Rates, Fees & Loan Programs:  

Commercial and other non-residential funding and loan programs have rates that are "all over the board". Points and fees charged are similarly, widely waried. If we must get you really “hard money” financing, the rates could be higher than those below. Conventional, institutional, commercial financing rates can be much less. It all depends on the borrower (credit, assets, down payment, experience, etc) and the intended use of the funding. If you qualify for an SBA loan, or for financing from a major conventional, commercial lender, the rates could be significantly lower. Getting the best rate, terms and fees for any particular funding request requires knowledge, hard work and dedication. You will not find any company that is more dedicated or professional than Quest Funding Services.

1 Point = 1%

Points:

One of the most confusing terms to many borrowers is “points”. But, they are easy to understand. One point is one percent of the mortgage amount, when it refers to a fee and a full one percent when referring to interest rates. Thus, a one-point fee on a $100,000 mortgage is $1,000. Two and a half points = $2,500. If we say that a 5% rate for an owner-occupied home loan would be 1.5 points higher for an investor borrower, the rate would be 6.5%. That’s all there is to it.

Do NOT confuse the above points, called “discount points” with “basis points” that are bantered around when discussing changes in interest rates or bond yield. Basis points are, each, 1/100^th of a percent. Thus, if someone says that an interest rate or bond yield s increased by 50 basis points (often called “bips”), the change is an increase of one-half percent in the rate.

Why Are There Points? Points are charged for two reasons. Sometimes they are paid to reduce the rate and are called "Discount Points". Sometimes they are the broker/lender fee and are considered an "Origination Fee". Sometimes they are charged for both reasons. Brokers are paid by the lender, the borrower or both. This flexibility allows a broker to manipulate the rate and fees so that they both meet the borrower's affordability needs, in terms of settlement cash required to be paid from the borrower's pocket, and in terms of the monthly mortgage payment the buyer must pay thereafter. 

Recent residential rules changes have "changed the nature of the game" somewhat: The Good Faith Estimate now shows a only a gross broker or origination fee and the charge or credit (discount) from the lender. As usual, good intentions of the government, to increase disclosure, have resulted in a disclosure that may be harder to understand. These changes do not affect loans that are commercial and not controlled by RESPA/TIL regulations. As a general rule, paying one extra point will reduce the rate by about 1/4 or 3/8 of a percent. But, that varies from lender to lender and also with time. 

How Many Points Are Normal? For residential loans, points usually range between 0 and 3, or a bit higher.  When average rates are quoted, the assumed points are usually about 3/4 of a point. But, it varies from day to day. If cash is a problem, a borrower can ask for a higher interest rate so that there are no points charged or, even, a credit back into the borrower's pocket. On a residential loan, that would be considered a broker contribution. But, again, the new GFE is a bit confusing because the amount the lender will be paying could appear to be a fee from the borrower to the broker. 

For commercial, alternative and hard-money funding, the range can be from less than one to over 10 points. It will vary with the loan type, the borrower, the loan size, etc. The most important thing is to have your broker or lender disclose the fees early. DON'T leave this hanging or you could get an unpleasant surprise at settlement...with no recourse, and no "high authority" to turn to!

Commercial & Hard Money Funding: 

Commercial and Hard Money rates run the gamut from just over the US prime rate to 20% or more depending upon the borrower’s credit, financial strength & experience; the type of property and present or projected use; the exit strategy &/or cash-flow; the amount of down payment, loan term, type of documentation and a number of other factors. Conventional commercial loans have rates of less than 10% in most cases. That at, or near, the bottom end for hard money. Fees, also, vary widely. It is best to discuss your funding needs with us so that we can determine what type of funding is appropriate for you. 

Specifics of Hard Money Loans, including Bridge Loans:

These, primarily, are loans funded by private investors. Hard Money loans, typically, have terms of 6 months to about 5 years, though some hard money lender terms are limited to 2 years or less. Bridge loan terms can be as short as a few months, and "max out" at a year, sometimes longer. Rates and fees are higher than for conventional commercial loans. However, when the circumstances require these loans, they fill a gap not covered by more traditional lenders. 

Note that it is possible for you to qualify for a hard money loan and NOT actually be able to get the loan from a particular lender. Each loan is generally matched with a particular investor and, if he already has lent out all of his available funds, you may have to look elsewhere. There is no third party for most alternative lenders to approach, for more money, when they are 100% lent out. (See our comments about 100% hard money loans in the hard money section.)

Construction Loans are a different sort of game. See the notes on our Hard Money and Commercial Funding web pages.  Also, you can read over the basics of construction lending HERE.

SBA LOANS are made by individual banks according to the guidelines of the US Small Business Administration, and are guaranteed by the SBA. There are two main programs that provide operating capital for existing businesses or fund the startup of a new business or the purchase of an existing business. Business plans are important, as is proof of experience in the specific field or proof that experienced operators "come with the business" or will be brought online. Rates, fees and minimum down payments can be very reasonable.

Residential Mortgages:

These mortgages refer to conventional and government loans on 1-4 unit properties. The government loans are only for owner-occupants, but conventional financing will fund loans for investors, up to 4 units. These mortgages are all strictly controlled by RESPA law, as well as state mortgage regulations in most states. (It is to avoid these strict regulations that most commercial and hard-money lenders will not lend on 1-4 unit residential properties.)

Conventional, Government (FHA/VA, Rural Housing)

(We are an originator for the above loans traditional, residential (usually owner-occupied) loans for Mega Financial Network, LLC of NJ, but only in NJ and FL. We must tell you that any rates or loan details quoted for those type loans are for qualified borrowers only. Ask for details...)

Conventional & FHA/VA loans finance the purchase, or refinance, 1-4 family homes. Conventional loans allow the purchase of more than one property. Officially, it is up to 10 properties, but most lenders finance only 4-6 properties. They may limit how many you can own & finance and limit how many that particular lender may finance. Properties owned “free and clear” do not enter into these limitations. FHA/VA loans require that the property be owner-occupied, so only one can be financed at any one time.

LOAN LIMITS: Conventional loans have a limit, $417,0000 for a single-family home and higher limits for multi-unit properties or for properties in a few high-limit areas. The VA loan limit, if the borrower qualifies for the loan and payment, is now the conventional limit. While VA loans are available with no money down, the veteran is welcome to pay, in cash, for any part of the purchase price which exceed what his income will qualify him for. FHA loans have county limits and the highest limits are a fraction of the conventional limit. With the current mortgage crisis, both conventional and FHA fundss may be available for loans that exceed the standard limits. Ask us about the current limitations.

Mortgage Insurance: Residential loan Mortgage Insurance allows for loans with less than 20% equity or down payment by insuring the top part of the loan. If a lender experiences a loss when one of these loans goes bad, the insurance covers that loss. VA and FHA loans have an initial mortgage insurance fee (Funding Fee & Upfront Mortgage Insurance Premium, respectively) and FHA and conventional mortgage have a monthly insurance premium. VA mortgages have no monthly mortgage insurance premium. The VA Funding Fee is slightly higher if the veteran has had a VA loan before; and disabled veterans pay no funding fee. Depending upon the initial down payment, the monthly mortgage insurance fee may drop off when the equity reaches a certain percent of the value.  Note that this insurance is NOT the same as mortgage insurance that pays the mortgage in the event of borrower income loss, or the death of a borrower. The former type of mortgage insurance only protects the lender.

Rates on conventional and government-backed residential loans vary with the bond market because these loans are securitized…turned into mortgage-back securities or bonds. These compete with traditional bonds and the stock market for investors. Thus, as the stock market goes up, so do interest rates. This is because the price of these bonds must go down, when the stock market goes up, in order to pull investors away from the stock market. Why? Because the yield (profit) on bonds goes up when the price of the bond drops. Because these mortgages are backed by the above-referenced securities, and the yield is paid out of the underlying mortgages, the mortgage rate must go up when the yield does. In simple terms, look for residential rates to, generally, go up with the stock market. Unfortunately, the rates go up more, and do so more quickly, than they drop with a declining stock market.  As stated below, this is a rule of thumb, but not an exact mathematical correlation.

RESIDENTIAL INTEREST RATES RULE OF THUMB: This varies with time, but you can get an idea of the average conventional rate, with a 10% down payment (owner-occupied) and 3 points, by adding about 1.5% to the current yield on 10-year US treasury bonds. For each point you want to save, the rate will increase by about one-quarter percent. Rehab, cash-out refinance and investor loans will increase the rate, as will poorer than ideal credit scores and multi-unit properties. FHA/VA loans had been, for several years, closely tracking conventional rates, but are now as much as one-half percent higher.

By the way, when the Federal Reserve modifies the Federal Discount Rate (or the Fed Funds target rate) it affects what it costs banks to borrow from the government or from each other.  This may affect home equity loan, credit card and some commercial rates...It does NOT necessarily have an effect on residential mortgage interest rates. Also, there is no government requirement that forces lenders to lower their rates because their cost to borrow goes down!

Rural Housing (RHA) loans are the successor to the old “Farm Home Administration” loans. These allow no-down payment loans to persons in rural and many suburban areas. You do NOT need to be a farmer, but there are housing and income limits depending upon family size. In recent years, these limits have been increased so that many families can now get an RHA loan, when they might have been considered to have too much income previously. These can be NO-down payment loans and the seller can pay most or all of the borrower’s closing costs.

Swap Rates & Indexes: Swap indexes are an alternative to the prime rate or bond yield in determining commercial lending rates. The interest rate will usually be between 1.5 and 3 percent, higher than the index that is closest to, but shorter than, the desired loan term. Not every lender offers rates based on these indexes. However, when available, these rates can be favorable. Interest rates based on swap rates have risen in the present financial crisis, but still tend to be competitive with rates based on the prime rate or bond yields.