaults on their loan, how many borrowers are lining up to buy a plot of land? Not as many as are ready to buy a home in a nice suburb to rent out or move into. The lender typically has to hold on to the asset for a longer period of time.
Other assets that can be exceedingly difficult to fund or find good pricing for would be gas stations, car washes, mobile home parks, properties that are in rural areas, and some industrial properties. For some of these asset types, you may need an environmental report completed which may be very costly. These and other asset types may be special use as well. If you own a strip mall, there are plenty of businesses who can come in and fill those spaces. If you own a car wash, you can’t rent that space out as anything but a car wash. When searching for the best mortgage lenders, knowing where your asset type fits into the scheme of things is key. It’s also important make sure that you search out lenders who can actually handle that type of asset.
Click here for more information on how to find the best mortgage lenders for Hard Money Loans
Recap:
I hope that this information has been helpful to you and assists your search for the best mortgage lenders. I will update this periodically with current market data to keep you properly informed. Make sure that you are well informed when you start hunting for a loan. A little knowledge can save you a lot of money. Please feel free to contact me anytime with questions or comments in regard to this information or your loan scenarios.
At Valor Lending Group, we keep our book of business filled with the best and most relevant lenders. We are constantly searching out new lenders with better terms and better pricing. Valor is partnered with over 100 different lending sources, so we typically have a lender for every scenario. We strive to provide you with the highest quality of service possible. Good luck in your search for the best mortgage lenders!
Check out our reviews here Valor Google Reviews
Here are some helpful links
