The most important aspects to a real estate lender are 1) Cash flow coverage, 2) loan request to appraised value 3) Credit of the applicant.
1) Banks and credit unions get comfortable with a deal when the credit score is 660 or better, the property cash flows very well and the is owner occupied or leased out to a credit quality tenant. Typically bank and credit union lenders require the following docs for initial loan review;
A commercial real estate 1003 (application).
Most recent full year income and expense report on the property.
Most recently completed tax return for the property and for the borrower.
Debt schedule on the company or individual borrowing the funds.
2 to 3 photos of the interior and exterior of the property
Use of funds on a cash out.
Credit report with score and trade lines is ideal, or at least credit scores on the applicant.
Rates and terms should still be in the upper 5% area fixed for 5 years, over a 25 year am. Credit unions do not charge a pre payment penalty which is often a huge selling point in a competitive deal. Banks often charge a pre pay the first 3 years of the loan. Neither banks not credit unions charge more than a $2500 deposit which goes towards the appraisal and tile. A bank or credit union may charge one lender point at closing or possibly a $2500 fee, but rarely anything higher.
2) Hybrid lender – Lender between bank rates and hard money rates.
A commercial real estate 1003 (application).
Credit report on the application
These two docs often can get a proposal, although I would also request a use of funds, a rent roll on the property and debt schedule up front too. The other docs can be requested should the lender ask. Credit scores start often at 620-650 for hybrid deals. Pricing is often 7%-8.5%, but in some rare cases, pricing can be lower on a solid deal. Terms can range from 3.5.7 year fixed, with a 25 year am. Size of deals for hybrid lenders run $50k to $2mmm for most. The lender may charge 1 point origination and usually a $2500 deposit with the loi to cover the appraisal and title. Speed of execution also is better with hybrid lenders, deals usually can close within 3 weeks from start to finish.
3) Bridge lenders – hard money lenders –
2 or 3 photos of interior and exterior
income and expense statement on the property
These lenders mainly focus on the equity in the property and cash flow. Location is important as well, rural area deals are getting tougher. Lenders do not want to be stuck with properties in the middle of nowhere.
Pricing ranges from 10%-13%, usually with 2 or 3 lender points. The client is usually required to deposit $2500 with the signed proposal, but can be higher in larger loan amounts.. Loan to value usually tops out at 65% with the exception of NYC, where rates can be 8.5% and LTV of 75%. Pure raw land LTVs top out at 50%.
4) Fix and Flip
purchase and sales contract
On average, we should be able to secure 90% of total costs, purchase and repair budget, up to a max of 70% after repair value. Past successful exits are important, as lenders on average do not want to finance someones first or second flip. 10%- 11% annual interest rate is standard for 12 months, with 2 lender points
5) Investment properties
copies of leases
income and expense statement
2017 tax return
Rates and terms depend on what type of lender finances the property. With good credit, above average area, length of ownership, a bank or credit union may fund also. Hybrid lenders and bridge lenders often fund these type of properties. Rates can range from 7%-9% with 5 year fixed, 25 yr amortization.
6) Construction financing
resumes and pfs of principals
executive summary of the deal
Experience of the sponsors and 15% to 20% capital injection into the deal are very important here.
The larger the market, the more interest we will get. We can facilitate senior loans and mezz loans here.
Re timing of closing, With hybrid and bridge requests, from the time the lender receives the docs they require to proposal is usually 48 to 72 hours. These lenders can typically close in 3 weeks from the time the client signs the proposal and sends in the funds for the deposit required by the lender. The only items from that point than can foul a deal up are usually lower than expected appraisals, issues that pop up on title, or anything on the credit report the client did not previously disclose. This is why I ask the client to let us know all the hurdles before we submit a deal to a lender.
With bank and credit union lenders, they typically turn a proposal around within one week, as the request has to be underwritten and go to loan committee in most cases prior to an LOI. From the date of the signed proposal, three weeks is usually a good rule of thumb for closing.
Please reach out with any questions to firstname.lastname@example.org or my direct line at 312 582 0929.