If you have been approved and received a Term Sheet from a bank on your commercial cash out refinance, you don't need me to explain the pitfalls. Appraisal fees (at $3000 - $5000), environmental report fees ($2000), processing fee ($1,000) often start off an expensive and complex process to fund your commercial mortgage. What is market and what can a borrower expect?
Depending on the borrower's situation, they'll probably have 100's of different loan options and programs to choice from. The easiest way to narrow this down is to first organize and essentially try to "categories" ones selves, like a Commercial Mortgage Broker would. For example, is the property owner occupied or an investment? Is the loan amount less than $1,000,000, more than $1,000,000 but less than $5,000,000? Or more than $5,000,000? Is the file very clean with strong borrower qualification (good credit, good liquidity, and good experience) or is there hair? If so how difficult is the situation?
Also, what does the borrower want? Are they looking for long term fixed rate financing? Or are they more interested in finding the lowest possible rate, regardless of the fixed period? What is the holding period of the loan/property? If it is short term the borrower needs to keep this in mind and avoid loans with high prepayment penalties. Among many other questions.
Owner Occupied
Due to the current economic conditions, and subsequently some of the highest bank decline rates in ten years (estimated at 90% with most national banks), borrowers may want to take a hard look at the SBA 7a loan. 75% of this loan is guaranteed by the Small Business Administration, which make the approval rate much higher for the average borrower. Loan to values can be as high as 90%, credit scores as low as 620 and the borrower can use business financial projections to meet the minimum Debt Coverage Ratio of an aggressive 1:1.
Although most banks offer this loan as a floating rate, there are a few national banks that offer this as a 5 year fixed, 25 year amortizing mortgage with no balloons.
Investment
Options for cash out refinance on an investment property are broad as well though borrower should expect a max Loan to Value of 75%, for properties like, multifamily, office, retail or industrial. For other more special use properties, borrowers should expect 65% and sometimes 70% as market.
Currently 25 year amortization schedules are the norm with 30 year as a real possibility depending on the particulars. Length of time that rates are fixed for are also shortening with the best rates tied to 5 year money though 10 year is still very much out there though rates will be discouragingly high.
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