Be Prepared to Close the Deal
Ensure all the bases are covered prior to approaching a lender
By Stephen A. Sobin
Stephen A. Sobin is the president and founder of Select
Commercial Funding LLC, a nationwide commercial mortgage brokerage company. He is an industry veteran with
more than 30 years of mortgage-lending experience. Sobin
also is a founding member of the Inter-Capital Group, a
nationwide alliance of commercial mortgage professionals.
Reach Sobin at firstname.lastname@example.org.
Many new commercial mortgage brokers, especially residential brokers who do not regularly place commercial loans, do not adequately prepare themselves
and their clients before contacting a commercial mortgage lender and submitting a commercial mortgage
This leads to a high level of rejection for the broker.
It also results in a lot of wasted time by the lender’s
Following is an overview of the major steps a broker
should take before submitting their client’s application
to a lender, as well as a look at some key factors to be
aware of during the loan-review process. As a mortgage broker, if you can stay on top of these variables,
the odds of successfully shepherding a deal through to
completion will improve tremendously.
If a borrower has open credit problems, such as
currently delinquent mortgages, judgments or tax
liens, almost every conventional lender will issue an
immediate rejection. Any and all such issues should
be resolved satisfactorily before application. Brokers should have their borrowers prepare a clear and
well-written explanation of all such issues.
Lenders may consider these applications if the issues
are resolved and in the past. If any issues are recurring, or
likely to reoccur, the only likely option for the borrower
would be a higher interest-rate loan through a private or
hard-money lender. Conventional commercial lenders
do not want to get involved with such a borrower unless
all such issues are in the rearview mirror.
Lenders today demand that a borrower has sufficient net worth and cash liquidity to qualify for a loan.
Lenders do not want a borrower to invest all available
cash into a property and leave nothing in reserve, in
case of emergency, for unexpected property repairs or
Without adequate remaining cash reserves, the
borrower could be stuck. Lenders will expect to see
about 5 percent left in reserves after closing to cover
In addition, lenders will want to see sufficient
total net worth before making a loan. Many lenders
require some degree of a personal guarantee from
the borrower. If the borrower does not have sufficient
net worth, they will not able to cover the necessary
guarantee. Most lenders will expect to see that a
borrower has net worth at least equal to the new
One of the first items lenders look for is a borrower’s
experience owning or managing similar properties in
the past. Let’s say a borrower wants to buy a motel or
gas station but has never managed a similar property
in the past.
Most lenders will not entertain such a request unless
the borrower is willing to hire a professional property
manager or key employee who has a demonstrated
ability to manage a similar property. Lenders are not
willing to take the chance of a new borrower learning
on the job.
A borrower will need to furnish a resume that details past experience. Additionally, if the borrower has
failed in the past, as demonstrated by a foreclosure or
short sale, a lender will expect to receive a well-written
letter of explanation before giving the borrower another
chance. Don’t go in blind and hope that a lender won’t
uncover past problems. The lender will, and to ignore
that reality on the front end will only waste everyone’s
time and money.
Meet the guidelines
Before you apply with a lender, make sure to understand and meet the lender’s guidelines. Lenders typically lend up to 75 to 80 percent of the purchase price
of the property. The days of lenders making loans
equal to 100 percent or even 90 percent of a property’s
value are long gone.
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