These rates, at least in California, have been done in the high 3 percent and low 4 percent on the bottom end of the range, but expect a normal rate for these terms to be closer to the mid 4 percent to 5 percent or more. Most banks will charge .5 percent to 1 percent in loan fees but require fewer costs related to legal, third-party reports and processing compared to life companies and conduit lenders.
Credit Unions offer very similar terms to the banks with a couple of exceptions. Prepayment penalties are either minimal or non-existent. Also, with most credit unions, you’ll need to qualify for membership, which genearlly means living, working or worshipping in the general geographic area where the credit union operates. Recourse is almost always a requirement. Not every credit union offers commercial loans, either.
Of all the lender types, life companies will typically offer the lowest long-term fixed-rate options, which, in this environment, means never having to refinance again if you’re a long-term holder. This is also a great loan if you’re looking to sell in the future and get a premium price, as your buyer can assume a fantastic rate in a possibly higher interest-rate environment.
Life companies can fix a rate for 25 to 30 years or offer 10- to 15-year fixed rates with up to 30-year amortizations. However, they’re typically more conservative in their LTVs or use an artificially higher cap rate than what might show on the appraisal to arrive at their value. They also like better located and well-occupied properties in major population centers.
What often draws people to life money is the long-term fixed rates, which can start under 4 percent for a 10-year fixed with 30-year amortization, and can be structured to be any term of self-amortizing program. For example, a recent closing on a 15-year fully amortized loan in Virginia closed at 4.25 percent, and 10-year full-pay loan in North Carolina closed at 3.5 percent. Also unique is the non-recourse aspect of this type of financing, meaning in the event of a default, the lender can only go after the property and not the borrower’s personal assets. Combined with usually the lowest rates and longest terms and the ability to lock your rate up front for a refundable deposit, this financing vehicle is the preferred method for most institutional and multiple property owners. Many individual owners also take advantage of life financing, but it’s not for the faint of heart.
To obtain life money, there’s typically a 2 percent refundable deposit required up front or early on in the application process. An additional lender fee is usually between $5,000 and $7,500 and is non-refundable. Lender legal fees can run between $7,500 to $15,000 or more. Third-party reports include an appraisal, phase one, property condition report and, if applicable, a seismic study. Altogether these can run between $8,000 and $10,000. An ALTA Survey, which is made for the title company and/or lender, is also needed. This can vary and easily run $4,000 to $8,000.