Look at the Property First, then Seek Funding
For an easier transaction, preapprove the property before seeking funding for your clients
By Joy Hunner, executive vice president, GEM Commercial Lending
Commercial mortgage brokers’
task is clear: Find the best-possible
funding option for your clients looking to purchase or refinance a property.
There are many key tasks that go along
with financing a mortgage, but one remains often overlooked: getting the property preapproved for a transaction before
finding funding for your client.
It is more common to hear of the value
of a preapproved or prequalified buyer.
Whether a single person is buying a one-bedroom condominium or a group of investors is buying a midsized commercial
building, you often hear that the buyers
should be preapproved or prequalified
before approaching a seller to make the
transaction as easy as possible.
For commercial properties in particular, however, there is an essential flipside:
Making sure that the property is preapproved can facilitate a speedier transaction. When working with a client who
wishes to purchase a commercial property
or refinance a commercial mortgage, look
for a property that has been preapproved
before its listing or get it done before seeking financing.
To start the property-preapproval process,
first ensure the seller has all the property’s
financial ducks in a row, as well as a comprehensive cash-flow statement.
Additionally, you’ll want to show the
property’s capabilities to generate cash
flow in various scenarios. Have all numbers
in place before you even start to put feelers
“A broker’s goal is to
find the best financing
for clients’ deals.”
out for funding. This way, your clients are
far less likely to run into a delayed or even
canceled escrow because the lender rejects
the property on its financial merits.
Here are some items you will need from
clients who are refinancing — or from the
seller in a purchase transaction — to help
preapprove the property for financing:
n Prior two years and year-to-date in-
come and expense statements for the
n Current rent roll;
n Explanation for any one-time expenses
that are not to be counted annually (e.g.,
improvements and assessments); and
n Historic vacancy of the property.
When the seller takes care of getting
the property preapproved before even
putting it on the market, you and your clients will have an idea coming in as to how
much of a loan a lender will make on this
particular property. Sellers may even market the property with available financing in
this case, once the lender has preapproved
the property for a certain loan amount,
subject to appraisal.
Having a preapproved property also can
give potential buyers a good idea of how
much cash they must have to purchase it.
Don’t forget the buyer
It also is essential that your clients be
prequalified before seeking funding for a
purchase. They should have good credit
and enough assets and liquidity to qualify
for the loan amount.
The market has changed dramatically.
Gone are the days of 80-percent loan-to-value purchase loans on apartment
buildings or other commercial properties. Now, buyers have to come in with a
lot more down and be buttoned up on all
Buyers who work with a mortgage broker in advance can also save themselves
from massive headaches when it comes
to knowing the purchase requirements
n n n
Remember, a broker’s goal is to find the
best financing for clients’ deals. It is helpful if you also can take steps to speed the
transaction and ensure a smooth closing.
Although adding a few steps at the beginning of the process may seem like unnecessary extra work, the ensuing smooth
transaction likely will make it worthwhile
for all involved.
Joy Hunner is executive vice president of GEM
Commercial Lending, a
division of Golden Equity
Mortgage Corp. With offices in San Diego and
Palm Springs, Calif., and
service capabilities nationwide, Golden Equity
Mortgage Corp. is a comprehensive mortgage-brokerage company. Visit www.gemclending.
com or call (866) 519-6290 to learn more.
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