Commercial Real Estate Lending Basics: Origination

So you want a loan? I love to say "NO"

Greetings from the metropolis of Cedar Crest, NM.  Where the heat is getting to me.

So….leaving for California tomorrow and looking forward to it.  I have yet to pack and I have yet to do anything I need to do before I leave….but what is new?

In the news….

Is Microsoft feeling the heat from Apple?  I would say so.  Mircosoft if launching retail stores to compete with Apple stores.  I bought my first every Mac several months ago after experiencing the iPhone.  When I got the iPhone, I could not believe how great it was in almost every facet.  So I dumped my Blackberry and embraced Apple’s iphone.  Then I asked myself, if the iPhone is this good….maybe the Mac is that much better than a PC.  Well…it is.  Imagine a computer that does not freeze up on you?  Imagine no viruses?  Imagine a computer that works all the time?  Yes….after seventeen years of the PC….I went against my own rules….left my pride at the door of an Apple store and bought my Mac.  I don’t see myself ever going back to a PC….well…”never say never”…but I hope not.

So….

We continue our educational journey into financing commercial real estate.  By the way….if you are looking for a great commercial real estate mortgage lender, by all means, give Terry Painter a visit @ www.apartmentloanstore.com.  Terry has pulled rabbits out of his hat for me.  Tell him I sent you and he may do the same for you!

Anyway….on to lending basics….

There are several aspects to obtaining financing for the acquisition of a commercial property. This post will focus on the duties of an originator and outline this person’s crucial role in the commercial lending process.

What does an originator do?

According to investorwords.com, a mortgage originator is a person that oversees the mortgage process by helping the borrower complete the necessary steps to complete the transaction. The successful issuance of a loan is largely due to the skills and experience of the origination and processing teams.

How is commercial mortgage origination different than residential origination?

Information Gathering

For commercial lending, an originator must collect property information, including two years of operating statements, the current rent roll and a brief property description. For residential lending, the originator must collect two years of tax returns, pay stubs and three months of bank statements from the borrower.

Paperwork Completion

For commercial lending, the originator must complete a loan application that has applied appropriate underwritten reserves, calculated the stabilized NCF, supported the derivation of NCF in the executive summary, estimated value and calculated loan to value and debt service coverage ratios and normalized the property’s income and expenses while adjusting for inflation. For residential lending, the originator must complete a 1003 using residential processing software, pulled the borrower’s credit scores, reviewed FICO and calculated debt-to-income ratios.

Additional Steps

For commercial lending, the originator must then submit the loan package to lenders in an acceptable package, receive the final term sheet, obtain signatures and fund the loan. For residential lenders, the originator must determine the lender and appropriate loan, submit the application for preliminary approval, lock or float the loan, order an appraisal, order escrow and title services, submit for final underwriting, order the necessary documents and fund the loan.

The Lender’s Role

For commercial lending, the lender must review the LTV, DSCR and NCF, send a quote to the originator and order the applicable services including an appraisal, environmental, engineering, escrow, title, and UCC. The lender can then fund the loan. For residential lending, the lender reviews the credit histories of the borrower and the prepared 1003, completes final underwriting, prepares and obtains signatures for the necessary documents and funds the loan.

Originators play a crucial role in a finance transaction. When obtaining funding for your next property, make sure to develop a good working relationship with your mortgage originator to make obtaining financing as quick and painless as possible.

Until next time……rob

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