In the wake of the Great Recession, traditional banks have raised borrower standards. This is especially true when it comes to commercial mortgages. But traditional banks still offer the least expensive loans with the longest terms. How can you maximize your chances of qualifying for a conventional mortgage from a traditional bank?
A good first step is to work with a bank where you are already a customer. Banks are willing to offer the best terms to those they are already in business with. Therefore it is a good idea to have a large savings account at any bank you seek a loan from. If you don't have substantial savings on hand, one strategy is to refinance your home and deposit the money at the bank where you want to apply for your loan. Small banks in particular are always eager to compete for new depositors and banks prefer borrowers with a lot of cash on hand. Having money on hand will make any bank more eager to offer good terms on a mortgage, as they will want to compete for your business.
It is also a good idea to find a bank close to the property you want to finance. Banks generally prefer to issue commercial loans in their immediate area. Above all match the size of your loan to the size of the bank where you apply. Big banks do not consider small loans profitable and small banks obviously cannot finance multi-million dollar mortgages.
Be prepared to submit your loan application many times over and keep your initial proposal short and no longer than four pages. Your proposal should consist of an executive summary, a pro forma operating statement and a title for the project you want to finance. Your proposal may also include graphics and pictures related to the project and the subject property. Be sure your proposal can be easily submitted to as many banks as possible. Convert your proposal into a digital format such as a PDF. The conventional mortgage process is long and arduous. By taking the first step at as many lending groups as possible, you can help ensure your mortgage will be approved in the shortest amount time.
Even if you qualify for a conventional commercial mortgage, the loan amount offered by the bank might still not be enough to purchase the property.
Even the best borrowers may struggle to obtain mortgages higher than 80 percent of their properties total value (loan to value ratio or LTV). In these cases you might want to consider a government sponsored lending program such as an SBA loan. With SBA loans 90 percent of the loan amount is guaranteed by the government. With an SBA loan banks can therefore issue a loan up to 90 percent of the total property value. However SBA loans are not useful for investment purposes as they require 51 percent of the subject property to be occupied by the borrowers business. A potential alternative to the SBA program is the USDA’s Business and Industries Loan Program. These loans have a similar structure to an SBA loan, but are only offered for properties located in rural areas. However a USDA B/I loan doesn't require the owner to occupy the majority of the property, so these loans can be used for investment in commercial real estate.
Considering the difficulty why would you even go to a traditional bank for a commercial mortgage?
Conventional banks still offer the cheapest loans with the longest terms. Go to your local bank, have a well thought out proposal that can be submitted many times over and consider government sponsored lending programs. These steps will help you qualify for a conventional mortgage with the best terms. Still in some cases your investment idea may be considered too risky for a conventional bank. If this is the case you may want to consider a hard money lender, or other alternative financing.
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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