Overview
Each commercial transaction is looked at on an individual basis. Lenders grade properties based on their location, condition, cash flow and use. Rates, fees and terms are based upon the property grade. The first step is to determine the loan size as measured by the property's monthly cash flow. Normally, lenders require a debt coverage ratio of 1.20%. This ratio is determined by dividing the monthly property expenses by the monthly gross income. A simple example might be: income $1200/month / expenses of $1000/month = 1.20% debt service coverage.
The Beginning
First, we collect the property's financial statements. These include the rent roll, rental agreements and 2 years of income and expense information. After taking pictures of the property we submit the application, financials, credit report, bank statements and pictures to the lender for consideraton. They review this information and grade the property. A letter of interest, based on the property grade, is issued by the lender spelling out their offer.
The Middle
Upon acceptance of the bank's offer the borrower forwards the appraisal fee and it is scheduled. The appraiser takes approximately 2 weeks to complete his work. During that time we open escrow and order title insurance. Once completed the appraisal, title, escrow instructions and other items are forwarded to the decision maker for final underwriting.
The End
Upon final loan approval the loan documents are printed and sent to escrow. Once signed the loan documents are forwarded to the funder for final inspection. The loan is then funded and records the following day. Funds are dispursed to the borrower and all other parties.
Information on this page is for educational purposes only. Specific questions for real property transactions and credit items should be directed to your attorney, tax preparer and C.P.A.. Copyright 2011, reprint by permission only
