As you begin to research and explore your options for commercial loans, it is easy to become overwhelmed with all of the information, terms and technical jargon of the industry. Many people will begin to simply skim through page after page of information and only really become focused when they see a number with a dollar sign or a percentage symbol. They look at these and assume that they can quickly determine the total cost by adding up just these few items. But you need to be diligent in your reading and learn as much of the terminology as possible to have a complete understanding of the terms that you are agreeing to and what it will all cost you in the end.
You will find that most lenders charge potential clients for the service of processing a loan application. This application fee is normally a flat rate and is nonrefundable even if you are not approved for the loan. There is also an origination fee which is the cost of actually processing the approved loan application. This is used to cover the clerical and administrative work that is need to get your loan processed and funded. Underwriting fees are charged to cover the cost of verifying all of the information that you submitted on your application. The lender uses this information to determine your creditworthiness and the interest rate that you will be charged. The closing costs are to cover the packaging of the loan, any professional services for appraisals or business valuation.
In some instances, lenders will not charge fees for specific tasks but they will charge a percentage fee for commercial loans. This is just another way of covering all of the administrative, clerical and professional fees associated with completing your loan. If this is the case with your lender you will want to be sure that all of the fees are covered by the percentage which can range from 1% up to around 5%.
It is true that your interest rate is very important because you will be paying that rate for the full term of the loan. First time borrowers are often shocked to learn that the rates on commercial loans can be quite a bit higher than on other loans. But this is because the risk associated with lending on a commercial level is greater.
Lenders are just like any other business and are working to make money. Never be afraid to ask a lender for the total cost of using his or her loan service. Knowing that you have a comprehensive list of all fees and interest will allow you to compare all of your loan offers on a fair basis. You will only be able to make a wise choice once you have the total cost and terms for all of your offers.
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.