Many times after we meet with the loan officer we really do not understand the mortgage process. The loan officer does not fully explain things and we have in our own mind what is supposed to happen and when it should happen. Unfortunately this is a recipe for frustration. Rarely do things go the way we expect them, even if they go the way they are designed to, that may not be our expectation. If the loan officer sets the expectation and fully explains the mortgage approval process up front then we all will be happier. The process will change slightly from lender to lender and program to program, so as I lay out the general mortgage approval process. Be sure to confirm this with your loan officer.

Loan Officer

Pre-Qualification: This preliminary step happens when the loan officer talks to the client, gets their income and asset information, takes an application and pulls the credit report. Since the pre-qualification is nothing more than the loan officer expressing whether or not they think you will qualify the amount of verification they varies. This is only a loan officer opinion. This is not a mortgage approval.

Pre-Approval: The pre approval is more than the loan officer opinion. Generally the loan officer will take a complete application and submit it to an automated underwriting system for an automated mortgage approval. The credit is pulled but their is no verification or validation. Many times this pre approval is misinterpreted as an approval. Either at pre qualification or pre approval a complete and formal application is submitted. The loan officer collects the documentation they believe is necessary to process the loan then submits it to processing and underwriting for complete mortgage approval.

Processing and Underwriting

The loan processor takes control of the credit application now. They will verify and validate the informtion on the application. They will order the appraisal, title commitment, verification of employment, verification of deposits, and confirm all information on the application. Once the processor has verified the necessary information and the documentation they have ordered has returned she can submit it to underwriting for mortgage approval. Once the underwriter reviews the file most often the underwriter has questions and the file goes back to the processor to clear conditions. If the processor needs to contact the customer to clear those conditions they will. Sometimes we feel that we provided the information and it seems that the same things are asked for over and over again. That happens when the information does not properly answer the question or is incomplete. It is necessary that complete and most recent information is submitted initially to make the mortgage approval process as smooth as possible. It is the loan officers responsibility to know the general items needed and what is complete. On occasion we have unique circumstances or information comes up during  validation and verification that requires further information. By us working with the loan officer and processors we help make the process go quicker and easier. Only the underwriter approves or denies a loan. It is our job to present the loan in its best possible light with complete documentation to enhance the possibility of a quick clean mortgage approval.

Closing

Once the underwriter approves the loan ther may be conditions that the processor works to clear. When those conditions are cleared the file often goes back to the underwriter to issue a clear to close commitment. Sometimes the conditions are within the processors authority to clear the final conditions. Once a Clear to Close approval is issued the file goes to the closing department and a closing is scheduled. Generally, the attorneys schedule the closing. There are always conditions that must be cleared at the closing. Most often they only closing conditions that the escrow closer can clear. Sometimes there may be conditions that require the processor or underwriter to review before the funds are dispursed. This depends on the state the property is in and the lender, whether they will allow in underwriter to clear conditions to go to closing. Sometimes it is necessary.

Escrow Company

The final piece of the mortgage puzzle is the escrow company. They are a third party company, ussualy chosen by the seller for a purchase or the lender for a refinance. They represent the lender, title company, buyer, and seller ensuring that all interest are covered before they release the lenders funds. Of course the lender is the key because they issue the money, but if there is not agreement with other parties then there is no deal and the escrow company makes sure all parties complete the necessary lender, governmental and buyer seller aggrement forms.

This is the general flow of the mortgage process from pre application to funding. The time it takes to move from one stage to the next varies by program, borrower circumstances, and lender capacity. Communication is important. You should always ask your loan officer to give you a reasonable expectation of what time frame of every step as well as the process in total. If there are hurdles or snags along the way it is your loan officer who is responsible to keep you informed.

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Keep in mind that all four of these need to be done simultaneously for the formula to work in real estate investing.

Predisposed:  You don’t want to make this a difficult process.  So to make it easy, you need to target people who are already predisposed to investing in real estate such as apartments.  They have already shown some affinity, some familiarity, and some willingness to invest in real estate.  They don’t need persuading that real estate is a good investment vehicle.  All they need to be persuaded on is you and your deal.

Control :  Preservation of capital is the primary concern before a private investor releases his or her funds.   Control is described best as when you are putting together an investment vehicle, how does the investor feel that they are retaining control over the transaction if something goes wrong?  If the borrower does not perform, how does the investor get control of the situation?

Low Risk:  The second complimentary part to Control is low risk.  How do I design a real estate investment vehicle that is as low risk as possible for the investor?  Ideally, it is no risk and if you go to the extreme, it is risk reversal.  The private investor actually makes more money if the borrower defaults.

High Return:  Once you have found someone who is predisposed to real estate and you have convinced him that you have a low risk transaction then the other human condition kicks in.  The investor then wants to know how good a deal he is getting for the low risk investment.  You have to craft an investment for them that yields a high return but doesn’t give away too much of your profits.

The premise of this formula is that you are building an investment product thru apartment investing.  The more you can package up your deal, and quickly and clearly articulate its merits makes all of the difference in the world in raising private monies.  With this formula alone, you probably know more about raising private money than 80% of real estate entrepreneurs out there.  The key is remembering that all four components need to be done at the same time in order for you to be successful.

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You don’t have to “graduate” from single family to multifamily. You can start with multifamily – just like Lance Edwards did.  And besides owning apartments, you can flip them for big cash. Utilizing the multifamily apartment strategies he now teaches and writes about, Lance retired from his job in July, 2005. For more information on how you can achieve financial freedom using other people’s money, visit http://www.ApartmentWealthMachine.com .

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What is a Commercial Loan Modification?

A commercial loan modification is the process of providing for either a permanent or a temporary change in one or more of the terms of a debt obligation or encumbrance because of some type of economic hardship currently affecting the borrower.  Because of the rising number of defaults, banks and commercial lenders, and in attempt to minimize their losses,  are willing to restructure the terms of their defaulted loans, in the hopes of avoiding a costly foreclosure process and having to show huge losses to their investors.

By modifying a commercial loan properly, a property owner can avoid foreclosure, and greatly reduce their monthly payment and in some cases reduce the principal amount of their debt. Examples of these hardships may include, but are not limited to, reduction in the rent roll, because concessions had to be made to tenants in order to keep them viable; loss of tenants due to the current economic conditions, loss of revenue from sales.

What are the types of Commercial properties can you Modify? Most all commercial properties. For Example:

* Strip-mall
* Shopping center
* Apartment building
* Warehouse
* Multi tenant building
* Investment property
* Business Complex
* Office Building
* Restaurant
* Commercial lots
* Other Income producing property

How does a commercial loan modification differ from a residential modification?

The modification of the commercial debt is being accomplished to assist the “viable” business to continue to operate profitably. By modifying some of the current debt terms, the business or investment can remain at a positive cash flow, thus allowing the borrower the motivation to continue to make payments to the bank or lender during this time of economic uncertainty.

With that being said, generally a Commercial loan modification company will do the following:

* Consultation and analysis
* Pre-qualification
* Qualification
* Negotiation
* Final Modification/ Restructuring of Loan

Who qualifies for a commercial loan modification?

The “viable” business owner or property investor who can demonstrate current or expected economic hardship, but at the same time is able to a business plan that can meet the proposed financing/modification will qualify for a loan workout. The bank or lender must become very comfortable that the borrower is not just delaying the obvious- foreclosure – but that the modification will benefit both the borrower and the lender. The borrower will be able to make the monthly payments established through the modification/workout.

How long should a loan modification take?

A typical commercial loan modification should take between one and three months, but it could take longer if the borrower or lender cannot agree on the terms. The time for the modification will depend upon how rapidly the application is processed and how quickly the debt instrument holder responds.

The biggest part of the process is research and analysis. Once all the components are put together to get a precise picture of the borrower’s financial situation, the next step is to review the current loan and come up with options that will work with the borrower’s situation today.

Experience shows that when the borrowers talk openly and honestly with us about their situation, many problems can be avoided in the modification process. This is not a situation where one signs up for a modification and then the modification company take it from there. They will need the borrower’s help. Documents will be requested, forms signed, conversations about the current loan. Once everything is in place and agreed, the modification application is presented to the bank for approval.

Will I or my property qualify for a loan modification?

There are many factors that determine on what basis a lender will modify a loan. Equity, income, payment history, debt ratio and many other factors. Every case is different. If your property is producing income that you can prove, then you probably will be able to come to a resolution.

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How do I know if I qualify for a commercial loan modification? There are many factors that determine on what basis a lender will modify a loan. Equity, income, payment history, debt ratio and many other factors.Find Out If Your Commercial Property Qualifies For A Commercial Loan Modification.  Visit: http://tinyurl.com/mxmef9

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1.  Cosmetic:  You are likely to hear some vernacular in the industry like “putting lipstick on a pig”.  This refers to things like painting or landscaping and anything else that is non-structural in nature.

2.  Complete Rehab and facelift:  This option is more involved.  You can place in all new appliances and new carpet on the uninhabited units and completely rehab it so some of the stuff looks new.  The rehab does not necessarily change the class that the property is in.  For instance, if you have a Class C property that was built in the 60’s, it will still be a Class C after you rehab it.

3.  Put new management in place:  If you buy a distressed property that has a 70% occupancy rate and has an existing manager, the first thing you want to do is fire the manager because he probably has bad habits.  If you are serious about what you are doing, you want to put new guidelines in place.  Clean house and replace the property manager because that is the first step to raising rents and increasing the occupancy.

There might be a contract in place with the property manager but most have a 30- or 60- day out clause for both parties so you would have to give notice.  Management contracts are usually pretty flexible.

The first thing you want to do when repositioning is to remove the bad tenants because they are dragging down your property.  Other tenants in the apartment complex know who the bad tenants are.  You want to get rid of the bad tenants so you can create a family-friendly environment.  You want your tenants to feel safe and sound.

Even if the bad tenant is paying his rent on time, you still want to remove him because he is bringing down the rest of the property.

Repositioning offers you a way to increase the rent on your multifamily apartments.  You can either go “all out” and completely rehab the property or go with the less intensive changes of cosmetic improvements or management restructuring.  Be sure to carefully evaluate which option is best suited for your needs.

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Think you need big cash and experience to do apartments?  Well, Lance Edwards is living proof that you can start with multifamily investing – just like he did and using none of his own money. Utilizing the multifamily apartment strategies he now teaches and writes about, Lance retired from his job in July, 2005. For more information on how you can achieve financial freedom using other people’s money, visit http://www.ApartmentWealthMachine.com

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A Multi Family property eligible for commercial financing is defined as a structure having at least 5 or more units with the residences for permanent habitation. The major factor in determining if you can qualify for a multifamily commercial mortgage is the property itself. Theses are a few key characteristics and considerations on a multi family commercial property to make the property eligible to be financed:

The Property Condition.

1. Signed leases with terms of 1 year or greater.
2. What are the number of bedroom and bathroom combinations.
3. What is the history of the vacancy rates.
4. Do the units have separate utilities to bill the tenants directly.
5. Is the property professionally managed.
6. Is there deferred maintenance or functional obsolescence of the property.
7. Does the facility have a pool, clubhouse or tennis court and other amenities.
8. Is the facility conveniently located to employment, education, shopping or attractions.

Not only are these characteristics important in determining if the property qualifies for financing, these are major factors in determining the value of the property.

The Property and Income.

In addition to the condition of the property the income as compared to the expenses of the property is key to determining both the value of the property and how much mortgage the property can qualify for. The greater the income in relation to expenses the easier it is to qualify for a commercial mortgage. The best rates are usually offered by the most conservative lenders. The most conservative lenders require 1.5 times the income to the expenses to qualify for financing. If property is in good condition and it has a little less income there is still financing available down to as low as 1.1 times the expenses.

The Management Company.

The experience of the property manager is also a consideration to financing. If you have purchased a commercial property or are considering doing so and you do not have experience owning or managing the property it is important to hire a professional property manager. The larger properties having a property management company is not even a second thought. For smaller units you may think they are an unnecessary expense, but professional property managers help you chances to qualify for financing if you do not have the experience.

The Owner.

Quite often on larger units the financing is based solely on the property. But for smaller multi family projects the lenders require a personal guarantee and the review, income, credit and assets just like a residential investment property. Additionally, the typical down payment is 20% to 30% for these projects and the lender whats you to have reserves for repairs, vacancies and other contingencies.

The Loan.

Multifamily commercial loans are generally structure with terms written with 5, 7, 10, 15, 20, 25, and 30 years terms with or without balloon payments. For this type of commercial loan expect to provide full documentation including:

1. Last 3 years property operating statement
2. Year to date property operating statement
3. Property rent roll
4. Last 3 years federal tax returns of  borrower
5. Personal financial statement(s)
6. Digital photos of the subject property

There are multifamily commercial mortgage products that can help people with significantly impaired credit, these have higher commercial loan rates. For borrowers with great credit and assets that deserve the best rates, funding is also available .

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A Mortgage Banker for 20 years I have been able to establish relationships with private investors who make hard money loans for residential and commercial projects. If you require financing for your real estate investment deals, whether commercial or residential contact me at 773/636-5234
You can also email me a Vickie@alldominionmortgage.com

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