Purchase & Construction Loan

[JCM]

Hi All,

I am wanting to know if it is common practise for Brokers to ask for a % upfront commission of the total loan.

I am currently looking for a development site to construct 3 units.
I left work to pursue this full time. I have $440K in a high interest account and $240K in my PPOR with no debt. I will not be able to show proof of income.

The project will cost a total of 1.2m of which I would want to borrow as much as I can. I have been informed by my broker that I could get 80% LVR, standard Low Doc Loan at 7% for 30yrs.

But because in reality it will be a short term loan as I plan on selling the townhouses on completion, this means that the broker will not make any money on the loan and would therefore need to charge me a 1% of total borrowings commission.

Is this common practise for brokers to do this?, and does the above sound like a reasonable deal?

Regards
JCM

 

[Rolf Latham]

Hi All,

I am wanting to know if it is common practise for Brokers to ask for a % upfront commission of the total loan.

I am currently looking for a development site to construct 3 units.
I left work to pursue this full time. I have $440K in a high interest account and $240K in my PPOR with no debt. I will not be able to show proof of income.

The project will cost a total of 1.2m of which I would want to borrow as much as I can. I have been informed by my broker that I could get 80% LVR, standard Low Doc Loan at 7% for 30yrs.

But because in reality it will be a short term loan as I plan on selling the townhouses on completion, this means that the broker will not make any money on the loan and would therefore need to charge me a 1% of total borrowings commission.

Is this common practise for brokers to do this?, and does the above sound like a reasonable deal?

Regards
JCM

Hi JCM

Dont know if its "reasonable". I suspect 1 % is cheap.

I personally would not do it for a number of reasons.

Understand, that in most scenarios, the short term loan pays no comm ( or is 100 % + clawed back) so the broker would be paying for your work.

ta
rolf

 

[Aaron_C]

Yes for commercial loans a broker will generally charge an upfront commission because there is a lot more work involved. Also, as you have properly identified, there is no trail and clawback of commission is a real killer.

As for the deal itself, it sounds alright. But for a construction loan interest rate is pretty irrelevant. 80% LVR is good but is that for all hard costs?

 

[Peter_Tersteeg]

When you're turning over properties such as you're suggesting, the bank will take back the commissions paid to the broker. As a result the broker will likely want to charge you for their services.

I've done this myself on a few occasions. I also put in writting that if I don't get a clawback from the bank within a certain period of time, I'll refund 110% of the fee charged.

Brokers need to be paid just like everyone else. If they don't like your terms, they can turn down the work. If you don't like their terms you can deal with someone else.

The deal you describe sounds reasoanble at up to 80%, but it depends on the lo doc circumstances. In some cases it may not need to be a commercial loan and could fit under residential policy.

 

[Mick C]

80% low doc at 7% construction is pretty decent- no complaints here!

Also note the 1% charge can be added to the loan, ie borrowed in most instance.

Regards
Michael

 

[JCM]

How to source a Mortage Broker that specialises in a certain field?

Thanks for the input guys.

I guess my next question would be, that with so many brokers out there, how does one go about sorting the wheat from the chaff and find a Mortgage Broker that is very knowledgeable in a certain field, in my case its multi development sites and also one that can give you all the info upfront with no hidden agendas.

I guess it would also be important to be to meet up occassionally and therefore would need to reside nearby!




Regards

 

[Marty McDonald]

Nothing wrong with a broker charging but be careful of upfront fee scams is all I would say. Pay on sucess only ie when you get the funds.

 

[Rolf Latham]

Nothing wrong with a broker charging but be careful of upfront fee scams is all I would say. Pay on sucess only ie when you get the funds.

The "scam" often goes the other way too though

ta
rolf

 

[Marty McDonald]

The "scam" often goes the other way too though

ta
rolf

....heh????

 

[Aaron_C]

Thanks for the input guys.

I guess my next question would be, that with so many brokers out there, how does one go about sorting the wheat from the chaff and find a Mortgage Broker that is very knowledgeable in a certain field, in my case its multi development sites and also one that can give you all the info upfront with no hidden agendas.

I guess it would also be important to be to meet up occassionally and therefore would need to reside nearby!

Talk to one who's done it all before. I think tobe here specialises in construction loans so maybe contact him about it. He's in Melbourne too.

 

[Rolf Latham]

....heh????

obviously you haven't been at the blunt end of how some of these transactions turn out

You spend 10 to 30 hours and more, and if u are unlucky you get taken out............for zero rtn, because

1. the lender has cut you out
2. the borrower has decided that with all this new knowledge they can do it better and save a bunch of fees
3. The poject was dead to start with, and the DA was never going to get off the ground
4. Vals are were unrealistic to start with and the feaso was loaded

etc etc

Doesnt happen to me anymore, but I bet every broker has a story or 3 just like that.


ta

rolf

 

[Marty McDonald]

Oh yes i have been unfortunate enough to be on the end of this Rolf! Wasted many months on one particular debt and jv equity deal that still hurts. Chasing the big deal and big pay day...live and learn. Resi for me.

 

[Rolf Latham]

Oh yes i have been unfortunate enough to be on the end of this Rolf! Wasted many months on one particular debt and jv equity deal that still hurts. Chasing the big deal and big pay day...live and learn. Resi for me.

trophy loans.............thats what these things are often good for

thats about it

ta

rolf

 

[Peter_Tersteeg]

My worst example is where the lender collected my fee from client then didn't pass it on to me at all.

 

[Aaron_C]

My worst example is where the lender collected from client then didn't pass it on to me at all.

Private funder, Peter?

 

[Rolf Latham]

Private funder, Peter?

I bet its one of 2 lenders

One is a big 4, the other is a second tier owned by the big 4

Ethics in lending...............pfffft

gives you a good taste as to what your clients can sometimes expect

ta
rolf

 

[Peter_Tersteeg]

Mortgage manager to 'specialist' funder to La Trobe private funds. By the time I sorted through all the layers it was too late. Since then I make sure I know who the ultimate funder is right from the start. The specalist funder turned out to be little more thank tick and flick to La Trobe.

I can't say that any of my La Trobe dealings have ever left me with a smile. Nowdays I let the client know that they're a lender of the very last resort but they're still likely to get screwed. It comes down to what the deal's really worth to them.

 

[Aaron_C]

That's unfortunate. We've all been burned before.

 

[Peter_Tersteeg]

What's your horror story Aaron?

 

[Aaron_C]

One of the more annoying ones was when a 'favourite' lender of mine clawed back a commission when the loan wasn't even discharged! To my chagrin the aggregator paid them first, leaving me with the uphill battle of trying to chase money that has already been paid. Not fun at all.