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The 4 C’s of Commercial Mortgage Lending: Collateral

Commercial Mortgage
Posted on 
November 5, 2015

Part Two of a Four-Part Blog Series

Whether you’re working with a borrower who needs to refinance an existing commercial property or is looking to purchase one, collateral is an important factor in underwriting any commercial mortgage loan. This is particularly true when the mortgage is secured by the property. As a commercial mortgage broker, you need to get as much information as possible about your borrower’s property before submitting the scenario to a lender. Here are a few questions you should always ask your borrower about the property they’re looking to finance:

What type of property is it?

The first thing you’re going to want to find out is what type of commercial property your borrowers owns or is looking to purchase. Whether it’s a multifamily property your borrower rents out, a retail property, a mixed-use building or a warehouse, your lender will need to know in order to properly underwrite a commercial mortgage loan. Be sure to check your lender’s guidelines to make sure they’ll lend on your borrower’s property type.

Where is it located?

The location of your borrower’s commercial property is also an important piece of information for a commercial mortgage lender. Providing your lender with the location allows them to do research about the property in order to better underwrite the mortgage.

Is the property occupied?

Another key factor in getting your borrower the commercial financing they need is the property’s occupancy. Whether or not a property is being rented out or occupied by your borrower will have a lot to do with how the lender underwrites the deal.  A higher LTV (Loan-to-Value) is usually offered for owner-occupied properties.

What is the value of the property?

In order to determine the loan-to-value ratio, a commercial mortgage lender needs to know how much your borrower’s property is worth. If it’s a refinance, provide your lender with the date your borrower purchased the property and the price for which they purchased it. For mortgages on commercial property purchases, simply provide the listed price.

What kind of business does it house?

It’s also important for commercial mortgage lenders to know what kind of business your borrower is running or plans to run. As a commercial mortgage broker, it’s your job to discuss this with your borrower and provide this information as early on in the process as possible.

In order for a commercial mortgage lender to underwrite a loan, they need as much information about your borrower’s property as possible. The above questions will help you to understand your borrower’s property and will thoroughly prepare you to present it to the lender you’ve chosen to work with. Having this information early on will helping the lending process to go more smoothly and will allow the loan to close more quickly.

Other blogs in this series include Credit, Capacity to Pay and Character.


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