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Commercial Mortgage Loans

Commercial Real Estate: Mortgage Process

by Amy Lillard

Jun 21, 2007 - If you're ready to make the leap to commercial real estate, you're poised to make great money. That is, if you know what you're doing. In our continuing series, we examine the basics of buying commercial real estate, along with tips for the process.

You know the basics. You know the types of mortgages. You have an idea on what you can afford and what mortgage will work best for you. Time to get that commercial loan!

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The process of obtaining a loan to purchase commercial property can take some time. Typically, expect at least a few weeks, and plan for several months. Depending on the appraisal, evaluation, negotiations, and more, your loan will take as long as you need to get the most appropriate deal.

Be sure to know which property you wish to buy before approaching a lender. Sounds self-explanatory, but don't rely on lenders to give advice about narrowing down or choosing. Have something firm in mind. Also, if you're buying a rental or lease property, you may need to have tenants lined up to show positive cash flow. With property chosen and ready, the process is off to a good start.

Next Steps:

• Select a lender. There are a number of effective ways to find an appropriate lender for your needs. Ask your real estate broker for references, as he or she can match you with a lender experienced in that type of property and loan. Consider any relationships you might have with bankers on other loans, but remember that each lender has different areas of expertise. Also, you can conduct your own research. Search online for the type of property and type of mortgage you're looking. Make your final decision on the deal, but also on the rapport you have. Seek someone you are comfortable with, and can envision working with for years to come.
• Complete a loan application. The application is the formal beginning of the loan process. You may or may not pay an application fee. As part of the application, you must provide detailed financial statements, including business and personal records from the last three years. Operating statements, bank records, tax returns, corporate financials, and more must all be provided. Lenders use this information to determine your ability to pay a mortgage now and in the future.
• Lender evaluation. After you give the necessary information, the lender goes to work. Considering the financial statements you provide, the lender will make calculations that determine your probability of repaying the loan consistently. Simultaneously, the lender will conduct background and credit checks.
• Property Evaluation. The lender will conduct an appraisal (at your cost) for the property value. They'll research the title history for any pertinent information. They'll conduct environmental inspections (at your cost) for certain businesses, like gas stations, industrial plants, that represent potential health risk and danger.
• Mortgage Decision. After all the evaluations and inspections, the lender will either approve or reject the application. If a mortgage is rejected, the lender will provide a list detailing the reasons.
• Loan Agreement. If approved for a loan, another round of paperwork begins. At this point, you should involve a lawyer to help review the terms and conditions of the mortgage and look for any undisclosed fees. Once you and your lawyer have requested changes and reviewed the final documents, you submit a down payment at the closing and sign the contracts. The money is typically available to you within a few days of finalizing the paperwork.

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Continue reading our commercial real estate series to learn about commercial mortgage in's and out's, and commercial mortgage types.