Loan Approval Qualifications - Multifamily/Commercial

[Matt Kvalheim]

Hello everyone,

I am going to apply to assume an existing loan on a 25 unit property that I have under contract.  The company that the loan was originated with said that their basic qualifications are that I have a net worth at least equal to the loan value and that I have 10 months of mortgage payments held in reserve (liquid).

While I know that my net worth is more than enough to qualify and that I will have the reserves available, I also know that my credit score has recently taken a hit due to the fact that I have been taking advantage of 0% interest credit cards.  My overall balance owed is a very high percentage of my total credit available, and my latest credit score has me at 641 (Fair).

I know a residential loan officer would have an issue with such a low score, but what about commercial lenders?  The lender in this case sells their loans to Freddie Mac and the only qualifications they told me about were the two I mentioned above.  Is it a given that I should have 700+ credit score, or is it not as important on commercial loans?  Should I pay off my 0% credit cards now to try to improve my score (I really don't want to unless I have to, because it's 0% with over 12 months left on most of them)?

Thanks for the advice!

[Joel Owens]

A few things with assuming  a loan. One issue can be amount down affecting your cash on cash returns.

For example I can get  a new loan for 20% down versus say an owner that has built up equity and the difference between purchase price and assuming is 40% down. That kills cash on cash unless the owner agrees to hold a 10 to 15% second when I assume the existing loan.

Also factor in there is usually a 1% assumption fee.

How long ago was this loan originated?? Is there a pre-pay penalty associated with it or not?

For instance if the loan is coming due in a few years then I wouldn't like that. Interest rates should be much higher when you refi down the road. Are the terns of the loan good meaning an interest rate that is close to what you could get today along with amortization?

If the interest rate and amort is almost the same as existing loan and there are at least 7 years left I might consider assumption. If this is a short loan and not a turn around type property then I would want to break the loan and put new debt on it.