As fewer millennials are investing in traditional real estate, more people are investing in mixed-use properties. If you're considering how to shop for a mortgage for a mixed-use property, you need to keep in mind that no two mortgages ever look the same. You'll need to do a lot of research on the kinds of real estate that mortgages that are offered by the wide variety of lending institutions out there.
Here are some of the most important things to keep in mind when you're looking for your mortgage.
Ask About Rates and Fees
When you're shopping for any kind of mortgage, the cost is going to be the prevailing factor. For a mixed use property loan, lending institutions will have interest rates that they abide by. Contact several lenders to see if you're being quoted with the lowest rate for that week or that day.
Interest rates go up and down and if you happen to ask for a rate on a day when they've slipped down, your potential payment figure will be inaccurate.
Be sure you're on the same page when talking about your rates. There are fixed and adjustable interest rates. While fixed rates might be higher than the adjustable rate for today, there's always a chance they could go up. This will drive your monthly payments up and change your budget.
If you get a rate quoted for an adjustable-rate mortgage, ask if they can estimate how much your payments will vary. You should also ask if your payment will go down if rates do too. This is an important point that some lenders will hope you're not aware of.
All of this differs from the APR, which takes into account your interest rate as well as points, broker fees, and assorted charges. This will be expressed as a yearly rate, which may factor in the annual budget for your mixed-use space.
When you sign your loan, there are underwriting fees, loan origination fees, and broker fees to consider. While they might seem overwhelming, these fees are actually negotiable.
Down Payments and Private Insurance
If you're going to get a loan for a home, it's standard to have to pay 20% of the price as a down payment. As the lending landscape changes around the country, there are private lenders who are willing to lend for as low as 5% down.
If you're in the situation where you can't put 20% down, your lender typically requires private mortgage insurance. According to many top real estate blogs, this will protect the lender if you fail to pay or anything unexpected happens.
If you qualify for VA or FHA programs, you can negotiate smaller down payments. Down payment requirements for these programs vary because these programs aim to get everyone to qualify for a home.
When trying to qualify for a loan on a mixed-use space ask about the lender's requirement for your down payment. You may need to verify that the funds are available in advance. Check and see if they have any special programs for down payments.
For buyers who have a history of making money from mixed-use spaces, lenders might feel more comfortable with a smaller down payment. If your mixed-use space is for a business or a startup and you have a proven track record of making money on these kinds of spaces, show it off.
Negotiate for Your Deal
After you've gathered all of the information that you can get, let the negotiating begin. Lenders will offer different rates from day to day, even if your qualifications don't change. Check back often to see if things have changed.
Differences in price occur because officers get to keep some of the difference between price offered and what the bank requires. When you negotiate down, you're just making a cut back on what the broker is taking home. If one broker offers you a good deal, quote other brokers and see if they'll give you an even better deal.
To make sure you're not getting taken for a ride, as your lender or the broker you deal with write down all of the costs that are associated with your loan. If there are fees that don't seem pertinent or that you suspect could be negotiated, then ask about eliminating them. If they lower one fee while raising another, make sure you let them know that you noticed.
Ask if there are better terms available. It might require a higher down payment or slight adjustments on your part, but you could bring your payments way down with a little bit of effort.
If you are charged a fee for locking in a loan rate, be sure that the fee is refundable when you close. If not, seek out a different lender to work with and negotiate with them.
Fair Lending Is the Law
Remember that the law requires fair lending. The Equal Credit Opportunity Act protects lenders against discrimination. Speak up if you feel you're getting an unfair rate or suffer discrimination because of race, religion, citizenship status, age, or the kind of job you have.
Your lender doesn't get to dictate anything you do in your personal life. Make sure you're not being discriminated against for this.
For mixed-use mortgages that include residential aspects, the fair housing act applies as well. It prohibits you as a renter or protects you as a buyer from discrimination in any kind of real estate transaction. Sex, race, disability, religion, and familial status are all protected.
If you've been refused a loan or have been given unfavorable terms because of these characteristics, you can seek out help.
Learning How to Shop for a Mortgage Takes Time
When you're figuring out how to shop for a mortgage, you need to set aside enough time to do an adequate amount of research. Shopping for a mortgage in a rush means that you won't be able to balance out the potential rates that different institutions offer. Leave yourself time to look for what fits your budget.
If you're going to be leading your investment group into this venture, check out our guide to ensure that you make all the right moves.