When you begin working to refinance your borrower’s commercial mortgage, one of the first questions you should ask is how long they’ve owned the property. Most commercial lenders will need to know the length of ownership, so it’s important to know when your borrower purchased the building and how much they paid. This will help you determine what type of commercial lender will be the best fit for your borrower, and will help your lender determine how much money they’ll loan your client. Here’s what you need to know about loan seasoning requirements:
Most commercial lenders have loan seasoning requirements
If you’re looking for a commercial mortgage for your borrower and want to go the traditional bank route, your lender’s property will most likely need to meet seasoning requirements. That is, you borrower will have had to own the property for a certain period of time. Non-conforming commercial lenders usually have these requirements in place as well. For example, APEX Mortgage’s seasoning requirement is two years for our core programs.
The seasoning requirements exist for a reason
Every time a commercial lender loans money, they’re taking a risk. Seasoning requirements are put in place so that the risk is manageable. For example, let’s say your borrower bought a property a year ago for $100,000, made $50,000 worth of improvements to the property, and now believes the property is worth $500,000. Most lenders’ seasoning requirements specify that their loan amount must be based on the purchase price, which may be much less than what your borrower believes the value to be. An appraisal of the property will also be required. Although this value may be closer to the borrower’s stated value, the lender will opt to use the original purchase price. Basically, most lenders will not believe in a deal that appears too good to be true.
There are lenders without loan seasoning requirements
Certainly, there are commercial borrowers out there who need loans, but have only owned their property for a short time. There are programs designed to help these borrowers, such as APEX’s softer hard money program. The terms can be tougher, but if your borrower really needs the funds, these mortgages can be a good option.
Knowing how long your borrower has owned their property and how much they paid for it will make the process of refinancing much simpler. It’s important to keep in mind that many lenders will have loan seasoning requirements, and it’s important to learn about your lenders’ specific stipulations. Remember that lenders have these seasoning requirements for a reason, and that there are lenders who can help borrowers who haven’t owned a property for several years. Being aware of loan seasoning requirements and cooperating with your lenders will help both you and your borrower, and will help you to close loans more smoothly.