Why and When to do a Commercial Mortgage Loan over a Hard Money or Private Money Loan?
1. When Time is not a factor (although you can still close in 30 days). The commercial mortgage loan process is not as long as many people believe. But, hard money loans can close in as little as 2 weeks.
2. When Rates and Terms are the focus (Commercial Mortgages traditionally have lower rates and better terms than hard money loans)
3. When your credit score is not an issue (660 or higher) and there is a solid credit history
4. When the property is either turnkey or there is a plan to make it so.
5. When your mortgage paperwork is all in order
Types of Commercial Mortgages
1. Conventional: 30 Year Fixed down to a 10 year Fixed and there are Adjustable options.
2. Stated Income/Lite Documentation: 30 Year Fixed down to a 10 year Fixed and there are Adjustable options.
3. Fix and Flip: Interest only for up to 12 months (extensions are available)
4. Fix and Hold: Interest only for up to 12 months (and then refinanced directly off the line of credit)
Underwriting for Conventional Commercial Mortgages
Acceptable Property Types: Apartment Buildings, 1-4 units, Retail, Office, Mixed Use, Warehouse, Light Industrial, Stand Alone Buildings
1. Most paperwork and financials intensive of all the loan types – but allows for the lowest rates!
2. Two years of business and personal tax returns are needed.
3. LLC Documents are required(Letter of Legal Existence, Operating Agreement, and Articles of Organization)
4. Property Documents (leases, Purchase and Sales if applicable, rent roll, operating statement).
5. Two months of Bank statements showing reserves and/or down-payment
6. Commercial Mortgage Application and Credit Report (tri-merge)
7. Appraisal and if applicable and Environmental Review (different than a Phase 1).
8. Property Must be Turn-key
Underwriting for Stated Income (DSCR) Commercial Mortgages
1. Same requirements as Conventional Commercial.
2. The main difference is that your income is not calculated in the underwriting process – only the property income is used to calculate for the loan approval
3. The other difference is rate. The rates are usually ½ a point higher than Conventional Commercial
Underwriting for Fix and Flip Mortgages
Acceptable Property Types: 1-4 units residential
1. First, you will need to fill out an Application, Track Record form, and REO Schedule needed. No experience is necessary to qualify for a fix and flip loan. But, the more experience you have the better the rate and terms will be.
2. The underwriting process will require review of LLC documents, 2 forms of ID, a credit report (prefer 660+), and a review of a Personal Financial Statement (PFS)
3. As well you will need a purchase and sales agreement, title, insurance, Rehab Budget Form, and an appraisal/inspection showing As Is Value and ARV (After Repair Value).
4. A borrower with experience can get up to 85% financing of the purchase and 100% financing of the rehab.
Underwriting for Fix and Hold Mortgages
1. Same guidelines as the FIX and Flip Mortgages
2. When the property is completed, we transition the loan in to either a Conventional or Stated Income Commercial Mortgage. There are streamline options with this as well!
The commercial mortgage loan process is not difficult to navigate through. Call us today for a free commercial mortgage consultation or click here to start the pre-approval process.
Thanks,
Michael Meyer
President Spartan Commercial Mortgage Services
mike@spartancommercialmortgage.com
(860) 876-0572