The mortgage lending business is hyper-competitive and the primary goal of a mortgage originator is to convince you to apply for your mortgage with them. The mortgage originators come in all forms of experience, education, training, and affiliation, but foremost they are the sales people.
When consumers are looking for the right home loan or a loan for commercial real estate, they first look for the most skilled financial mortgage expert. In other words, they often choose the best salesperson and thus it is necessary for the consumer to get his homework done before hand so that you are not ensnared by his sweet talks.
Let us see how to get the right loan.
- Down Payment and Loan to Value Ratio: The LTV ratio compares the amount of your loan against the appraised value of your property. For commercial properties, you normally get loans up to 70-80% of the appraised value of your property. For home loans, this ratio can go up by another 10%. The remaining is the down payment, which you need to pay from your pocket. Actually, lower LTV ratio is better as it means you have more equity in your property.
- Cost and Loan Terms: Check the Interest Rates and the repayment schedule. Depending on the bank, the interest rates can be fixed, or they can vary based on the market. The repayment schedule also has a lot of impact. Normally for commercial real estate loans for income producing properties, the repayment schedule is either interest rate reset or balloon payment. Interest rate reset means the loan is typically a variable rate loan where you have a certain rate fixed for the first 1-5 years after which it can increase or decrease depending on the market.
- Clear Plan: If you are going for a commercial property, be ready with your plan to convince the lender on how and when the property will turn profitable. Once you are able to do it, things like your credit score and personal net worth become less important for high-end deals. For smaller deals under $3million and for home loans, banks closely examine the personal credit scores. Any rating above 700 is enough to get you the desired loan.
Keeping in mind these basic things you will be able to get the best deal available in the market.