The right real estate financing can make the difference between a good project and a great one. In today’s economic environment obtaining the right loan with the best lender can be a challenge.
You can speed up the loan process by asking the right questions upfront when searching for the right lender.
Before contacting a lender, the first thing you need to do is write out your specific loan request and the purpose of the loan. If it is a bridge loan, know ahead of time, the exit strategy, or how the loan will be repaid.
For assistance in getting your loan, you can always utilize an experienced mortgage broker who will guide you through the process to find the best lender for your specific request.
Here are questions to ask the lender when searching for a commercial real estate loan:
Lender/Loan Types:
- Are you dealing with a direct lender or a mortgage broker? Often brokers pose as lenders, so know if you are dealing with a direct lender or a mortgage broker.
- What loan programs do they offer? e.g., bridge loans, construction loans, land loans, permanent loans.
- What is the lender’s preferred loan type?
- What’s the minimum and maximum loan amount to anyone borrower? What is their preferred loan amount size?
- What are the loan fees and closing costs?
- What are the upfront deposits to start the loan process? Refundable or nonrefundable?
- What are the prepayment penalty options?
- What are the interest rates? Fixed rates/variable rate options?
- Are there interest-only options? What are the amortization terms, loan term?
- Can the rate be locked? And if so, how long of a lock, and is there any additional cost?
- Is the loan recourse? And is nonrecourse an option?
- Are impounds required for insurance and taxes?
Borrower Requirements:
- What is the specific financial information required? e.g., financial statements, tax returns, bank statements.
- Does the lender have a minimum net worth requirement?
- Is there a minimum liquidity requirement?
- Is there a minimum credit score required?
- What type of past credit issues will hinder the approval process? e.g., bankruptcy, foreclosure.
- What type of borrower real estate experience is required? e.g., existing property ownership, property management, development experience, construction.
- What is the best way the lender communicates with the client? e.g., email, phone, texting.
Property Type/Location:
- What type of properties do they loan on? And what property types do they prefer? e.g., multi-family, office, retail, industrial, residential, mobile homes, land improved, land unimproved.
- What is the geographical lending area?
Underwriting:
- Does the lender underwrite to global cash flow or only the individual property cash flow?
- What is the maximum loan to value ratio for the specific product type?
- What is the maximum loan to cost ratio when dealing with construction? Is the land accounted for at cost or market value when calculating the loan to cost ratio?
- What are the preleasing requirements for construction loans?
- What debt-service-coverage ratio do they require for the different product types?
- If it is an income property, does it have to be seasoned, and if so, how long?
- What types of third-party reports do you need, and what do they cost?
- Do you get copies of all the third-party reports?
Approval:
- What is the lender’s approval process?
- Who approves the loan? e.g., a committee? A specific credit officer?
- What is the timing from application to funding?
Funding:
- Do they require a specific title company and escrow?
Servicing:
- Does the lender service their loans?
- Do they require annual updated financial information on the borrowing entities and guarantors?
To give you the best information possible, I provided you a majority of the questions you need to ask your lender when getting a commercial real estate loan.
Yes, the list is long, but all the questions are important. If you need further explanation on the questions, and the answers defined, please call me at 702-379-3468.
It doesn’t matter if you are looking for your first commercial real estate loan or an experienced real estate investor, asking these questions can help guide you faster to the right lender for your specific real estate transaction.
As a direct lender, I can help you with smaller bridge loans through Fidelis, and if the loan request does not fit Fidelis, I can help you find the right lender for your deal.
Can you some guidance when it comes to getting a commercial real estate loan?