Question on First Commercial Loan

10 Replies

Hello, I have seen some conflicting answers on here and was hoping someone could help clarify things. For a first time commercial loan on a multifamily property, are the loans non-recourse and are they tied to my income/assets for a first time multifamily property?

I had been looking for duplexes around me but came across a 16 unit building off market that it looks like I will be able to get the owner to agree to 800k (8.5% cap).

Long story short, I don't have employment that could justify a property of that value but I do have 150k to put in as well as a credit shelter trust that can cover the remaining equity needed (I'm the beneficiary so they're not technically my assets). I will ask my bank that handles the CST if they will take it but in case they're not interested, is a loan like this possible to get for someone in my shoes? I was hoping to get 60-65% LTV, 10 year, 30 amortization.

For a loan that size you're going to be looking at a recourse loan with a commercial/portfolio lender.

The non-recourse agency debt is for loans greater than $1MM.

60-65% LTV won't be a problem but you'll likely be looking at 20-25 year amortization rather than 30.

I have seen some lenders who offer 30 year AM on commercial products but they are less common.


Originally posted by @Brian Garrett :

For a loan that size you're going to be looking at a recourse loan with a commercial/portfolio lender.

The non-recourse agency debt is for loans greater than $1MM.

60-65% LTV won't be a problem but you'll likely be looking at 20-25 year amortization rather than 30.

I have seen some lenders who offer 30 year AM on commercial products but they are less common.

Alright great to know. Thanks for the information, that's very helpful. 

 

Hi Mark, 

Brian is correct in saying that there may be fewer financing options for smaller size deals, but you should still be able to get it done. 

If you're buying a 16 unit building, the deal is going to be qualified on the DCR, usually need to see at least 1.25x. The higher the better.

Hi Mark, 

One of the other hurdles that you might come across, which may or may not be an issue for you, is that a lot of these loan programs at this level will require your net worth to be equal to or greater than the loan amount in addition to the DCR mentioned above. Best of luck.

@Mark Larson

You're getting conflicting answers because there are so many products with nuanced differences that it's hard to keep track. You'll be in the small balance commercial realm and for the most part, they are full recourse loans. Generally speaking, you should be at 1.25% DSCR with 9-12 months reserves. Your ltv can be as high as 75% and your amortization can go as long as 30 years on a fixed product. Your rates will vary, but will be between 6 and 8 with 2 to 3 points. You'll also have to spend about 3K on average for an 84 page or so narrative appraisal and be prepared to have to wait to have an environmental study done.

Hope that helps

Stephanie


@Mark Larson

I agree with Stephanie’s points above,  apart from the rates. I’ve financed buildings like this in the 4-5% range with minimal origination fees to the bank through a very resourceful commercial mortgage broker.  If you would like her contact details, feel free to send me a PM. 

@Mark Larson I agree with @Brian Garrett that your loan size will require a recourse loan. The lender will base debt service coverage ratio on property income however they may also want to see your personal income and assets to ensure you can cover debt service if something goes wrong