The commercial corner: Use the interview process to understand commercial lending programsMike Boggianoevaluating commercial lenders, asking helpful questions
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
loan?
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
loan?
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.
Mike Boggiano is senior vice president, national sales
manager for Silver
Hill Financial LLC. He may be reached at (877) 676-1562 or
e-mail [email protected].
