Top 10 Questions You Must Your Commercial Mortgage Broker
When it comes to commercial property investment, you will probably require financial assistance. This is where you need the help of commercial mortgage brokers. It is important to understand your prospective lenders’ term of loan approval and underwriting criteria. Don’t put a commercial property deal under contract until you check and double check the loan terms. Can you imagine putting an apartment building under contract only to find out that you don’t qualify for a loan? You obviously don’t want such surprises when you’re doing a deal. That is why it is important to understand the loan terms and how the underwriting will be done. The lender will have to assess the project risks, identify your risk mitigation plan, and determine the terms of the loan. Get in touch with commercial mortgage brokers or lenders prior to making offers on deals for you to understand the underwriting criteria of your lender. Here are ten important question to ask your commercial mortgage broker during your interview.
1.What are the basic terms I can expect for a typical loan?
Ask specifically about the loan-to-value (LTV), interest rate, term as well as the amortization you’re to get prepared for.
2. Is the loan non-recourse, or does it have to be personally guaranteed?
If you’re a first-time investor, you may require some personal guarantee. Non-recourse loans are also common. The best thing is to do is to ask your mortgage broker.
3. What are the costs of the loan?
They include the origination fees (normally 1% of the loan) and third-party reports such as appraisal, structural and environmental reports and the legal fees.
4. What size loans do you typically do and what areas do you service?
Find out the loan range the lender is able to give and the areas they serve.
5. What are the prepayment penalties if you decide to refinance or sell before the term of the loan?
Most of the large lenders have yield maintenance clause, making it almost impossible to repay early. Normally, banks have a “step down” penalty.
6. What are the liquidity and net worth requirements for applicants?
Most lenders will require the sponsor to show liquidity of 10% of the loan and a net worth equal to it. However, it is important to get it from your lender.
7. Are there any reserves or minimum account balances?
Some lenders will require 6-9 months of interest payment in an escrow account and may need a minimum balance in the account. Some may also require you to have an account with them as a condition of the loan.
8. What is the typical timeframe from the time of appraisal to the time of closing?
In the commercial property market, a few days can make a big difference. Though each lender is different, this timeframe normally is 45-60 days. However, it is important to ask and be sure about your lender’s estimates.
9. What is the definition of a “stable” asset according to your mortgage broker?
Normally, an asset that is 80% occupied qualifies as a “stable” asset and an asset that is less than 80% occupied is considered to be “distressed.” It is good to know what they consider to be a “stable” asset especially if you want to a loan for a “stable” asset.
10. Ask your mortgage broker about the types of commercial loans they provide?
Usually, lenders provide more than one loan option. Such options include bridge loans, conventional, Freddie Mac loans, and construction loans among others. It is, therefore, best to go for a mortgage broker with more products.
conclusion
As you ask these questions, feel free to take and keep notes on the same. It is good to interview at least three lenders so as to easily identify what is normal and what less desirable lenders may be like. Take notes for each lender you talk to then you can now compare them. The next step is to identify the lender that is right for you from the comparison you make. It will also help you determine what is normal and what lenders may be less desirable. With this questions answered, you will understand better the loan requirements and the actual terms. When you get a deal under contract and you have an established relationship with your mortgage broker, you will be certain of standing a good chance to have your loan approved.