Would you like to close your commercial real estate loan or
commercial apartment loan quicker
and easier? Well who wouldn't. But as the old saying goes, "easier
said than done."
That is until you've read this article with some tips from
Crefcoa's own commercial mortgage loan underwriting
We give you some valuable tips that will help ensure your
commercial loan or
apartment loan closes
is a smooth and timely manner.
What makes the biggest difference between a commercial mortgage
loan that closes in a smooth and timely manner, and one that seems
to drag on and on, with request after request from the underwriter
for "more documents?"
Simply put, preparation. It's amazing how simple some of these
tips may seem, but what's even more amazing is how many people fail
to follow these basic guidelines when
applying for a commercial mortgage loan.
Here are the basics you must follow
if you would like your commercial mortgage to close in a
smooth and timely manner:
- For investment properties, make
sure you have available the two most recent years profit and
loss (P&L) statements along with a year-to-date P&L and a
current rent roll.
- Make sure your P&L statements identify any one-time or
non-recurring expenses. If so, drop them below the line or
provide a separate capital expense summary. This way the
underwriter won't include capital or non-recurring expenses in
their NOI analysis of the property.
- Have some interior and exterior photos available for the
property. If your lender isn't local, they will want to get an
indication of the asset quality before proceeding. A website for
the property will suffice and actually enhances an underwriter's
view of the asset and sponsorship.
- Make any repairs (especially health and/or safety related)
before the inspections. Most lenders will require any safety or
health related items (loose railings, trip hazards, mold, old
fuse boxes, etc.) be repaired prior to closing.
- Make sure your two prior years - both personal and business
- tax returns are complete and filed.
- If you've filed an extension, have the extension readily
available and make sure the extension is valid - not expired.
Prepare year end financial statements as they will be needed
since you are on extension and your most recently filed returns
could be 18 months old.
- Sign your tax returns.
- Prepare a current personal financial statement and schedule
of real estate owned. Your lender will be looking for liquidity,
net worth, contingent liabilities and to see if any of your
properties are operating at a loss.
- Gather your three most recent months bank statements - all
- If you are applying to refinance your commercial mortgage
loan, have available your payoff statement,
survey, title policy, and insurance policy.
- If you are applying for a commercial mortgage loan to
purchase commercial real estate, the sales contract must be
valid. If the contract will expire prior to the closing of your
commercial real estate loan, get an extension upfront.
- For investment properties, make sure all tenant leases are
valid and make sure lease terms match what's listed on the rent
- Pull your personal credit report. Clear up any mistakes - if
you have any derogatory items, write a letter of explanation and
include it with your commercial loan package - do not try and
hide any derogatory items, underwriters are human, they realize
people make mistakes and look favorably towards a borrower that
owns up to their mistakes.
- If the borrowing entity is an LLC or corporation, make sure
it is in "active" status, i.e. active business license,
occupational license, annual report filed, etc.
- Put you accountant and lawyer on notice that you are
applying for a commercial loan. Inform them you will need
up-to-date business and financial documentation. You will be
surprised how many times a borrower will hear, "thanks for
telling me, I was going on vacation for a couple weeks, I will
prepare what you need before I leave."
- Be realistic about the property's value in your
representations to the lender.
- Do not misrepresent or falsify anything on your commercial mortgage
loan application, no matter how minor in nature. If
discovered, it will raise a red flag with the underwriter
and credit committee. Often times it can give the underwriter
enough of a concern to decline the request. Whereas, if
adequately disclosed and explained upfront, becomes a non-issue
that the underwriter can work through.
- Do not, under any circumstances, order your own appraisal -
it is a conflict of interest for a borrower to order an
appraisal on their own behalf, as it could be seen as an attempt
to influence the property's value.
Well there you have it, some basic information that if followed, is
sure to help your commercial loan close in a smooth and timely manner.