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There are some issues relating to financing a deal to which mortgage brokers should pay particular attention and that can indicate whether a client or lender is truly motivated to get the deal done.
In the late 2000s, property values and rents decreased and vacancies and expenses increased. Even in scenarios where the subject property's rents have held steady, lenders could have used now-declining market rents to underwrite the loan.
This combination resulted in lenders offering to renew maturing loans if the borrower brought in cash to close -- aka, the cash-in refinance. For instance, it's common for property-owners with a maturing $1 million loan to be offered a $900,000 renewal. In these cases, the lender may be highly motivated, but the applicant doesn't find the terms acceptable.
On the other side of the table, a client with a solid transaction who a lender's loan committee has just rejected will be highly motivated and can deliver a complete loan-application package, including the appraisal report.
You must find out why the lender turned the deal down, however. The lender may have suddenly changed direction and may no longer be accepting your client's property type as collateral or offering the promised loan program. But if the lender discovered that the applicant was being less-than-candid about the property or personal financial situation, that's important to know.
Business-owners who want to purchase their own property can be excellent clients in today's market and may be near the top of your pyramid. Property prices have decreased in most markets, and attractive U.S. Small Business Administration financing is available. In fact, owner-occupied purchases are keeping many brokers in business today.
Other highly motivated clients include those halfway through a U.S. Internal Revenue Code Section No. 1031 exchange. These clients typically don't hesitate to provide basic loan-application-package information. Brokers must ensure there is enough time to get the deal done because the deadline to close a 1031 exchange is absolute.
Property-owners seeking a rate-and-term refinance also likely are motivated, but these can still be tough deals. Many borrowers seeking to lower their interest rates already have loans at or below today's market rates. Special-use property-owners, for instance, may have loan terms such as 25-year loan amortization that now can't be matched. The same or even a lower interest rate with shorter amortization will not reduce the monthly payment.
Toward the bottom of the deal pyramid are property-owners who seek a cash-out refinance to buy more investment property -- when they find it. These applicants tend to stall until they've identified an attractive opportunity. Additionally, most commercial lenders today look long and hard at cash-out loans.
Look at the sellers
Many property-sellers don't understand today's market values. They may be asking for unrealistic prices, and as a result, their deals won't close. In a dynamic real estate market where prices and values are moving rapidly, buyers are looking ahead while sellers tend to be driving while staring in the rearview mirror.
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