Conventional Loans are available nationwide for various commercial properties. The interest rate is fixed for 1-5 years to adjustable with a standard 10-year term. Finance acquisitions and refinance to 85% LTV. The cash-flow is analyzed by dividing the net operating income by the proposed payment for a minimum 1.25% debt coverage ratio. This type loan typically requires minimum net worth equal to the loan amount, standard credit rating and liquidity to qualify.
CMBS Loans, also known as Conduit Loans, are secured by a first-position mortgage on a commercial property. A CMBS Loan has a fixed or floating interest rate (which may or may not include an interest-only period). The loan is typically amortized over 25-30 years, with a balloon payment due at the end of the term. CMBS Loans allow investors that cannot usually meet stringent conventional liquidity and net worth guidelines to be able to invest in commercial real estate because of the more flexible underwriting guidelines. Eligible borrowers are still subject to minimum net worth, liquidity and commercial real estate experience needed to qualify.
Life Insurance Loans are generated by life insurance companies who balance an investment portfolio. They invest a portion of the portfolio in real estate mortgages to generate interest income. $1MM to $10MM loan amounts for purchase or refinance and up to 30-year amortization. Terms of 10 – 25-year fixed rates with early rate lock and no reserves. Non-recourse and assumable both available up to 75% loan to value and with a 1.25% minimum Debt Service Coverage Ratio (DSCR).
Stated Income Loan is a mortgage where the lender does not verify the borrower’s income by looking at their pay stubs, W-2 (employee income) forms, income tax returns, or other records. Instead, borrowers are simply asked to state their income. To minimize the risk of default the lender requires the borrower(s) to put down 40%, or refinance the asset to 60% Loan-to-Value.
Bridge Loan are short-term and temporary loans used to reposition an asset at higher than prevailing interest rates. The bridge loan is backed by real estate collateral. There is an interest only payment, usually good for 1-2 years with no prepayment penalty. This type of financing allows borrowers to meet current obligations by providing immediate cash flow. Borrowers must illustrate a clear exist strategy to the lender to pay back the bridge; this can be accomplished through a refinance, or the sale of the subject property for a profit after a rehab.
Construction Loans are recourse in nature. The bank examines the equity in the land, the construction budget and the financial strength of the borrower to issue credit approval. A minimum net worth equal to the loan amount, good credit, liquidity, and a solid builder’s resume is key. Rates range depending on the financial strength of the sponsor, or borrowing entity, experience, equity, liquidity and LTV/LTC. A fund control company is assigned to allocate and distribute the funds according to the approved budget by the bank. The assigned fund control company inspects completed work prior to issuing payment to the owner or builder.
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