When deciding to work with a lender, are rates your only consideration?

Question

Hi BPers! I am trying to gauge investor's mindset when selecting a lender to work with. Would your only consideration be how competitive the rates are or would there be other factors that might persuade you to work with an alternative (this is assuming up to a 75 bps or 1% difference max)? Thank you!

Ben Firstenberg · Answer

In my experience, it depends a little bit on what you're doing.

When you're first getting started, typically all you care about is the monthly payment and the leverage. Interest rate is obviously a big factor in that.

Then when you're getting a little more sophisticated, you might care about some of the terms like prepayment penalty, DTI requirements, amount of paperwork, ease of application... in short you're looking for someone who's easy to work with.

Then once you've gotten pretty sophisticated, you're probably starting to get a lot more into the terms. You might care about recourse/non recourse. You might care about their certainty of execution. Maybe you want interest only periods, or floating rate debt or amortization other than 30 years. Some commercial lenders (CMBS typically) will offer high leverage and good terms, but they'll change the deal every day up until closing as interest rates move and their own exposure changes. Other lenders will offer less favorable terms but will "Lock in" your rate when you sign the term sheet.

I think interest rate is always important, but as you get more sophisticated, other factors emerge. Hope that helps!

Brayden Hrycko · Answer

Hey @Hanah Frickers, As an LO, I hear clients that are worried about rates but most importantly they really want to look for an LO that will pick up the phone for them, explain products in detail, and give them solutions to problems they might not even know they have. Its important to reach out to several lenders/LO's and interview them. Pick someone that you feel has your best interest in sight.

Chris Seveney · Answer

@Hanah Frickers

That’s a huge factor if they can approve the loan and fund the loan when needed

Also have to check other costs associated with the loan.

Tim Delaney · Answer

There is much more to borrowing than only the rate. You have to consider any points and origination fees the lender is charging, the amortization term, and most importantly how they are to work with and whether they will do what they say they are going to do. I've heard horror stories about lenders that either change the terms or pull out all together just before closing. So for me that trust factor and knowing the person I am working with is going to go to bat for me with superiors and underwriters at the bank.

Hanah Frickers · Answer

@Ben Firstenberg thanks for your input! I have seen that too. First timers are not as creative or do not know what options there are both in terms of financing and investment opportunities. Which makes sense for them to focus on what they do know; that the numbers need to work.

Hanah Frickers · Answer

Thank you @Chris Seveney! Would you say you would have a margin you would be happy overpaying to be confident about the process and ensure completion?

When deciding to work with a lender, are rates your only consideration?

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