There's a great deal of misinformation out there about real estate and investments, including a number of commercial real estate myths that can lead to uninformed decisions. In order to set the record straight on a few of these points, we’ve compiled a list of three the top myths circulating out there, as well as the accurate information you need to make sound decisions about your investments.
1. Myth: The best lending option is the one with the lowest rate
Investors should always look for a low rate, but they should also keep in mind that the lowest rates are typically only reserved for the most credit-worthy borrowers.
If prospective borrowers only focus on hunting for the lowest rate, they could struggle to get approved for a loan. Instead, investors should focus on overall value. As an example, borrowers who struggle to provide tax return documentation may find that a light doc loan with a slightly higher monthly interest rate provides the most valuable solution for their needs.
For many investors, the “best” lending option is one that offers the most flexibility. These borrowers are willing to pay a higher interest rate in exchange for a faster transaction process and more attractive options.
2. Myth: Banks are the only lenders that can offer attractive loan programs
If investors only search for bank lending options, they can miss out on benefits that can go a long way toward helping them achieve their financial goals.
Banks will typically offer the lowest interest rate, but their programs also include restrictions that can be quite limiting for certain types of investors. In fact, many investors fail to qualify for bank programs in the first place.
The truth is that investors who have a story to tell often prefer to work with alternative lending sources that are better equipped to meet their needs. Oftentimes, these needs are related to documentation difficulties or property issues that banks are typically not willing to overlook. In other cases, borrowers choose non-bank options because they need to secure funding fast.
Since every investor is different, there is no one type of program that best meets everyone’s needs. Therefore, it is important for investors to first identify their financial goals and then work to learn as much as possible about each of the lender options available. That way, they can make an informed decision that works best for their particular situation.
3. Myth: The commercial loan transaction process takes too long
The commercial mortgage process does take longer than that of a residential loan, but borrowers – especially those with smaller loan amounts – should not have to spend months waiting for their request to be approved.
Why does the process take longer? The primary reason has to do with the underwriting involved for the complex and unique property types in question – while all the houses in a given neighborhood may be quite similar, the commercial office, retail center, and warehouse properties in a 2-block radius may have little in common.
Communication is the key to expediting the commercial loan process. Investors can also take some time to learn what documentation a lender requires before they begin the submission process. That way, they can bypass some of the initial back-and-forth that can delay a transaction.
It is important for investors to realize that transaction length varies greatly depending on the lender and the type of property in question. In many instances, non-bank lenders can close deals in a matter of weeks, not months.
Before applying for any commercial mortgages or making a decision about an investment, it’s important to have the right information so you can make wise decisions about your money and your future. Contact us today to get the application started for your commercial loan.