How to Get the Best Rate on Your Commercial Mortgage
Have you ever wondered how commercial mortgage lenders decide on rates applicable for their mortgage loans? There are lots of factors that come in when making this decision, the most important being the amount of risk involved. A high risk naturally results in high rates and vice versa. Understanding the most important factors that lenders and underwriters take into consideration is important in helping you make the right borrowing decisions and submit the best applications. You can inquire more about commercial mortgage and everything related to it from newcityfinancial.com.
Top Considerations For Determining Commercial Mortgage Rates
- Qualifications of the borrower – lenders will usually analyse the borrower or guarantors credit history, cash flow, real estate experience, net worth and liquidity to assess the overall risk. Lenders are easier to entice with a good history of cash and asset management.
- Debt Coverage – this can be defined as the excess in net operating income divided by the annual mortgage payments. A property that produces excess cash flow is considered lower risk since this excess can be used in shielding against turnover, cash drain or repairs.
- Location of property and market – your risk will be considered when you give collateral of a good quality property in a large metropolitan r suburb area. Properties in small rural areas and inferior assets are normally considered high risk.
- Occupancy status – properties with fluctuating rental history are normally considered higher risk by most lenders. But a property with hardly any vacancy and minimum interruptions for 2 or 3 years continuous is categorized as low risk. When a lender asks for your operating statement, this is usually what they’re analyzing.
- The condition of Property – If your property needs major costly makeovers then it is considered high risk compared to a well-maintained property. The way the lenders look at it is that they will have to spare some escrow funds to make improvements to the property which is both a waste of time and money for most financiers. Well, unless the main purpose of you borrowing was for the purpose of repairs and maintenance.