Understanding the Broker Borrower Agreements On Commercial and Residential Loans

Gary has some great insights on the ins and outs of a borrower broker agreement.  In California you are not obligated to any binding agreement until finalized loan documents are signed and the loan is funded.  However depending on where you go you may find that things can differ from place to place.  Some key questions you may want to ask your Broker are:

1. When I get a loan for a house how much will I need for a down payment?

2. Can I I still get a home loan if I have a credit score under 600 or a few credit challenges?

3. How can I understand the agreement between a borrower and a Mortgage Broker?

4. How much does a mortgage broker get paid and what is your commission or salary?

5. Where can I get an easy loan or are some loans easier to qualify for than others?

When interviewing a mortgage broke the most important thing is to “trust your gut” I always say.

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When you’re borrowing money to purchase a home to live in. the lender will always look at your ability to pay down the loan. The lender wants to know that you’re earning enough money to make the monthly payments. If you’re financing to buy commercial properties, however, the lender is less concerned about your earning ability.

Because commercial loans are non-recourse loans, the ability of pay down the loan lies on the property’s own earning potential. Because of this, financing for the purchase of commercial properties is more complicated than it is for residential properties. You usually have to work through a broker or loan officer to obtain the finance. The broker or officer will act as the middleman and put you in touch with the lender. To protect both parties’ rights, the broker is likely to require that you sign a broker-borrower agreement. There are some terms and clause you need to understand about the broker-borrower agreement:

Term of engagement: The term of engagement indicates how long the broker will provide you with the services. It usually takes 4-6 months for the broker to locate a lender for you. If the broker could not locate a suitable lender, consider terminating the agreement and find another broker.

Exclusivity clause: Like many business agreements, exclusivity clause is one of the clauses that the service provider uses to protect his business from his rival. By agreeing this clause, you can’t retain any other commercial lenders or brokers during that period.

Non-circumvention clause: Similar to exclusivity clause, under this clause, you are not allowed to exclude your broker in the deal and dealing directly with the lender.

Loan acceptance terms: These are the basic criteria your broker negotiates your deal with the lender. Be careful what you ask for, instructs the broker to find what you really want. If the broker finds the loan that meets your terms, you may be obligated to pay the service fee regardless if you finally close the deal.

Retainer fee: Most of the brokers will ask for the retainer fee to cover the early stage expenses and tied you to the contract. Most of the fee is not refundable; make sure you pay the reasonable amount. For very small commercial transactions, you can negotiate for less or no upfront as small transactions are less complicated and require less work.

Cancellation clause: This clause specifies the conditions under which you or your broker can cancel the agreement. Make sure you understand the condition and protect yourself from any economic loss if the broker doesn’t deliver what it is required in the agreement.

Other terms and clauses: In addition to the above terms and clauses, the agreement also contains the compensation details include the compensation amount and under what condition the compensation is paid. You can also state the frequency of communication you required. The broker is required to report and communicate the progress of the loan and other related issue in a regular basis, for example, in every seven days.

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