I have the same conversation about three times a week…
- “The buyer wants an 80% LTV loan with zero prepay, non-recourse.”
- “They NEED max cash-out, but they absolutely will not guaranty the loan.”
- “Get me the absolute best rate on the longest term possible.”
In a borrower-friendly market like this one, lenders do have to get creative to win their fair share of the business. Fewer great transactions and still stringent underwriting means that loans on good properties get a lot of competition these days.
But, too often, borrowers and their brokers will forget that lenders are in the business of making good loans and making them profitably. Each lender has its own box, and while they’ll tend to stretch that box a bit for a deal they truly want, some things are non-negotiable for them no matter how great the opportunity.
Here are 5 tips for getting the loan structure that is truly right for you:
- Hire an experienced mortgage banker with high-quality correspondent relationships active in the subject’s property-type and deal size.
- Separate your Needs from your Wants. Be forthright with your mortgage banker.
- List your absolute Needs. If you cannot sign a personal guaranty (due to partnership structure, trust restrictions, etc), tell your mortgage banker the why. If you plan to sell the asset on a schedule, tell your mortgage banker the when. If your main focus is net cash flow, say so. If you need a certain amount of dollars to make the transaction work for you, let us know.
- Be flexible; the initial structure you have in mind might not be available for a particular property or situation, or it might not truly be the best structure for you after all. Your mortgage banker ought to be a trusted partner to help you make the most informed decision for your situation. If your adviser isn’t listening, see item #1 above.
- Finally, if a loan offer works for your business plan, act on it as quickly as possible. Remember that a good loan is not like a gallon of milk you can pick up anytime/anywhere on your way home. A good loan is a limited-term business contract which is subject to change until it’s binding on the parties. Markets change, sometimes rapidly, so execute the loan application as soon as you’ve found a structure that works for you.
TL/DR Summary: trust your experienced mortgage banker as a member of your team and move quickly on their recommendation.
Vice President / Managing Director – San Diego