The Commercial
Mortgage Process

Are you new to the Commercial Mortgage Process? Been around the Commercial Financing block a time or two?

Well, if you're new, or even if you're experienced in the Commercial Mortgage Process, this information will be extremely useful to you.

In many cases, if you are not familiar with the entire process, you can cause delays or other headaches for yourself that are completely unnecessary. Same is true for those who may have experience, but may miss something important during the process.

So utilize this information as a brush up, or if this is your first time, use this to lay the groundwork for a successful process. Bottom line, don't get caught with your pants down.

Let's start with a question I hear a lot. "Dave, What should I Expect Once I say Yes And We Get Started?" 

First things first. To better illustrate what you can expect once we get started with your Financing, you need to have all of the ammunition possible. So, let's start at the beginning.

Did you read the "What is Different About Commercial Real Estate Financing?" page? If not, please go read that page. It's important for you to have that information embedded firmly in your brain so we can cover the Commercial Mortgage Process. Don't worry, I will be right here when you get back.

The (First) BIG Mistake People Make With Commercial Real Estate Financing.

This is really important, because if you screw this up, you will screw up the entire Commercial Mortgage Process for obtaining financing, and possibly ruin your chances of being able to buy the property.

The BIG mistake I am referring to is looking for a property BEFORE you have spoken to someone about financing. Or worse, putting down a large deposit on a property before you know if it will cash flow. 

This mistake is made more often than just about any other, and in my opinion it is responsible for more deals NOT happening than anything else.

Think about it. How do you know how much you can afford to spend on a property if you do not first talk to someone on the financing side?

Also, Commercial Financing takes time. Unlike a residential mortgage, a Commercial Mortgage is not going to close in 3 weeks. Yes, there are a few exceptions to the rule, but I am talking about in general terms here.

Also, when you talk to someone about the Financing for your Commercial Property, you are going to learn what YOU will need to know from the seller in order to determine if it's even a good deal.

For example, lets say you're buying an apartment building. In order for you to know if this deal will even make sense for you, you will need to get the rent rolls and the financials from the seller. Those numbers will need to be crunched in order for you to know if it even makes sense for you to make an offer.

Too often I see buyers, who justifiably are enthusiastic about buying the property, so they go out and find a property and put a large down payment down. THEN they go look for financing.

Meanwhile the clock is ticking on their deposit. And maybe the first person they talk to about the financing doesn't really understand apartment building or the Commercial Mortgage Process. So, as they try to figure it out, the clock continues to tick.

Tick, tock. Tick, tock.

Before you know it your time has run out, and now you are in scramble mode. You finally find the right person, like me, and we start asking you for things like the rent rolls and financials. You then ask the seller, the seller has to get them from their CPA, all the while, tick - tock, tick - tock.

What I see happen in many cases is the buyer is now forced to seek out a "Hard Money" loan just to save their deposit. They get stuck in a very expensive loan, and end up losing money each month instead of cash flowing each month.

The moral of the story? GET YOUR FINANCING IN ORDER FIRST, BEFORE YOU LOOK AT PROPERTY.

So, what do you do first?

You need to start by having all of the financial information on the Property you are looking at. How else will YOU know if this deal meets your investment goals and/or needs?

You should have asked the Seller for 3 Years Operating Expenses, plus year to date on the Property. If it's a Multi-Family Property you will also want a Certified Rent Roll.

And you want this first because YOU need to know if this is a viable deal. Will this meet your investment objectives, if this is an investment situation?  You need to know this information before you plunk down a large deposit.

So, assuming you have that information, and the deal meets your investment goals. OR, if you are not sure what to do with this information, and need my assistance, here's what to do next.

Here is Step 1:

I will need the following documents and financial information:

• 3 Years Tax Returns - Personal (and Business if a refinance)
• 3 Years Financial Statements or Operating Statements PLUS Year-To-Date
• Personal Financial Statement completed by you

Assuming you have this information, you will want to complete a Commercial Deal Screening Form.pdf and send all of this documentation to me by fax or email.

If you need any blank Forms just go to  Commercial Financing Forms and Applications I should have everything you need on that page.

If you do not already know if this deal makes sense, we will go over everything you send me, and then you need to decide if this is a project you want to pursue. If this is an Investment Property, you should be thinking about what kind of return on investment you are looking for.

It is extremely important to do all of this work up front. You simply cannot blow through a Commercial deal and expect it to be a positive experience. You must take the time in the initial steps to do your due diligence. The success or failure of a Commercial deal is determined in the early stages of the process.

Please do not overlook the significance of the early stages of your Commercial deal.

Step 2:

Once I have your completed Commercial Deal Screening Form.pdf and the other Financial Documents, we can discuss your Property in more detail. After we have reviewed all of the information, and you have decided this deal makes sense for you, I will get to work on finding the best Lender and Commercial Financing Program to match your needs.

Step 3:

Once I find a Lender or Lenders, I will send you a "Term Sheet" which will outline what the Lender's terms will be.

Please understand I will NOT disclose to you the name of the Lender until I have your signed Term Sheet returned to me, with the appropriate Processing Fee.

It should be obvious why this is done this way, but for those new to Commercial Real Estate Financing allow me to explain.

My vast network of Commercial Wholesale Lenders is one of the reasons why my Clients seek me out and use my services. Unfortunately, there have been instances in the past where someone thought they could pull the old "end around" on me. 

They mistakenly assumed that with the name of the Lender in hand, they could simply contact the Lender directly and cut me out of the deal. I know, greed makes some people do strange and silly things, right?

While my Lenders would never risk damaging the relationship they have with our Company for just one deal, I have made the process safe for everyone by requiring the Term Sheet be signed in advance of releasing the name of the Lender. 

Every quality Commercial Mortgage Professional would do the same. If you should happen to stumble on one who doesn't, that should be a red flag for you that you are dealing with the wrong person.

Step 4:

With that done, the next step will be for the Lender to provide a "Letter of Interest", which is simply their way of saying that based on the information they have up until that point, they are ready to move forward with your loan.

Keep in mind that neither the Term Sheet or the Letter of Interest is a guarantee the Lender will close your Loan. It would be impossible for anyone to make that guarantee at this stage. There remains a lot of work left to be done.

If anyone suggests that a Lender's Letter of Interest is anything other than what I just described, consider that another red flag.

It's also important to note that you are not guaranteed to get the interest rate found in either that Term Sheet or the Letter of Interest.

Unlike with a Residential loan, where the interest rate can be locked, in a Commercial loan you can not lock the interest rate. So, if the economy takes a nose dive before your loan closes, you can expect to see a different interest rate than was quoted in the Term Sheet or Letter of interest.

Also, there could be information that develops during the Underwriting process that can have an impact on your final interest rate.

I'm not saying it's always going to be different. I am just taking off those rose colored glasses some folks are wearing. Consider this to be another of those red flag issues.

And it may not be done purposely by the Commercial Loan Officer or Broker, it may just be they are not experienced with Commercial Financing, and they think it works the same as Residential.

The point is, YOU need to know the difference so you know truth from fiction.

Hey, sometimes the truth hurts, but it will hurt a lot less if you hear it here rather than the closing table.

Step 5:

This is why it is so important for you to continue to be diligent in providing all of the necessary information to me and to the Lender. You become the main focus at this point because without your cooperation the deal cannot move forward.

The next phase is the Underwriting phase. Again, this is where you will need to cooperate with the Lender by quickly providing any additional documentation they need.

Step 6:

The Appraisal. Unlike in Residential, where the appraisal is ordered right away, in Commercial Real Estate Financing the appraisal is ordered later in the process.

Commercial Real Estate Appraisals can be expensive (certainly more expensive than a residential property appraisal), and in many cases they are time consuming. I would say you are looking at a cost of $2,500 on the low end to $3,500 or more depending on the scope of the project.

Especially when you have a Property that requires an Environmental study. As someone who once built and operated a large Gas Station, I can tell you from personal experience that the Environmental study and appraisal can take time.

But, the Lender does not want to order the appraisal until they know they have a viable deal. And you really can't blame them for that. This stage of the Commercial Financing Process takes time, so you will need to exercise some patience.

This is also the time when any Environmental studies that need to be done will also be ordered. Depending on the scope of the project, these too can be costly.

Step 7:

Okay, the appraisal and environmental studies are done, and now it's time to get this loan closed. Only after the appraisal has been completed will the Lender issue a "Commitment To Lend". And in most cases, only when the Lender issues the Commitment To Lend can you lock your interest rate.

Once the Commitment To Lend has been issued it is time to close your loan.

Keep in mind this is not meant to be an all inclusive breakdown of the Commercial Financing Process. It's simply a generic breakdown of the Commercial Mortgage Process so you have a better idea of what you can expect.

Now it's time for you to get going on financing your deal. And the best way to do that is to pick up the telephone right now and call me.

CALL 800-553-3442 NOW For Details
About Our Commercial Financing Programs!