Commercial mortgages.

An article by Gillian Muessig of www.avatarfinancial.com, a direct hard money lender.

The author is solely responsible for the contents of the article.

It should come as no surprise to any entrepreneur or real estate investor that going direct to the funding source saves time and money. The problem lies in locating direct sources for real estate purchase or refinance money.

The Internet abounds with websites, links, etc. purporting to be real estate equity lenders. In truth, almost all of them are brokers. They may specialize in real estate equity funding or they may offer a wide variety of business or commercial funding. The bottom line is, they are brokers.

 Commercial loan brokers are an important cog in the wheel of business finance. They deserve to be well paid for their services. Unfortunately, secrecy surrounding their fees, services, and relationship between borrowers and lenders taints the entire profession. Like insurance agents, commercial brokers are independent. They can represent any number of lenders. And they guard their list of lenders jealously. After all, knowing where to place a loan request to get it funded is how they make their money. Their knowledge is all they have to sell.

It is possible to do a search on the Internet for hard money lenders. But not all the companies you contact there will be legitimate. This includes some well advertised names.

Mortgage-investments.com has a free database of lenders and brokers. The difference between doing an Internet search and using the mortgage-investments.com database is that mortgage-investments.com has a policy of removing from their web site advertisers that generate complaints. This does not happen with companies you may find on an Internet search.

Not all the companies you discover, either on an Internet search or on the mortgage-investments.com database will be direct lenders. You’ll still get a few brokers in there pretending to be lenders. However, the more research you do, the more you will begin to differentiate between them. Call the lenders or email them. Fill out their online loan apps. NEVER give permission for your credit score to be pulled. NEVER agree to pay an upfront fee to have your loan reviewed. Some companies charge over $100,000 before funding and never fund the loans. They just keep taking businesses’ money and then saying that the loan could not be funded for one reason or another. So beware and ask questions before wasting your time with such scammers.

One of the most important ­ and simple ­ questions to ask is: “Are you a DIRECT LENDER or do you serve as a broker?” Be prepared to press the issue. Say, "I want to be very clear here. Are you investor funded or institutionally funded?" If the person you are speaking to doesn't know, you are speaking with a broker. Lenders know how they are funded. That little question alone can get you a long way to avoiding the added fees of unscrupulous brokers.

Remember, not all brokers are unscrupulous. If a broker can match you with the right lender and help you with the paperwork, they may well be worth their fees. But since you are paying those fees, you have a right to know when you are paying it and how much it is costing you. It’s your money; select your providers wisely.

Do expect to pay about $5,000 or even a little more for due diligence costs associated with coming out to see your property, getting acceptable appraisals, etc. You should expect to submit your request and get a response within a day or so as to whether the lender is interested in funding such a deal.

Once the lender expresses initial interest, you will be told what the lender needs to see to make a firm commitment. And you will receive a letter of intent. If you sign the letter of intent, only then, will you be asked to put down some cash to cover the due diligence costs. Finally, after the lender has reviewed your property, seen all the financials, appraisals, etc., will you get a final paper that says the lender is ready to fund. That sheet will carry the exact interest rate, points, etc. You will be ready to close.

The rest is up to you. If you are going to go direct to a lender without the aid of a broker, be prepared to present the documents necessary to get funded. Generally, you should be prepared to send photos of your property, inside and out, as well as the surrounding neighborhood. If the property is income producing, send last year’s and this years’ YTD financial statement showing the gross income, expenses, and net income.

The lender is going to want to see that you will be able to take the loan you are requesting, pay your bills, and still have a few dollars left in your pocket at the end of the day. If you have a recent written appraisal, include that right away. If the lender has a loan application on their website, download it and fill out what you can. The more you can provide, the faster your loan will be funded. And finally, don't be afraid to ask for help from the lender.

Lenders want to fund you. They are willing to be of assistance and no question is too silly to warrant asking it.

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