Navigating the loan maze isn't easy. Here are some helpful tips so you can educate your borrowers about the process.
If your clients are still approaching borrowing like it was 2006, you need to educate them about today's realities, says Joe Scorese, a commercial mortgage broker representing NAI Bluestone in Philadelphia.
If borrowers want to get a loan today, they need to:
- Borrow based on loan to cost, not loan to value. Lenders aren't interested in how much the property will be worth in a better market; they will lend only on what you're actually paying.
- Come up with 30 percent down. You need to have considerable equity in the deal if you hope to get a loan.
- Take control of the deal. In this market, don't expect a lender to take you seriously unless you have a contract in hand.
- Know what the property will be worth in 90 days. If prices are falling, don't expect to borrow on current values.
- Pay the fees. Borrowers need the cash to cover title, legal, and environmental due diligence costs; don't expect to roll them into the loan.
- Generate income right now. You need leases in place that will at least cover your debt service.
- Offer more than a good deal. No one will lend on that, says Scorese.