When you work in commercial real estate financing you will find yourself having to constantly explain to your clients what the pros and cons are of seeking funding from a bank versus private funding. These factors need to be taken into consideration by clients when deciding how to fund their purchases.
Real Estate Financing Through Banks
To get the best possible mortgage rates, most people turn to a traditional bank. Yet getting the best rates may also mean committing to a significant down payment. It can also be difficult to get a mortgage with a low credit score. The income verification process with banks is extremely unforgiving. These are some reasons why your clients may prefer to turn to a private lender. Other reasons include the amount of time it can take to get a mortgage from a bank and the fact that they charge high penalty fees for prepaying the loan off.
Real Estate Financing Through Private Lenders
Banks make you meet certain requirements to take a loan. But when working one-on-one with a private lender, this usually isn’t an issue. The borrower and lender can reach an agreement on the terms of the loan, which are generally in favor of the borrower. This is a faster way to obtain money than by going through a bank. It also helps avoid expensive closing costs and other fees typically associated with commercial real estate transactions.
However, the trade-off is that a private lender may impose high-interest rates on the borrower. As a short-term loan, a private lender will expect to be paid back in full long before a bank would. They want to know the return on their investment will be high, and this is one way to ensure that it will be. To get a loan from a private lender, it is almost always necessary to show them proof of how much the property is worth.
Anyone still needing help when it comes to finding a way to finance a commercial real estate purchase can contact Aspen Capital Solutions.