Stated Non Conforming Commercial and Investment Real Estate Loans Nationwide

Non Conforming Real Estate Loans

Will lend from $50,000 to $5,000,000 on commercial and investment real estate nationwide at competitive rates and terms. If your project does not qualify for bank financing but you do not want hard money terms this could be the program for you.  Typically to qualify for bank financing there is a minimum loan requirement, a minimum credit score, a minimum debt service coverage ratio, as well as other minimum requirements that you just barely did not meet. With make sense underwriting you can qualify for good rates and terms. This lender deals with commercial mortgage brokers nationwide.

Minimum Loan Amount

The minimum loan amount is $50,000. For commercial real estate this is very aggressive. Most banks have a minimum loan amount of $250,000, $500,000 or even $1,000,000 or more. Many agency programs start at $2,000,000. Therefore, many borrowers looking for small cap commercial funding will have a hard time acquiring the financing they need. With the low minimum requirements this fund is able to finance many borrowers that are otherwise left out. This is a great option for commercial mortgage brokers to add to the programs they offer.

Minimum Credit Score

The minimum credit score is 580. There often is a misconception by borrowers in that they believe that if there credit score meets the minimum they qualify for financing. This is rarely true. Rarely! The minimum credit score is only used to deny a loan, rarely to approve a loan. What is most important is the actual credit profile. A client with a 720 credit score and only one tradeline for $300 that is as an authorized user is not more credit worthy than someone who has a 580 score with ten accounts all maxed out yet they have a perfect payment history for the last 2 years. With that said the the fundability of any project is based on the toatal package. A project where; the loan to value is low (the equity is high), the debt service coverage is high, the property is fully occupied and has been for years with long term leases, and the borrower has substantial experience owning and managing these property types will most assuradely be financed in this program, even if the borrowers score is below 600. Likewise, that same borrower with no management or ownership experience, maximum loan to value project with low debt service coverage will not qualify. Most Commercial mortgage brokers understand the opportunity for their clients with less than perfect credit.

Minimum Debt Service Coverage

1.25% debt service coverage ratio is pretty standard in the industry. This program adheres to that for projects where the borrower has low credit scores. But if the borrower has good credit and experience owning and or managing the property type, the property could be vacant with no immediate debt service coverage and the project could qualify for financing.

Stated Income

Many programs require the borrower to verify their income. These programs often have a “global” debt service coverage ratio. This means tha in addition to the property generating enough income to service its mortage and cover all debts associated with it plus make a profit, the lender will review the income and expenses of the borrower plus all of the prooperties they have financed. The total income and expenses of all the borrower owns will be analyzed to determine if there is suffifient income to cover all expenses plus make a profit. Because this is a steted income program the only thing the underwriter reviews is if the property has an acceptable debt service coverage ratio. No tax returns are required in most cases. In the event they are it is just for post closing loan commitment for the file. Mortgage brokers like this option.

Property Types

Most property types considered. Any properties owned or being purchased for business and investment purposes are considered. This includes non owner occupied residential one to four unit properties, multifamily, mixed use, single and multiuse properties. Hospitality, churches, and funeral homes also are acceptable. Excluded projects are land, fix and flips, gas stations and any property with environmental hazard.

Other Underwriting Considerations

There are many other items that go into an underwriting decision such as down payment amount, cash reserves, borrowers ownership and management experience and property considerations . The good thing about this program is that given the entire picture there is flexibility to make exceptions for compensating factors. An example of this was an individual who was co owner of a home with his son, that he let pay the mortgage but the son was regularly 30 days late and sometimes more. The borrower was in insurance executive who made over $200,000 annually plus had liquid assets that were greater than $3,000,000 and he was looking to borrow $1,000,000.00. We could easily see that the problem was the son as all other debt was paid as agreed. No brainer even with the low credit score.

Finally

If you are a commercial mortgage broker and have a project that you need stated income, non conforming commercial or investment real este financing that offers bankable terms for the un bankable borrower.

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Credit and Commercial Real Estate Finance

There are great programs for Real Estate Investors to purchase Commercial Real Estate especially apartment buildings and mixed use residential and commercial properties. But I get a lot of people with poor credit, no money for down payment and no ownership experience asking to borrow hundreds of thousands of dollars or even millions of dollars bringing nothing to the table.

So first of all you can purchase commercial real estate with less than perfect credit. To do so you will have a significantly higher down payment, significantly higher interest rate and significantly higher closing costs. If you qualify for agency financing you can have 30 year amortized fixed rate financing below 5 – 6%. (The rates change regularly and this information is not about quoting today’s rates but making a point about credit and qualifying for commercial real estate financing.) The credit score should be above 680 but there is a little flexibility. Conversely, you can have less than perfect credit qualify for interest rates from 8% to as high as 16% or more. The portfolio programs are generally amortized over 20 to 25 years (like most bank financing) with a five year balloon. The hard money loans are generally interest only.

Therefore there is a significant cost for poor credit even if you can get financed at all. For example a $1,000,000 mortgage at 5% amortized over 30 years has a payment of $5,368 per month. The same $1,000,000 mortgage amortized over 20 years at 9% interest is $8,997. At 14% interest only the payment would be $11,667. The cost of poor credit could be as low as $3,629 per month or as high as $6,299 per month or more based on this example. That is over $75,000 per year in interest that would go in your pocket if you have good credit or work with a reputable credit restoration company to legally restore and improve your credit score.

When we look at the cost of credit and some clients unwillingness to address this issue it makes me wonder if they are the business minded people that will be successful owning commercial real estate and repaying the loan. I am pro customer. I want every customer to meet their financial goals and get the financing they desire to do so. But, I understand lenders who do not want to risk their money when the borrower has less than perfect credit and or is unwilling to restore their profile and improve their score.

So when a borrower is working with a reputable legal credit restoration service to improve their credit score not only will they save money monthly, but the savings in down payment and closing costs will be well worth the effort. For an agency mortgage of $1,000,000.00 the down payment on residential or mixed use property can be as low as 15%. Most portfolio programs require a minimum of 25% to 30% down and hard money financing may not finance any more than 50% to 60% of the purchase price.

So the message is clear. To be a commercial real estate investor you should do whatever you can to improve and maintain a good credit score. Even if you own property now and are paying a higher interest rate make sure you work on your credit profile. Often its more than just paying your bills on time. The way you pay your bills accounts approximately 35% of your FICO Score. That means that 65% of your score has nothing to do with how you pay. If you can not improve the score on your own seek professional help from a reputable legal credit restoration company. It will save thousands if not hundreds of thousands of dollars.

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Proof of Funds for Commercial Real Estate Investors

Creative Financing

When a Commercial Real Estate Investor is looking to purchase income producing property utilizing any number of creative financing methods, one of the most important keys to their success is that their ability to provide adequate, verifiable proof of funds – P.O.F.- to both the seller and the lender. The verification of funds can enhance the investors credibility with the seller as well as satisfy the lenders requirement to know that the borrower has necessary funds to complete their transaction.

Proof of Funds

There are a few ways acceptable to lenders and sellers to show P.O.F. to close your Commercial Real Estate transaction:

  • Bank Statements or Bank Verification
  • Brokerage Account Statements or Verification
  • Escrow Account Verification

“Bank Verification” This is the most acceptable and widely used method to confirm the investors can complete the proposed deal. As such money must be put into a bank account and confirmed by statements or letter from the banker.  This is a “hard” (versus soft) method of verification, because money are deposited in an account in the buyers name to serve as proof the buyer can complete the transaction.

“Brokerage Account Verification” Similar to bank accounts, brokerage accounts show acceptable means to complete a purchase transaction. Likewise, statements or letter from the brokerage house representative will meet the requirement to prove adequate financial strength. This is also a “hard”  method.

“Escrow Account Verification” This is the one method that can be hard or soft evidence of necessary assets as the escrow agent simply needs to write a letter of confirmation attesting that the borrower has finances available to complete the transaction. It becomes hard when money is transferred  into an escrow waiting for the closing.

Companies

Finally, there are companies whose sole purpose is to provide evidence of the financial ability of Commercial Real Estate Investors to complete their transactions. Many of them provide “Proof of Funds” and Transactional Financing. P.O.F. is necessary at the beginning of the deal and Transactional Financing is for the day of closing only. Both of these methods are a necessary part of an investors arsenal when utilizing creative financing.

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