Commercial & Residential Loan Financing

There is a huge difference between commercial loan financing and residential mortgages. Mainly it’s this-the government is watching out for homeowners and not so much for the commercial investors.

Beginning January 1, 2010 residential lenders were supposed to toe the line regarding disclosure rules. The new law, one of a number of responses due to the mortgage real estate meltdown, requires mortgage lenders to submit to borrowers new good faith estimates which cover loan fees and settlement charges. Investment loans are not bound by these rules nor are property loans other than one for a home you plan to live in.

According to rules issued by the Department of Housing and Urban Development, the estimates the lenders provide must be the same or very close to the actual charges. Imagine that. There is though, a ten percent margin for error. If the charges at closing are outside of that margin allotted for error, the lender must absorb the excess. Do you think there might be a way around this?

No more last minute charges or at least none unsuspecting buyers weren’t made aware of. Remember, this is not commercial financing. Residential only. Business loans, commercial credit loans are exempt because there exists a confidence that investors are smart enough to figure these estimates out for themselves.  Not homeowners though. These low ball offers presented to the masses , a product of the past decade, were commonplace until right before funding, when borrowers had no choice but to fork over more money.

So how are lenders getting around this Good Faith Estimate rule? Have you ever heard of a mortgage worksheet? No? How about a loan scenario? No, you say? Well, you’re liable to run across some of these attempts to circumvent the new rules as lenders vie for your business. Anything other than the binding Good Faith Estimate is not a legal document and carries no weight for lender responsibility.

As I said, Good Faith Estimates are not required in commercial loans because buyers and sellers are assumed to be more experienced than the average residential buyer. No RESPA either for commercial loan financing.