What are reasonable rates and terms for loan?

Question

I'm in the negotiation process on the purchase of an office. Looking to pay 100k or less. I have great credit, enough income to cover monthly payments. I plan on buying this to rent out.  So far I've been told they will not do under 100k, and the rate and terms that I have been quoted from another is 8.5% for 5yr. ARM after that it goes to a T. Bill rate + 3 1/4%. Also when I asked about an 85% LTV, which I thought was 85% of the VALUE of the office. But she say's it's 85% of the cost.  Shouldn't that be called an LTC. Another Quote I received was similar to that. And others I haven't heard back from yet.  This seems a little redicullous. Is this typical of commercial loans? Does anyone have better sources for a better loan and terms.  Any help would be appreciated. Thanks

N/A N/A · Answer

I have had pretty bad experiences with commercial lenders because they can do so many sneaky things.  I won't even go into all of that, but you haven't mentioned the cost of the loan.   What kind of points are they charging?  That's another important factor to consider.

PS-I would go fixed, not an ARM, even if it costs more. No lockouts!  Try to get the loan to be assumable, it's a great selling point down the road with a good rate like that.

Jim Gordon · Answer

Residential lenders can be just as bad. I am working with a client that qualifies for a VA loan right now he found a lender on his own that wants to charge him a 1% origination fee and do a .25% rate bump. The mortgage broker would put about an extra 2k in their pocket if he hadn't brought the worksheet to me. It seems a shame that we can have people go and risk their life come back and want to buy a home and get ripped off by unethical people in the industry.

Benjamine Larson · Answer

Re: a personal loan
Due to the size of the loan, it might be a good idea if you can arrange one.  Would get you past some of the issues already discussed regarding this particular deal.

However, you might be giving up important tax benefits by using a personal loan, as well as the fact you would probably be faced with a much shorter amortization period for a personal loan than might be obtained for a loan on the property.

I would assume you would be wanting to refi ASAP so you could pay off the personal loan.
If your plan was/is to resale the property ASAP, then the personal loan might avoid a costly prepayment penalty associated with most commercial loans...

Good Luck!

Jim Gordon · Answer

I doubt that you could get a personal loan at 6.5%. You may be able to get a HELOC for 100K and use that to finance your commercial venture. Another way to do it if you are looking long term is a cash out refi to come up with the monet it would normally give you a lower rate over the long term.

N/A N/A · Answer

Yes I was just reading up on that. the only problem is we just purchased our house 10 months ago and we have only about 35k equity in it. Thanks though.

N/A N/A · Answer

Thanks for your reply. My credit score is in the mid 800 range. If I could get a personal loan for that amount at around 6.5%, maybe that would be a better way to go. What do you think?

Benjamine Larson · Answer

Several quick comments.

1) Since it takes about the same amount of work to underwrite a $1,000,000 commercial loan as a $100,000 one, very few serious commercial lenders will make such small loans.  Most will not consider a loan less than $1,000,000.  Those that do usually limit the loan to $500,000 or more so below that amount and your choices become very limited.

Below $100,000 is almost impossible so if you have any offer at all you had best consider it and not burn any bridges as it might be your only offer....

Small to medium sized local banks might consider the loan because they can basically do what they please but any national lender most likely will not.

2) To understand certain definitions.  LTV mean Loan-to-Value which I am sure you know and understand.  However, except for Hard Money Lenders that (might) lend on the ARV (After-Repair-Value),  most lenders make their loan based on the Purchase Price or the Appraised Value (WHICHEVER IS LOWER).

If you consider either the Purchase Price or the Appraised Value is in fact the true value of the property, then this will make sense.

In the event one can purchase a property for less than the  appraised value, the lender might actually allow the use of the appraised value if one can produce a good reason why they are getting the property for such a lower cost.  If the lender does not agree with the situation, then they will consider the purchase price as the true value of the property.

3) Based on what information you have provided so far, 8.5% for 5 years is an excellent offer and you should stop reading this NOW and make arrangements to accept the offer.....