It’s important to know if borrowers meet the loan qualifications. Some following factors are reviewed by lenders to determine if borrowers qualify for loans.
- Property value
- Liquidity
- Loan-to-value-ratio
- Investor’s net worth
There are basic requirements that lenders use to determine if they grant a loan to an investor. These requirements include the following items.
- No tax liens
- A credit score higher than 680
- No recent bankruptcies or foreclosures
- A 10% down payment
- A minimum debt coverage service ratio of 1.15
A borrower should work to get the best financing possible on a commercial mortgage. Borrowers should attempt to get the best terms possible for their loans. Some factors that borrowers can consider when they seek a commercial real estate loan include the following.
1. Ask the commercial real estate lender if the loan is at a fixed rate or adjustable
2. Determine if a short-term loan or long-term financing is necessary
The mortgage lender needs awareness of the terms you require for the loan to provide a loan suitable for the investor’s goals. If investors need commercial loans that do not require a personal guarantee, then nonrecourse loans for investors. I have known lenders to alter the terms of the loans during underwriting.
Additional costs
Investors should address the additional costs of commercial loans before they choose a commercial mortgage. If a loan requires high fees and closing costs, the investors may choose a different commercial loan because of the impact on the profit the investor would earn on the property.
Commercial real estate checklist
There are things that commercial real estate lenders look for when they determine the rate of loans. Lenders consider the following items when they provide commercial loans.
Location
The lenders want the property location information. Some lenders prefer to loan in cities because the properties are easier to rent.
Current leases
If the leases are long term, this provides a steady income stream. Properties with short-term leases may not provide consistent income because of the turnover. If the turnover is low this shows that properties are easy to rent.
Property condition
Lenders want to know if properties need repairs and the cost of repairs that are necessary. Loans on properties that do not need repairs may occur at better rates because these properties won’t drain the borrower’s finances.
Cash flow
The number of tenants that occupy a property shows the cashflow. If a property has too many changes in cash flow, this can impact the loan. Lenders want to provide loans on properties with positive cash flow.
Type of lender
Borrowers should seek loans from lenders who have loaned money for the commercial property they are purchasing. By getting a loan from a commercial lender that specializes in the properties the borrower is purchasing, it is easier for both the investor and the commercial loan company. Lenders with a commercial real estate specialty in the property the investor is purchasing would have different loan options available to investors to meet their needs.
There are different lenders that provide commercial loans. The lenders comprise the following.
Regional lenders
Regional lenders provide loans are like home loans. These mortgages are like going to a bank and getting a loan for an owner-occupied property. One important thing to consider is that these loans are recourse loans because a lender would take the property if investors don’t repay their loans.
Commercial mortgage-backed securities market
The CMBS lenders are lenders who work on a group of loans. Most investors who work with commercial real estate properties don not start with CMBS loans. These loans are over $10 million dollar real estate loans.
Agency debt
Agency debt properties are government-subsidized. The good thing about this debt is that the interest rates on these properties are lower. Borrowers can take money out of the property after they own the property for a few years. These loans give investors flexibility in financing.
A mortgage broker
When an investor works to get a commercial real estate loan, it’s good for an investor to work with a mortgage broker.
By working with a mortgage broker, an investor can present the broker with the details concerning the properties they are considering purchasing. A mortgage broker can get an idea of the financing investors can get based on the lenders that the broker works within the commercial real estate industry. This saves an investor time because they don’t have to talk to individual lenders.