Commercial Mortgage : What You’re Worth

Going hand in hand with experience, lenders like to see a Borrower’s net worth matching to some extent the value of the property being acquired, along with liquidity of roughly 10% of the loan amount AFTER equity has been invested. Again, while “non-recourse” loans are generally available, the lender wants to know that the Borrower has the wherewithal to carry the property out of their own reserves should there be an unexpected dip in income to support operations and debt service. Many Borrowers will team up with multiple principals so that the combined net worth and liquidity match the lender requirements. All to often Borrowers attempt to take on too large of projects because they were able to raise the necessary equity capital, but fell short of lender required Balance Sheet strength as the Key Principal or Sponsor.

Credit Where Credit is Due

Credit scores in the past were not a major focus for lenders, as they were really relying on the property-generated income to support debt service. Since the credit crunch, credit scores are now much more relevant to determining a Lenders opinion of the Borrower’s credit worthiness. Lenders will always perform a credit check on anyone that applies for a mortgage, so if you know your credit score is less than 680, do something about it beforehand and work to bring that number up before you apply. To make the process quicker, supply the lender with all of the details pertaining to your credit accounts, which they can then compare to your credit report.

There are many more steps to successfully applying for a mortgage, but this should be a good starting point. Getting property-level information, as well as personal financials, rounded up beforehand, will make the process much easier for you and the lender once you do apply. Then you can be on your way to successfully negotiate your property acquisition with confidence!