The Mortgage Press is pleased to present "The Commercial Corner," a monthly column by Mike Boggiano of Silver Hill Financial LLC dedicated to answering your questions about the commercial mortgage marketplace. If you have a question that you would like answered in a future installment of "The Commercial Corner," please e-mail [email protected].
Q: When evaluating potential commercial lenders, what
questions should I ask?
A: The initial interview process is a good opportunity to gather information about a lender's program; therefore, it is important to ask the right questions. Below are some suggested topics to address during the interview process.
Can I submit a loan package directly?
Be aware that not all commercial lenders will accept packages from brokers. Some deal either directly with the borrower or with an established correspondent network of designated master brokers that will partner with brokers on their transactions.
What is your lender box?
This question is aimed at defining the lender's loan sizes, including minimum and maximum amounts as well as the credit requirements and associated pricing for different grades of credit-worthiness. Finally, the lender box defines the acceptable property types that are eligible for financing. An inquiry should be made to determine if a lender favors one property type over another.
What are your underwriting guidelines?
Brokers will need to be prepared for a lender's underwriting style and the timeline associated with the process. First, ask whether a transaction is underwritten based on debt-to-income, or debt service coverage requirements. Minimum and maximum ratio requirements as well as timelines for pre-approvals and closings are also important facts to know.
What is the fee structure?
This includes determining if the lender is a par lender or if they charge upfront points. Additional costs may include processing, application, inspection, legal and commitment fees. Also, the lender may require third-party reports such as appraisal, structural, environmental and title that will add to the cost of the loan.
How is pricing determined for a particular
Most lenders will quote rates based on a margin over an index such as the Treasury, LIBOR or prime indexes. The margin is a factor of perceived risk and is based on the credit worthiness of the individual, the property type, loan-to-value and amortization. Brokers should also ask about the frequency of adjustments, floor rate, periodic cap and life caps that are applicable to the program.
What initial documentation is required to price a
Different lenders have different requirements. Some will provide pricing based on a one-page loan submittal form, while others require a complete package that includes financial statements and tax returns from the last two years, a credit report and rent roll, along with environmental and structural reports on the property.
As you ask the above questions, consider keeping a list of the information you receive for an oranges-to-oranges comparison of each commercial lending program. You'll have a beneficial resource for planning the next steps.