10 Things You Need To Know Before You Call A Commercial Lender
How often does it happen to you? You call your favorite commercial lender to present them with your latest, most exciting deal and they inevitably ask you a question to which you do not have the answer. You walk away from the conversation needing to get more information. Wouldn’t it be nice to know exactly what details you should have prepared before you call your lender? Lenders love it when you know the details of your commercial loans! Before you pick up the phone make sure you have these 10 things answered!
- Property type is the best place to start and be specific. Lenders need to know what their collateral is and that often drives what loan to value and starting rate your clients most likely will be looking at. Ask the question what is the current use of the property and if they are planning on changing the intended use of the property. It is also imperative to ask if it is owner occupied or non owner occupied. This would also prompt another question – will I need the rents and expenses for the property if it is non owner occupied?
- The Location of the property such as the City, State, and County are a great place to head next. They will let you know immediately before anymore details are shed if that is a territory where they are able to lend. Some lenders are nationwide and others stick to areas in their own backyard.
- The most obvious question to know is what is the purpose of the loan? Lenders like to know how they are going to help. First and foremost we want to know that the loan makes sense. It would be a hard sell to your clients and lenders if it didn’t. For the initial call in, it is okay to state that the borrower is looking for a cash-out refinance, but make sure when you send in the application the details of the cash out is on the cover page or loan summary form.
- Commercial appraisals are very expensive and often time lenders will not use appraisals from companies that are not on their approved list. The more conservative you are with the value, usually the more accurate you are. Remember, it is nearly impossible to purchase a property for $200,000 and in less than a couple years later have it increase in value to $750,000!
- Do they owe anything on the property? This would include first and second mortgages as well as tax liens and judgments. This eliminates surprises when title is pulled! Pre payment penalties and lock outs are also a crucial part to knowing what is owed on a property.
- The next question is one of the most important questions that most brokers skip. We want to know when your clients bought the property and what they paid for it. Length of ownership adds a positive qualifier to the deal and it will let you know if there are seasoning issues before you start. Be specific, if they put work into the property ask them exactly what changes they made and approximately how much they spent and do they have documentation to back that up if the lender asks for it.
- How much money do your clients really need? Most portfolio lenders want to know what the funds of the loan would be benefiting. Be specific and discuss is there an amount that they definitely need compared to what they would optimally like to get.
- This would lead you to know what loan to value the borrower absolutely needs. It will help with your search to find a home for your loan knowing that your client needs 55% LTV but is looking for 65% LTV. Cite the purpose of the other funds needed and your lender will be floored.
- Credit is an important aspect to getting an approval from a lender. Take the time to go through the trade lines of the report and find out the details. Ask questions: What happened if they were slow with payments, Do they have multiple mortgages and on what properties are they on?. This way, you will be prepared with a credit explanation and/or look brilliant when your lender asks about them.
- It is true what they say; a picture is worth a thousand words. Make the time to go see the property or ask your clients for a picture of the property before you start calling around. Your clients will respect your request because you can tell them that you do not want to waste their money on an appraisal. To take a couple of pictures themselves is relatively inexpensive. It is a great idea so you can show your lender what the property looks like before money is spent and wasted on an appraisal. It is also easier for you to sell to the lender if you know the property is in great shape!
You will truly be a star in your commercial lenders eyes if you have these ten things answered before you give them a call. You will be able to create and maintain fantastic relationships with your lenders because you left them in awe after they hung up the phone. Lenders appreciate when brokers know the answers to their questions. Obviously, there are some that you may not know but it will help expedite a loan to closing by knowing all of the important information up front.