Understanding the loan application process is important in order to anticipate the time, expense and major milestones involved in obtaining a permanent mortgage for your commercial property.

The process can be broken down into five stages: preliminary, application, commitment, due diligence and closing. Typically, it will take a total of approximately 60 to 90 days to go through all five stages.

First Step

You start with a phone call or meeting between you and your mortgage banker. You will be asked to provide information about the location, a site plan, your rent roll, operating expenses and your background and financial information.

In turn, your mortgage broker should provide a detailed explanation of the estimated expenses associated with the loan.

After your initial meeting your mortgage broker will make a site visit to inspect and take pictures of the subject property and may even arrange for aerial photographs of the subject and surrounding area.

Using the information gathered, your mortgage broker will prepare a detailed analysis and an investment offering for the selected lender. Keep in mind that different lenders prefer certain types of property and your broker will know which is best suited to your property, loan size and loan structure. By indicating as specifically as possible, the desired loan amount, and loan term and amortization schedule, you will help your broker focus on those lenders offering the best terms for your needs.

Be aware that it would not be typical for a lender to require a processing fee from the borrower at this stage in the review process.

Usually it will take one to two weeks for your mortgage broker to receive a detailed response from the lender that has reviewed your loan file. The response from the lender will typically take the form of an “application letter” that outlines all the basic loan terms.

Sometimes, the “application letter” will offer terms that are different than those you requested. In such cases you will have to evaluate the options available with the input from your mortgage broker.

Application

Depending on the lender, the loan application will be issued on a form supplied by the lender. This application specifically will address the terms outlined in the loan proposals and many of the items that will be required to complete the process.

In addition to the basic loan terms, some items that you will find:

1. Indication as to when the interest rate is locked: upon application, commitment or a date closer to closing

2. The due diligence items that will be required

3. The date by which the loan will be funded.

Typically, the borrower will be required to deposit 1 percent of the loan amount with the lender at the time the application is submitted. This deposit is normally refundable if the lender fails to issue a loan commitment on the same terms contained in the loan application or when the loan is funded.
You also may be asked to certify that you are only applying to one lender and will not make application to any other lender during the application period, which normally runs for 20 to 30 days. Your mortgage broker probably will ask for additional information about the property and the borrower’s financial background, ownership structure and references. The initial investment offering then is expanded into a full valuation of the property, including market rent, sale and land comparables. The lender will also run a complete credit check on the borrower and key partners/owners.

You will not be required to provide expensive due diligence reports like appraisals, environmental or structural reports until the lender has issued the binding loan commitment.

Upon execution of the loan application, it will take your mortgage broker between two to four weeks to obtain the binding loan commitment from the lender.

?Gary R. Crum 2007 All Rights Reserved