Private Mortgage Shopping
“Be Careful When Private Mortgage Shopping For Commercial Property Financing”
When it comes to residential mortgage options, getting quotes from multiple lenders is an acceptable industry practice, largely because the application assessment process if very straight forward for “A” credit type applications.
Some lenders will even accept multiple applications for the same borrower, submitted by different brokers.
But when it comes to commercial property financing, the unwritten rules of engagement are different.
For instance, if a commercial lender receives more than one application for financing from a borrower or business entity that owns a commercial property, they typically will assume that there are several other lenders being given the same information.
Because of the amount of work that can go into a commercial mortgage application assessment, many of these lenders will not consider the deal further if they feel that its being spread all around the market.
This is even more true with private lenders.
With private mortgage financing on commercial property, there are considerably less lenders available compared to private money for residential property.
And because most mortgage brokers don’t have direct relationships with private lenders, they send these requests into their network, many times working through other brokers, trying to find someone to help their client.
If more than one broker gets involved, there is a good chance that one private lender could end up getting several different applications for the same deal from the broker network.
When this happens, there is a good chance that the private lender will just decline the request and move on to the next opportunity as its pretty obvious that the deal is being broadly shopped around and they don’t want to waste their time.
The solution to this is for the borrower or client to control their own deal.
What this means is that if you want to work with multiple brokers and/or go to lenders directly, you need to make sure that you are aware of each lender that is being contacted and that the mortgage brokers you are using are not only disclosing where they are taking the deal, but are also made aware of where they shouldn’t be presenting the deal.
When the commercial property requirement is with a bank or institutional lender, this type of control is very doable.
But with private mortgage lending, its much more difficult due to the fact that private lenders that finance commercial properties are more rare and mortgage brokers are more apt to be protecting their sources and will not likely be prepared to divulge who they are going to take the deal to.
The only way around this is to provide short term exclusivity to one broker at a time.
Private lenders tend to show their interest in a deal pretty quickly and if a broker can’t get a term sheet for you in three to five business days, its likely that he or she does not have a direct lending source and is scouring the market for one.
If in a week or so the broker you are working with comes up with nothing, then its time to move on to the next one.
By taking this approach, if the second broker ends up taking to the same lender as the first broker, no harm is done because the lender did not express any interest in the deal the first time around.
The key here is for the borrower or applicant to manage their deal so that they don’t loose out on a private mortgage opportunity on a commercial property due to excessive shopping.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel