Category Archives: Loan Approval

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Atlas Commercial Capital

Mortgage Broker, Direct Lender, or Mortgage Banker?

Category:Loan Approval

There are three sources where a commercial or multifamily borrower can obtain a loan. In this article we will discuss each avenue. This article is not intended or is it applicable for owner-occupied one-to-four family properties.

Direct Lender

A Direct Lender can be any of these sources: bank, life company, pension fund, credit union, mortgage REIT, or even a private or public mortgage funder. Each type of lender has their advantages, but the one thing remains consistent is that every lender has their preferred box for the type of loans they will provide. Here is a list of common preferences: loan sizes, LTV, property underwriting requirements, DSCR, asset age, asset type, asset class, tenant profiles, location, demographic statistics, asset competition in the market, borrower credit profile, and borrower background profiles.

If you happen to know all the lender’s parameters before you file an application and know that you will meet all of them, then go ahead and file. Otherwise, you most likely will end up with a different outcome than you anticipated or worse, have spent a lot of time and money and not have your loan approved. A Direct Lender is also known as a Balance Sheet Lender, meaning the loans they close are made to be held.

Mortgage Banker

Sometimes there is a very fine line between what constitutes a direct lender versus a mortgage banker. While the mortgage banker has the same loan preferences as the direct lender, they typically will not keep the loan, may only keep a portion, and may or may not service the loan. Some mortgage bankers work off lines of credit, others may only table fund (loan is sold before the close), and others will package your loan with others for eventual sale in the secondary market.

Some good examples of a mortgage banker are: CMBS lenders, GSA lenders or programs (Fannie, Freddie, HUD, SBA, USDA), and of course, any lender that does not intend to keep the loan on their balance sheet. The mortgage banking business has greatly expanded over the years and if I had to take a rough guess, most likely 75% or more of all loans today are not held by a lender on their balance sheets.

Mortgage Broker

This is typically the best avenue for most borrowers to use in getting a loan for their property. Since a mortgage broker is in the loan market every day, they know which lender can offer the best terms for you and your property.

Like an exclusive sales broker agency, a mortgage broker is acting as your agent and has a fiduciary responsibility to act in your best interest. A seasoned mortgage brokerage company should have solid relationships with many lenders. They should know each of their lenders underwriting preferences. They must be able to guide, explain, assist, underwrite, process and be the main contact person from inception through post-closing.   You should be comfortable with this agent and there must be a two-way trust. Most direct lenders and mortgage bankers prefer to work only with professional mortgage brokers and will give them their best pricing. They do this since they know the broker will be back with more clients and deals which greatly assist them in meeting their own lending targets.

Some professional mortgage brokers like Atlas Commercial Capital may even get designated as a lender’s correspondent. That typically means that the lender has vented the broker, checked their backgrounds, licensing, etc. and found them to be an acceptable source of loans. It should be noted that many more lenders today will not accept loan submissions directly from borrowers or non-approved brokers.

Keep in mind that not all mortgage brokers are qualified or licensed, and some are not even ethical.   Therefore, a borrower must be prudent when choosing the right one to accomplish their goals. Never give a broker an upfront fee no matter what they want to call it. The broker only earns their commission when they have accomplished their goal of producing a lender’s qualified commitment that you have accepted. In most cases, the brokerage fee is paid at the initial loan disbursement.


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What are the challenges in loan approval

Category:Loan Approval

There are three distinct but equally significant components to loan approvals for all investor properties.  The first component is an analysis of the property, the second is a review of the borrower’s credentials, and the third is an internal lender approval of all third-party reports.

Step One – Property Analysis

In this analysis we are looking at a few separate aspects of the property.  In summary, this would entail a review of the rent roll, income and expenses, the property condition, past capital improvements, and finally how the asset competes in the market.   While it may seem that the most critical issue is current Net Operating Income, the property condition and market factors could affect the forward financial success or deterioration of that NOI.  Providing everything is acceptable, the underwriter now must input these findings into the lender’s own criteria standards and adjust accordingly to derive at the maximum loan amount, best rate and terms, and other conditions for final approval.

Step Two – Borrower Review

Every lender and loan program will have different standards for what constitutes an acceptable borrower.  In this review we do look at the entity itself, but the real focus is on the principals of that entity.  For over 95% of lenders, a principal is defined as anyone that owns more than 15 to 20% of the entity.  In cases where no one owns such a percentage, the underwriter will instead focus on the managing principals of the entity.   Whether recourse or non-recourse, the review is the same—credit scores, past credit issues, cash liquidity, global cash flow, and background.  There are variations among lenders of what may constitute an acceptable principal since each has their own risk tolerance.

Step Three – Third Party Approvals

The third critical part of the investor loan approval process is a review of title, appraisal, environmental, and if needed, a property condition report.  Since these reports are not ordered until after the loan application has been accepted, it will take several weeks or more before such review can occur.  When reviewed and accepted, the loan can now move towards final commitment and closing.

Conclusion

The critical point to understand is that investor loans are a process that has many moving parts.  Properly navigating these waters to achieve your goals takes time, skill, and knowledge. However, if done right can lead to financial success.  At Atlas, we prescreen all loan submissions with diligent upfront underwriting before we recommend any of our clients to proceed with a loan application.  We also match up our underwriting to the known specifics of our lenders.  This process is just one of our major benefits and has resulted in lenders offering their best pricing for our clients’ loans.

 

Kevin Meehan is the managing partner of the national commercial mortgage and correspondent loan brokerage firm Atlas Commercial Capital, Inc. which is headquartered in NYC. He has been closing multifamily and commercial property loans for over 35 years and can be reached at 212-332-3457 ext. 101 or by email kevin@atlascommercialcapital.com

 


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How to get better results from lenders

Category:Loan Approval

Whether you are just starting out or a seasoned investor, obtaining a commercial property loan today can be a very time-consuming and daunting task.   Many people often ask if there are any insider tips to getting better rates, terms and even faster responses when dealing within the finance industry. The short answer is yes, hire a professional intermediary that deals in the business every day. If qualified, they will be able to not only guide you through the maze, but will make getting and closing the loan a lot less stressful.

I use the word “qualified” to emphasize that there are a lot of people and companies out there that have no credentials or background to be working on complex financial matters. In fact, in some states no individual or company may act as a commercial mortgage intermediary unless they are licensed first as a real estate broker. Other warning signs also include individuals that just want an upfront fee with no intention (or ability) to even obtain what you seek.

Whether you use a qualified intermediary or try to go at it alone, here are some useful tips that will certainly benefit your endeavors in the marketplace. First, make sure that your initial submission contains the basic needs to allow a proper evaluation. You should, at the very least include: 1) property details 2) income and expenses, 3) rent roll, and 4) borrower profile.

Surprisingly, many loan requests get rejected or put aside not because the deal was bad. Rather, it may have taken too much effort for the loan officer to understand the deal or maybe the submission was incomplete or the loan request just did not fit the current lending box of that lender.

At the end of the day, if you want everything to go smoothly and obtain the best terms, make sure that: a) the requested loan fits within the lender’s guidelines, b) the borrower profile (background, net worth, etc.) meets the lender’s current preferences, c) everything is provided in a timely manner, and d) the lender has a high confidence that the deal will close either through a trusted existing relationship or through a trusted advisor.

 

Kevin Meehan is the managing partner of NY based Atlas Commercial Capital and has been closing multifamily and commercial property loans for over 35 years. He can be reached at either 212-332-3457 ext. 101 or kevin@atlascommercialcapital.com


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