To determine if your commercial mortgage refinance will qualify use the below parameters to "prescreen" your situation. Understanding your potential loans strengths and weakness will save you time and ensure your best chance of a successful close.
Ownership
First, how long have you owned the subject property? Has it been less than 12 months? Unless the title is free-and-clear or there is sufficient equity, the lender will use the purchase price plus any documentable improvements you've put into the property - not the appraised value.
For example, if you put down 20% a year ago you will not be able to pull additional funds out and risk have the Loan to Value on a rate and term refinance coming out higher than 80%.
Have you been turned down by banks? Find out why? Was it just an internal issue or something they think is a problem with the deal? It is better to lay your cards out with a new potential lender in the beginning rather than later. 99% of the time underwriting will discover the issue even if you do not disclose it. You want to find a capital source that will close, not just work on it for 2 months, then decline.
History and market
What was the original purchase price and realistic estimated real estate value. When was an appraisal last completed and what was the appraised value? Try to not make the typical mistake of overvaluing the property - you will be the one that pays for that mistake. Calculate your net operating income and find out the current market cap rate in the subject properties area. Then do some basic calculations to get an idea of the income value.
Current mortgage terms
What are your current mortgage terms? Are you refinancing because you want a lower rate? Longer amortization? Want to pull cash out? Or do you have a ballooning loan? What are your long term goals?
o When are you planning to sell?
o What kind of amortization would you like?
o Do you have a lockout period or prepayment penalty that you have to deal with?
o Can the new loan afford the lockout and prepayment costs?
Property
What type of commercial property are you refinancing? Different building types of vastly different terms. 80% loan to value on a stated-income restaurant deal will not fund while an 80% loan top value on an office building will. The property's zoning will dictate into which tier your property fits.
If your business occupies some of the space, what percentage? Is it more than 25%? Is it more than 50%? Many lenders will consider it an owner occupied deal if you're in more than 25%. Virtually all lenders consider it owner occ if your business occupies more than 50% of the subject building which will give you better terms.
Lease terms
What kind of leases does the property currently have? Are they NNN? How much of the expenses do the tenants pay outside of the lease? Is there a significant amount of leases coming due in less than 2 years? Are there any credit grade tenants within the building?
It's a very good idea to be prepared as your discussing your potential commercial mortgage refinance with lenders. Be ready to provide:
- Operating and income history;
- Rent rolls and annual rents;
- Net operating income;
- Vacancy information; and
- Total square-footage, number of buildings and units.
Being upfront a thorough in the beginning will save you time and money in the end on your commercial mortgage refinance.
