Evaluating your options when finding a Commercial Mortgage

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Securing a Texas commercial mortgage can be a daunting process. It is important for you as a borrower to understand the basic characteristics of the institutions that provide these loans.

Getting a mortgage to purchase commercial space can be a long process. Before you begin, know where you are applying and how the organization operates . Commercial banks, credit unions, conduits (i.e. Hedge funds) life insurance companies and hard money lenders are the most common originators of these types of mortgages. This article details the basic characteristics of these organizations so you can know where to apply and find the loan that is right for you.

Local commercial banks are more likely to lend to smaller businesses. They have specialized knowledge in the local commercial real-estate markets and have a vested interest in financing projects in their immediate area. Credit Unions are similar, but have only just recently become common providers for commercial loans. In either case before approaching a credit union or a local bank you should be aware of the conditions in your local real-estate market and thereby have a better understanding of the amount of money you need to borrow.

Conduits (hedge funds) are another common source of commercial financing. They securitize mortgages and sell them onto secondary markets. Therefore these groups are less likely to have an immediate interest the conditions of your local area. They finance expensive projects and usually the loans they issue are a minimum five million dollars. A distinct feature of loans issued by conduits is that they come with pre-payment penalties, as the loans they issue need to continuously generate income from your interest payments. Life insurance companies are similar, issuing mortgages to bolster their portfolios, they offer perhaps the lowest interest rates on their loans. However life insurance companies are perhaps the least likely to approve a commercial loan.

Hard money lenders widely vary, but usually charge the most in interest. However securing a loan from a hard money lender is often easier than getting a loan elsewhere. However the higher interest payments reflect a higher assumed risk on the part of the lender. Consider these organizations as a final resort should your application be denied elsewhere.

What does all this mean?

It is important to consider the characteristics of your business and to find an organization aligned with those characteristics when searching for the right mortgage provider. If you are a smaller business or organization you might want to go to your local commercial bank. If you are seeking to finance a larger project you should probably go to a “conduit,” or potentially a life insurance company in order to secure more funding. Hard-money lenders, charging the most in interest while providing the fastest approval process are probably the best option if you need to secure funding quickly, or if you cant secure funding from other sources.

Consider the scope of the project you are financing and find an institution of a similar size.

This is crucial, if you are seeking a smaller commercial Texas mortgage you don’t want to get bogged down in the slow impersonal process common to larger banks. However if you are seeking to finance a larger project you may need to go to a larger bank. Either way knowing the character of the institution where you are applying for your mortgage will help you find the loan that is right for you.

Dennis Dahlberg

Broker/RI/CEO/MLO
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.

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