Real Estate Investor · Portland, OR · Member since 2012 · 70 posts · 26 votes
What is a typical loan fee I should expect to be charged by a commercial loan brokerage firm for an apartment building purchase?
And would it be typical to be asked to sign a Financing Authorization agreement that has language that says "in the event the loan does not close" the fee shall be paid anyway within 15 days ?
I've paid as low as a half-point for loans over $15 million (for this particular broker a half point is their typical fee for loans over $20 million but since I was doing two at once I got a break), 3/4 to one point for loans under $15 million (all the way down to six figures). This is for loans originated without a lender charge--sometimes the actual lender will tack on as much as a point in addition to the point to the broker. This is more common with bridge lenders. Just be sure to ask the broker if there are any lender points.
I've never seen a hard-pay if the loan doesn't close. At least not up front--it's not uncommon once you lock rate, which is typically a couple of days before closing. I have seen exclusive arrangements though. This is where you are engaging this broker exclusively to find the financing, and if you find it on your own or with another broker, you still owe the exclusive broker their fee.
Every brokerage is different. Personally the only one I used asked for a 1.5% loan origination and no strings attached. I would be hesitant to take a deal that says I have to pay them if the loan doesn't close.
I've paid as low as a half-point for loans over $15 million (for this particular broker a half point is their typical fee for loans over $20 million but since I was doing two at once I got a break), 3/4 to one point for loans under $15 million (all the way down to six figures). This is for loans originated without a lender charge--sometimes the actual lender will tack on as much as a point in addition to the point to the broker. This is more common with bridge lenders. Just be sure to ask the broker if there are any lender points.
I've never seen a hard-pay if the loan doesn't close. At least not up front--it's not uncommon once you lock rate, which is typically a couple of days before closing. I have seen exclusive arrangements though. This is where you are engaging this broker exclusively to find the financing, and if you find it on your own or with another broker, you still owe the exclusive broker their fee.
Ditto @Salvatore Lentini - drop that loan broker like a bad habit. They shouldn't get paid until you get your loan.
I'll also add that there are now some newer online platforms for commercial loans that will charge you nothing, if they can get paid by the lender (not only bridge loans anymore). Otherwise, you shouldn't pay more than a point unless your loan is tiny (less than $500k).
For a 3.2 million loan, I'm being told there is 1.5% origination fee AND about $15,000 "legal fees". I asked if there are other fees, and was told all lenders have fees in addition to the origination fee, to cover lender costs for all credit reports, third party reports (i.e. appraisal, environmental study, property inspection report, zoning etc.), legal and processing fees (including travel costs).
We just sent in our LOI and it was accepted.
Looking at all the above fees, plus the transfer tax fees (substantial in my state), I'm looking at about $170K to $180K in closing costs! This seems very high and I'm wondering if I need to shop around a bit. But seems like most lenders will have similar fees?
@Steve D. 1.5% origination seems high and so does the rate for a 10 year floater but loans are priced on a variety of factors so perhaps there is a reason. Or perhaps you could get a better deal elsewhere. Hard to tell from where I sit.
But fees for legal and third party reports are common.
so here's an update to my original question..........
just closed on another commercial loan at .05% on a 20 unit. Large local bank. No legal fees tacked on, just the basic stuff and the appraisal. 2 years ago closed on a commercial loan at .05% on a 12 unit. Large nationwide bank. Same thing - minimal out of ordinary extra stuff tacked on. Soon closing on another one........negotiated down to 075%. Medium local bank. Have to pay for any reports out of pocket. So my consensus is anything over 1% is too high. $15k in legal blah blah blah. Shop around immediately.
@Brian Burke, thanks for coming to Seattle and sharing your knowledge with us last Wednesday. Its a small world as I was just researching this and your name popped up 2 days later.
I am doing my first Multi Family Commercial deal and everything is a learning experience but I want to make sure I am not getting taken advantage of. When getting down to closing, our loan broker is charging a 1% origination fee and the bank doing the lending is only charging .25% so total its 1.25% which is a large amount for a $986,800 loan or $12,335 with a $750 processing fee. I thought the .25% seemed too good to be true and now the 1% broker fee is added in of course and it is catching me off guard. I think its slightly high and also unexpected. What are your thoughts? This seems on the pretty high side of a normal range for this loan. Not buying down the rate at all. Just straight origination fees. Is 1.25% too high for origination fees? It seems on the high side to me....
- Local bank, no broker fees, but they want to dig into personal finances and the loan is recourse
- Freddie, Agency loans - non-recourse, better rates, lower down payment, but typically need a broker to access them. They always charge attorney fees in addition to the broker fees.
- I did find a Freddie/Fannie originator that you can go to directly and bypass the brokerage fee. However, the process was a mess. Poor communication, too many people involved and the seller was getting frustrated by all the delays. I saved the brokerage fee, but had a lot more headaches and an annoyed seller in the process. I don’t know if it was a poor rep or if the broker normally handles all the lender issues and you don’t see them.
Broker fees are negotiable, so maybe find a broker that is willing to reduce their fees.
@Brian Burke Is 1.25% too high for origination fees? It seems on the high side to me....
That’s not high at all. Broker fees are commonly 1%. Lender fees are typically 0% to 1%, depending on the lender. So 1% to 2% is common. I’ve paid 2% for a $20 million loan (bridge debt) so on a dollar basis that’s a big number! Most of my debt is 1% though...
Never just go hunting for the cheapest fee though! Compare what the broker charging you 0.5% has to offer vs what the broker charging you 1% has to offer. Sometimes it may be worth paying 1% if it means saving .25% in interest rate per year over a 5-10 year loan.
@Steve D. I'm late to the party. I've been a lender for 29 years, and now I'm a CRE mortgage broker. On a $3.2MM loan, $170k in closing costs does seem very high. Assuming you're paying 3% total to broker and lender, that's $96,000 in broker and bank origination fees. So, I could see closing fees, including the $15,000 attorney fees (which seems ridiculously high), being in the range of $30k, but not another $80k. Your broker should be watching all these costs and advocating on your behalf, especially on that 1.5% bank origination fee. That's crazy.