With the recent melt down of the subprime mortgage market banks are tightening up their lending practices in the commercial sector of the finance industry as well as the residential. What this means for the apartment building investor is that he or she needs to make sure that he is working with a commercial mortgage broker who has experience preparing apartment building loan packages in tough times.
The underwriters at banks are now being especially stringent when following their own guidelines. In the past, when a borrower submitted a loan package to a bank loan program that required the borrower to have a minimum net worth of at least 1 million dollars for the purchase an apartment building for 1 million dollars they may have let the borrower float through with a net worth of only $900,000.000. Those days are over. The apartment building investor now needs to be especially diligent when applying for the loan and preparing the loan package for bank underwriters.
Many loan programs for commercial real estate acquisition and refinance have also disappeared. It is now very difficult to qualify for an 85% loan-to-value mortgage on an apartment building whereas in the past they were more accessible. What this means to the apartment building investor is that he or she needs to be working with a commercial mortgage broker that specializes in apartment buildings or at least a broker that only does commercial real estate loans. The two sides of the lending industry commercial and residential, are so different from another that I have never encountered a mortgage broker that I would consider especially adept in both arenas at the same time.
It is important for the apartment building investor to realize that a commercial mortgage broker will usually only charge one point in fees on an apartment building investment. One serious mistake that many apartment building investors make is that they try to contact the banks directly and submit their own loan packages in an attempt to shave half of a percentage point of the interest on the loan. What these novice investors don’t understand is that all banks who do apartment building investments are actually brokers. This means that they sell their loans to the secondary market.
The investor who tries to place his apartment building loan by himself is actually hurting his chances of finding the best rate and terms on his apartment building loan. Many banks and “direct lenders” only offer one or two loan programs that they are willing to underwrite for multifamily properties. A commercial mortgage broker who specializes in apartment building financing will be able to offer the investor ten or twelve different loan programs to choose from that match his personal financial profile and that of the property as well.