| If you are looking for a commercial mortgage to | | | | mortgage brokers and 2. Commercial mortgage |
| support the financing (or refinancing) of large-scale | | | | banking firms. A mortgage broker tends to represent |
| income producing property, you can pretty much | | | | mortgage banking firms and mortgage-banking firms |
| forget about banks. While banks will provide | | | | tend to represent life insurance companies, who |
| construction loans they tend to avoid the permanent | | | | provide the permanent mortgage financing. If you are |
| mortgage financing in excess of one million dollars | | | | working with a mortgage broker you want to avoid |
| because of the risk associated with commercial loans. | | | | paying any up front fees to them to "process your |
| In fact, a bank will probably not make a construction | | | | loan" which is a common scam amongst unscrupulous |
| loan without a formal letter of commitment from a | | | | operators in the industry. You will pay an application |
| lender guaranteeing the permanent mortgage take-out | | | | fee at some point in the transaction but it certainly isn't |
| (a loan designed to cash out the construction loans | | | | to the first guy who says he can get you a loan. |
| provided by the bank). | | | | Rather, it will be when you are dealing with a legitimate |
| In any case, securing permanent mortgage financing in | | | | mortgage-banking firm that is representing the Life |
| excess of a million dollars can be tricky business if you | | | | Company. Before this happens, however, there will be |
| are new at this type of activity, have grade B-C credit | | | | (at least) representatives from the mortgage banking |
| and marginal cash on hand to support the project. | | | | firm who will meet with you, walk the property and put |
| Permanent mortgage lenders want to see a debt | | | | their eyes on the project before an application is |
| coverage ratio at or in excess of 1.2 (debt coverage | | | | drafted. |
| ratio is the number that results from dividing the net | | | | Always ask for references from the financial players |
| operating income by the sum of annual mortgage | | | | who you can call to verify them. Ideally, you want |
| payments). Example: Property A generates | | | | names, telephone numbers and addresses to the |
| $120,000.00 per year in net (after expenses) rental | | | | properties they have funded. You can also ask the |
| income and the total mortgage payment is $100,000.00 | | | | mortgage broker for the names of the banking firms |
| then, 120,000/100,000 = 1.2 DCR. The DCR is designed | | | | where they will seek financing. In this case, you can |
| to cover the loan in case of rent vacancies and | | | | expect to be forced to sign non-disclosure |
| changes to net operating income. A cushion for the | | | | non-circumvention agreements to protect the broker. |
| lenders security. | | | | Mortgage banking firms, on the other hand, represent |
| Then you have the task of finding a legitimate lender | | | | life companies under contract and you, as an individual, |
| to provide the permanent mortgage. In a world full of | | | | cannot approach a life company directly. |
| crooked commercial loan brokers and shysters who | | | | Securing a commercial mortgage is a complicated |
| will take your money and not produce a loan, there are | | | | process if you don't know what you are doing and it |
| a few quick things to make sure you are headed in | | | | may pay dividends to keep track of these articles in |
| the right direction to select a legitimate mortgage | | | | the near future as I intend on creating a mini series |
| broker or banking firm. First, call any commercial bank | | | | about residential and commercial mortgages. Not sure |
| and speak to the commercial loan officer. They can | | | | at this point how deeply they will go but they will help |
| often provide names of mortgage brokers who | | | | you make better decisions. |
| specialize in arranging large scale financing and have | | | | To your success! |
| some track record with the bank. This is not the final | | | | Do you like this tip? You haven't seen anything yet! |
| acid test but it is a good first place to go for guidance. | | | | Check out our Smart Books Business products by |
| Attorneys specialized in commercial real estate law | | | | clicking the link below. We have business kits, books |
| are also a good source for referrals and you can find | | | | and ebooks to help you get smart-fast. Check us out.... |
| them by contacting your local bar association. | | | | We'll save you a TON of time and money. |
| There are primarily two kinds of players in the | | | | Copyright © 2006 James W. |
| commercial mortgage business: 1. Commercial | | | | |