Commercial Real Estate Financing Austin Texas

Commercial Real Estate Financing Austin Texas

There are 6 critical criteria that a lender will use in underwriting any commercial real estate financing for commercial office space or warehouse space investments. They are as follows:

1. Collateral
2. Amount and source of Down payment
3. Capacity (what is your monthly income?)
4. Credit history
5. Characteristics (your experience?)
6. Compensating factors

 So let's start with commercial real estate financing's underwriting requirements. Collateral- Some lenders will not finance a property due to some of the following attributes: No paving, bad neighborhoods, properties in need of extensive repair, zoning, building regulations, proximity to schools, proximity to shopping, lack of improvements to the property such as utilities and sewer lines.

Before you make an offer it is important to start your commercial real estate financing endeavors by doing your due diligence to make sure what the lenders expectations are, otherwise to finance commercial real estate you will waste time and money in loan origination fees etc.

 Amount and source of down payment: This commercial real estate financing has changed a lot over the past two years, before you could purchase a property with little down, those days are virtually gone. The exceptions is, if you have stellar credit meaning 750+ and have a lot of cash in the bank, you can qualify for an SBA loan with 10% down if you occupy at least 50% of the building.  Most commercial real estate financing lenders do not want to hear you are getting your down payment from sources that are not secure like putting on a credit card. Also, expect a lender to see how much cash and liquidity you have to cover at least three months or more of mortgage payments after your down payment.

Capacity: Capacity in commercial real estate financing can be thought of as your monthly income from employment and other sources. For an owner occupied office or warehouse property, the commercial real estate financing lender will use a qualifying ratio. The ratio is the amount you can safely allocate to pay your mortgage PITI (principle, interest, taxes and insurance). Commercial real estate financing lenders also use DCR or debt coverage ratios; this is used to estimate how much income from an investment property is left over to cover expenses and debt service. As an example a DCR of 1.25 looks for a 25% surplus or safety margin available over the income generated from the property. The calculation is NOI /Debt service.

 Credit history: Credit history equals credibility! Good credit in commercial real estate financing today may not mean what it meant a few years ago. You can pull your credit score for free at www.AnnualCreditReport.com , this is the only service we know of that does not charge you, however you are limited to a once a year credit check. A commercial real estate financing lender is going to look to see if your credit is clean, no bankruptcies, and good credit for the past 18-24 months, you must convey to the lender you are in control of your present financial well being.

Characteristics:  Commercial real estate financing lenders can not use your age, sex, religion, disability or race in determining whether you are a good risk or not. They will look at the following: Education, Career, Job stability, Experience in ownership, saving and borrowing habits, Dependability, Your mannerisms and how you present yourself.

Compensating Factors: If your debt service coverage is low for the potential commercial real estate financing, you can show the lender what your strategy is to help the property cash flow better.  Also any references can help and persuade the lender in making an underwriting decision in your favor.