Commercial Mortgages

I am new to the world of commercial mortgages, but I have found it to be very confusing. I have talked with several brokers and direct lenders, and the all seem to have different standards and requirements. I have been given rates, for the same property, that were as high as 13.5% and as low as 6.75%. Some of them were willing to finance 90% LTV others would not budge from 80% LTV. All of them required some sort of basic documentation. Some of them weighted the property numbers more than our personal finances, while others were more concerned with our personal finances than the property.

I learned the basics about mortgages from the purchase of my home in 2005. Basically the bank will only lend you a percentage of the value of the home. This percentage is called the LTV-Loan to Value. The value used by the lender is the lesser of the purchase price or the appraisal value. For people buying a property as their personal residence, there are various programs that allow people to buy homes with a very high LTV and very little money down. It is much different for investment properties. Once the lender knows that you are not planning on living in the property that you are purchasing the rules change. People are not as vested in properties that they are not living in and therefore the risk of them not paying the mortgage increases.

Applying for any loan requires lots of paperwork. I knew that I had all of the paperwork that they required, but putting it all together proved to be more work than I had planned on. I have now learned to reorganize my files in order to have everything that the lender requires in one area, instead of a dozen places. I am planning to put together my own financial statement that I can update regularly with my personal information. The format and information contain will be a combination of some of the standard forms that lenders sent to me. I will give more details in a future blog once I have it all set up.

It also makes a big difference if the seller is organized and has all of the financials on their properties organized. One of the items that most lenders wanted to see was the profit and expense lists for the past year or two of the property as well as rent rolls. I am trying to keep this in mind as I set up all of the files and paperwork that I will need to manage this property. That way I will have less work to do when we decide it is time to sell this investment.