When thinking about financing or refinancing CRE and multi-family properties, a borrower must consider more than just the loan term and interest rate. Finding the right lender for a particular property type and location, who can timely close a deal with the best terms for the borrower’s objectives usually requires broker expertise. The ideal financing for a property might be with a particular commercial bank, credit union or federal agency currently active in that sector — and knowing which lender(s) are the most competitive and active at that particular moment is critical. Many lenders might claim they loan “up to 75% of the value” at a low interest rate, but after an underwriting stress test in which that lender assumes a certain vacancy rate, management fee, and reserve amount for capital expenditures and leasing costs, it becomes apparent the actual LTV ratio will be much lower — because the lender requires a debt service coverage ratio (“DCR”) of 1.25, which does not compute at the quoted LTV. The lower cap rates seen in the market today put added stress on the DCR. Additionally, a good mortgage broker can help a buyer or refinancing owner compare and contrast different options — like interest-only periods, amortization periods, prepayment penalties, impound and reserve accounts, loan fees and costs, and recourse obligations — all of which can have significant economic consequences for the borrower.
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