Commercial Mortgages in The New Economy

When an investor or business owner who finances commercial property use a dent instrument known as a commercial mortgage. The process of obtaining commercial mortgages is not the same a trying to get funding for a home loan. Commercial loan underwriters are looking at different factors to determine if a loan could be made.First of all when someone is in need of commercial mortgages, you just don’t call up a broker or lender ask what is today’s interest rate and what is your best deal. It does not work like that in this Industry.First of all, a lot of information about the commercial property will need to be obtain as well as information about the borrower. More importantly how much cash flow the property is generating, occupancy rates, location, type of use, requested loan amount, loan to value rations and other qualifying factors need to be known before an interest rate can be quoted.The loan to value ratio of the commercial mortgage will be looked at closely. That one factor alone will make or break any deal. The lower the loan to value ration is (amount of equity in property or down payment) the better the chances for pre-approval.Before the economic crisis began around 2007, commercial properties could have been 100% financed or perhaps a 10% down payment (90 LTV) was all that would of really been need for the loan to have a good chance of successfully closing.Now that we are on the horizon of the post economic crisis of 2007 through 2009 there is another loan approval factor being placed in to the underwriting equation. That is how stable is the value of the property? If it is determined that a commercial property is most likely not to decline in value anymore and has in fact stabilized, then lenders may be interested in proceeding with the loan.However if a property’s value or area is still experiencing declining values, then it is likely that a lender will not be interested in funding the deal until there is a reversal in prices and economic stability.In these new economic times, commercial mortgage lenders will be looking more closing at the properties that they will be lending money on. They will now be more cautious and take on deals with the least amount of risk to them. In the old days deals were passing through underwriting without to much scrutinizing of the loan file and lenders were even offering non-recourse loans to the borrowers. It is possible that non-recourse loans could become a thing of the pass, we will have to wait and see.There are still investors out there willing to lend on commercial properties. Any property with stabilized values or potential increase in values stands a better chance of closing and being funded for commercial mortgages.

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