Scotsman Guide - May 2009 Commercial Edition

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.

What’s needed?

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
property;
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 credit questions.

Buyers who work with a mortgage broker in advance can also save themselves from massive headaches when it comes to knowing the purchase requirements in advance.

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.

Multifamily • Non-owner SFR • Commercial • Bridge Financing • Emergency Funds • Purchase/Rehab

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