Have your money in your pocket
A down payment of 20-30% will be required. This is determined by the asset type that you are going to purchase. Whether it’s retail, office, industrial, or a multi-family apartment building, the lender will require varying amounts for the down payment. Most lenders tend to leverage more money on a multi-family apartment building loan over industrial or retail.
Once you have made your decision about the class of property to purchase and the choice of the actual property itself, you will put the property under contract. This is done by filling out a loan application. An up-front application fee is due at this time which will pay for the appraisal report as well as some third party reports. This application fee is usually nonrefundable. In addition, some lenders will require some processing fees.
Depending on the type of property that you are going to purchase the processing fees can vary greatly. Typically, banks tend to have lower application fees over conduit lenders and pension funds. Fees for a multi-family apartment building can range anywhere from $3,500 to $12,000 at a bank. These same fees can be anywhere from $7,500 to $15,000 with one of the other lenders. If the terms are right this can still be an option for many though.
One of the big issues for lenders is determining how to shore up any short falls. Not only that, they like to see 5% to 10% of the net worth for the amount of the loan being applied for in liquid assets. The net worth required of you as an individual can vary greatly depending on the lender you choose. Commercial lending requirements are much more strict than those of required of residential loans.
Get your documentation together
Most lenders today require full documentation for commercial loans. “Full Doc” loans require far more documentation than a residential loan. The commercial lending process itself is more in-depth as well. When applying for a commercial loan the following types of information will be requested; two years worth of federal tax returns with their supporting statements, a balance sheet which shows your assets and liabilities, bank statements with your liquid assets, plus the operating statements of the property you’re interested in purchasing.
Your mortgage broker or lender may provide forms for you as the purchaser to fill out. These forms will help you compile all your financial information such as income statements or financial statements. A good mortgage broker will work with you to help assemble the documentation and they can even go over it annually with you.
Even though there is a lot of information to gather, it is important to have it all in place so that the process can proceed smoothly. Once you are under a purchase contract there isn’t a lot of time to have everything done. Financing deadlines and contingency inspections among other things, dictate that you need to move quickly to make the deal happen. Once you’ve entered into the loan process itself and get your paperwork submitted you can start getting feedback from lenders regarding the types of terms that they can offer you.
By having all your information complete and ready, the qualifying portion of the lending process can be handled in a timely and organized fashion.