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Commercial Mortgage Processing
Commercial mortgage loans are used when purchasing structures such as office buildings, apartment complexes, health care facilities and retail outlets. Whether it’s a hi-rise tower or a family-owned restaurant, buyers typically need additional funding to complete the transaction. Commercial mortgages are what they pursue.
Similar in many ways to residential loans, commercial mortgages require far more paperwork. Both types of loan require that the properties being purchased undergo a thorough appraisal. Both require collateral to secure the loan and protect the lender against default.
Like residential mortgages, commercial mortgages can be refinanced to take advantage of more favorable terms, or they can be re-mortgaged to establish a line of credit to use for running the business. And like residential mortgages, the lender will hold the deed to the property until such time that the loan is repaid in full.During that time, the lender makes money off the interest on the loan. If the borrower fails to make payments on the commercial loan, the lender has the right to initiate foreclosure proceedings and take the property. Remember, the property likely is what will be used as collateral. The interest paid on the commercial mortgage usually is tax deductible; just be sure to consult with a professional first.
When borrower applies for a commercial mortgage, he will typically be offered two different types of loans: fixed rate loans and variable rate loans. These work the same as they do for residential mortgages.
On a fixed rate commercial mortgage, the interest rate that is negotiated and agreed to remains in effect until the loan is fully amortized. If interest rates are heading higher, a fixed rate likely is a better option.
With a variable rate commercial mortgage, the interest rate will fluctuate during the payback period. Interest rates are determined by the US Federal government.
Commercial Property Types
Listed below is a partial list of properties that require commercial financing.
Multi family Retail Office - Garden Apartments
- Hi-Rise Apartments
- Mid-Rise Apartments
- Low/Mod Income
- Student Apartments
- Senior Apartments
- Underlying Coop
- Regional Enclosed
- Strip Center
- Outlet Mall
- Free Standing
- Single Tenant
- Regional Unenclosed
- Single Tenant
- Hi-Rise Tower
- Mid-Rise Office
- Office Over Retail
Healthcare Others - Congregate Living
- Nursing Home
- Rehabilitation
- Ambulatory Care
- Heavy Manufacturing
- Light Manufacturing
- Warehouse/Distribution
- Owner Occupied
- Multi-Tenant
- Self Storage
- Special Purpose
Business Information Required in Commercial Loans
- Three years income tax and financial statements
- Year-to-date profit & loss and balance statement
- Personal finance statements
- Projected cash flow statements for next 12 months
- Pro forma for next 12 months / length of loan
- Federal and state tax information
- Collateral sheet
- Well written business plan
Differences Between Commercial & Residential Loan Process
Commercial Origination Residential Origination Broker's Role Broker's Role - Collect Property Information:
- 2 yrs property operating statements
- Current rent roll
- Brief property description
- Complete commercial loan app using commercial mortgage software that:
- Normalizes the property's inc / exp and adjusts for inflation
- Applies the appropriate underwritten reserves
- Calculates the stabilized NCF
- Estimates value and calculates the LTV and DSCR
- Supports your derivation of NCF in the Executive Summary
- Submit to lenders in a professional and credible package
- Receive final term sheet and get signature
- Close and fund loan
- Collect Borrower information:
- 2 yrs tax returns
- Paystubs
- 3 mos. bank statements
- Complete 1003 using residential processing software
- Calculate Debt-to-income Ratios (front / back)
- Pull credit, review FICO
- Determine the lender and loan program, stacking order
- Submit for prelim. / Clear conditions
- Float / lock loan
- Order services:
- Appraisal
- Escrow / Title
- Flood cert
- Submit for final underwriting
- Order docs
- Close and fund loan
Lender's Role Lender's Role - Review NCF, LTV and DSCR
- Prepare / Send quote to broker
- Order services:
- Appraisal
- Environmental (if req.)
- Engineering (if req.)
- Escrow / Title
- UCC
- Principal credit
- Close and fund loan
- Review 1003, credit
- Validation / Clear conditions
- Final underwriting / Draw docs
- Signed doc review
- Close and fund loan
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Commercial Mortgage
- Property Types
- Business Information Required
- Differences Between Commercial & Residential Loan Process
