Financing quote from a bank -- is this good???

Question

Hi,

I am purchasing a multi-family unit for $175,000. Here are the loan terms I received from a bank, please let me know if this is good in current market. This is a commercial loan.

Interest Rate fixed for 5 years = 4.9%

At the end of 5 years, the rate fixes again for another 5 years

Loan term = 20 years

Loan amortization = 20 years

Down payment = 20%

Location = York County, PA

No pre-payment or refinance penalty and no balloon payment.

Account Closed · Answer

Terms seem pretty good, especially the interest rate- some people are not even getting this rate on residential loans! As Andrew said, check what the rate adjusts to after the first 5 years- you'll want to make sure there is a ceiling (e.g. no higher than prime + 1). Also find out what the loan fees are.

Saran Mandhadapu · Answer

Thanks all for the feedback.

After 5 years, the rate fixes again for another 5 years based on Wall Street Journal Prime + 3 %. He quoted me 5.3% for 5 YR Fixed, I am negotiating the rate down to 4.9%.

He also said he can give me 5.9% for 10 YR fixed but I am planning to choose 5 YR fixed. There is a difference of $70 per month in payments between 5 YR and 10 YR which equates to $4200 for 5 YR.

The Origination fee is $1000 and doc fee is $200 for the $140,000 loan amount.

Gino Barbaro · Answer

it's fixed for 10 years.

Go to other banks and entice them with all the demand deposits you will bring to them as a result of these deals.  I know you can get better than 4.9.  I understand right now they don't want to go out that long due to interest rate risk, but 5.9 for 10 yrs is too high.

Saran Mandhadapu · Answer

Hi Gino, watched your and your partner Jake's youtube videos last few days and were very informative. This is my second deal. For my first deal that I closed in Dec 2016, I called more than 7 banks local to the property, most of them are small banks. Most of them had 25% down payment or had fees for refinancing elsewhere within the first 5 years.  For second deal I called few more banks. I did find one bank offering 25 YR amortization, but their interest rates and fees were high and their down payment was 25 years.

For my second deal I chose the same bank that financed my first deal. He is offering me 4.9% 5 YR fixed (or 5.9% 10 YR fixed), 20 YR term, 20 YR amortization, no refinance fees, no balloon, origination fee of $1000, doc fee $200 for a $140,000 loan amount.

So with your deal, how long is 4.4% rate fixed? Is it fixed for 10 YR?

Gino Barbaro · Answer

@Saran Mandhadapu

Hi Saran,

Have you shopped the deal to other banks.  Let them fight over your business.  And is this your first deal.  As a first deal, the terms are not bad.  I would ask for a 25 yr amort.  You may be able to get the rate down a bit.  The loan would balloon after 10 years.

Our community bank has given us these terms: 25 yr amor, 4.4% rate, 10 yr term.  We have done some very sizable deals with them and have a bit more leverage.

Gino

Saran Mandhadapu · Answer

Thanks for the feedback Marc.

Saran Mandhadapu · Answer

Yes. The bank sent a bid for appraisal and will choose the lowest bid. Title and insurance is something that I shop around. There are no environmental surveys for this property. This bank and all the banks I called (10 banks) only offer a maximum of 20 year amortization. But they only take 20% down payment. The 5 YR fixed rate is 4.9% and 10 YR fixed rate is 5.9% (these are negotiated rates).  I am not sure how you got 4.6% interest rate after the rate increase by Fed in December.

Marc C. · Answer

For such a small loan size, I think it's a great product.

Ralph R. · Answer

@Saran Mandhadapu  Theres more costs than that with the loan.  Appraisal, tittle insurance, possibly a hazmat survey, an appraisal evaluation fee, etc. etc.  the amortization period is short too.  I  pay 4.6% (I think it went to a little over 5% in December) 25 year amortization, 25% down and fixed for 10 years.

RR

Financing quote from a bank -- is this good???

Most Popular Reply