3 Categories of Commercial Mortgage Lenders
Most people know quite a few things about mortgages and how to qualify for them. But let us simplify these things to make more people understand, We will simply put them in three categories. Commercial Real Estate Property Cash Flow, Commercial Real Estate Property Collateral and Credit of The Borrower or Guarantor. These categories would determine if mortgage lenders would approve your loan request.
Cash Flow of The Property
When approving or denying commercial mortgage loan requests, lenders thoroughly check out the cash flow from the rents in gross of the property. Most lenders would check the latest 3 months of the property’s income generation, the annual net income of the said property must be able to pay for the annual interest and principal payments of the loan let’s just say by a minimum of 1.25, this computation or ratio is also called debt service coverage.
Commercial Real Estate Property Collateral
This is the commercial real estate which is offered as a security for the loan you are requesting. If for some reason you can not pay your mortgage, then the lender would foreclose the said property. In addition to this, the borrower needs to assign the leases or rents of the said property for additional security in the side of the lender. Other assets such as contracts, a guarantor’s personal assets, or receivables can also be used as cross-collateralization.
Credit of the Borrower or Guarantor
This would simply be the combined personal credit of the guarantor and the borrower. The credit requirements differ depending on the lender but the industry standard minimum personal credit needed would be a minimum of 660 credit score, The borrower or the guarantor mustn’t have declared for bankruptcy in the past seven years. Both must not have foreclosures of properties and loans with principal forgiveness for the last three years and no open tax liens.
For a successful approval, the borrower must check these information very well since these are the basic requirements that lenders are looking for. But having passing these requirements does not also necessarily mean that the borrower is already qualified for a loan. For more information about commercial mortgage, you can check out newcityfinancial.com.