Creating The Perfect Real Estate Mortgage Application


By Lorenzo Hills

A commercial real estate loan submission is similar to a prospectus, although it is typically more complex. Lenders analyzing a potential commercial real estate loan must examine many critical details in the submission.

In some instances, lenders will require that documents be presented in a particular order, but many items are interrelated and therefore will be examined together. No matter what, there are specific items that brokers should include in all loan submissions.

Loan Application

Although some investors do not require an actual loan-application document, others use it as the basis for the entire loan submission. It carries within it the terms and conditions of the loan scenario. These terms include, but are not limited to the:

- Loan amount
- Loan term
- Interest rate
- Escrow requirements
- Prepayment terms
- Types of security documents
- Commitment term
- Property-insurance coverage and
- Fees and closing costs

Brokers and borrowers should prepare the application with great attention to detail. Because no two borrowers or properties are alike, any special requirements should reflect the borrower's and the lender's attitudes properly.

Real Estate Loan Appraisal - Establishing Fair Market Value

The appraisal helps to establish the security's fair market value - an essential factor to determining the appropriate loan amount. In general, the following should be included in an appraisal:

- Property description
- Neighborhood analysis
- Property utilities and restrictions
- The specific approach to value
- Final value estimate

It cannot be emphasized enough that the mortgage banker is a risk analyst. Bankers, therefore, must relate value to key points such as debt-repayment coverage, occupancy, expense ratios, vacancy ratios, projected income and other risk considerations such as restrictions, easements and conditions of arriving at the value estimates.

Financial Statements Required for Commercial Loans

Any analysis of the borrower without financial statements would be incomplete. If the borrower is an individual, the statements might not be audited. They must, however, be current (prepared within the past six months) and must reflect all assets and liabilities, including any contingent liabilities.

With a corporate borrower, it is best to request and obtain audited statements. Mortgage brokers and bankers must analyze and be familiar with the income statements and balance sheets in the submission.

When dealing with a loan for an existing income-producing property or a property that the owner intends to occupy, include operating statements for at least the past three years. If the company is listed with Standard



 
About the author

Lorenzo Hills is managing director of East Coast Commercial Finance. East Coast Commercial Finance is located in Charlotte, N.C., and is involved in commercial real estate finance and investments. from http://www.ContentHere.com


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