Planning a commercial mortgage refinance or purchase? At the beginning of the process, a lender will give instructions listing the amount of documentation they need to launch the transaction. But unless you’re a real estate expert, you may not be familiar with some of the terminology used at that stage.
Consider this a cheat sheet to help you feel more confident when it comes time to engage lenders with your commercial mortgage financing request.
Commercial mortgage underwriting is a more involved process than you may experience when applying for a credit card or business line of credit. One of the differences is that lenders look at more than one credit report when analyzing your credit-worthiness.
When you apply for a commercial mortgage, a lender will purchase a tri-merge credit report. This report includes data from the three leading credit bureaus: Experian, TransUnion, and Equifax. It’s important to note that the scores from these 3 bureaus are not merged – instead, a lender will look at the 3 scores and use the middle one for reference.
The tri-merge report gives lenders a more well-rounded view of your credit history and prevents any one bureau’s rating from giving them an incomplete picture.
One document lenders will require from you is a commercial or multifamily rent roll. A rent roll documents the rental information for each tenant of the property, including:
This is an important document that gives lenders a view into the performance of the property in question. While every lender has their own requirements, most will want to see a high rate of occupancy or a clear strategy to re-tenant the property in place.
You will also need to produce a Capital Expenditure, or CapEx, schedule before a transaction can begin. This document details all recent improvements made to a commercial property by you or the current owner in the event of a purchase.
Lenders will use the schedule to review the expenses the commercial property incurs and consider what relationship the expenses have to the income it generates.
The important thing to remember with a capital expenditure that improves a property is that the expense is spread over the useful life of the property. Some prospective borrowers will miscalculate this figure and give themselves an inaccurate view of their assets and liabilities.
While a lender can purchase a tri-merge credit report without your assistance, the other two documents listed here will need to be produced by you before a transaction can really begin.
Therefore, be sure to reach out to a lender if you need help preparing your files. Our mortgage experts at Commercial Direct can walk you through the steps needed to get your loan request off the ground. Simply visit our Loan Customizer to design your loan request now.
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