Commercial loan payment: what's included?

Question

Hi all-
	I am looking into my first commercial multi-family loan. Do commercial loan payments include PITI like a residential loan? Or is it just principal and interest, with the tax and insurance paid by the loan holder?

Jean Bolger · Answer

@Joel Owens - I am researching properties and lenders, looking at  purchase prices between 400K-500K and the properties are around 12-24 units. I did have a local bank that was being really helpful, but the specific property we were looking at didn't hold up under analysis. Now I have a different property in my sights and it's out of their lending area. darn. Lender #1 has supposedly forwarded my info to someone else but they haven't gotten back w/ me...
	@Ryan M. - I'm happy to go either way, I am just trying to understand what the expectations might be.

Bill Gulley - I'm an Olivetti gal, myself

Jean Bolger · Answer

Thanks @Brandon Turner  and Michael Seeker ! I was aware that the T&I are escrowed- I just didn't know if that was common practice for commercial lenders and especially smaller banks servicing their own loans. This is my first time shopping for a commercial loan, so I don't want to walk in there flying my Noob flag too high ;)

Bill Gulley · Answer

Small or very large commercial loans will generally just be P+I, but they can require taxes, insurance and special assessments, if any, as well, usually not. They will require proof of these items being paid as due if they don't escrow. The decision to require escrows is a risk analysis by the lender, if you are a new operator, new in the business they may require it, if you have owned such properties in the past with a good track record they may let you take care of it, it can be a credit and cash management issue. :)

Sent from my IBM Selectric

Ryan M. · Answer

Why let the bank sit on the money for no return?Just pay property taxes and insurance yourself.

Joel Owens · Answer

What size units and purchase price are you going after again??

That will make a difference where you need to be looking for a multifamily lender.

Michael Seeker · Answer

Some commercial lenders will also not do escrow accounts for T&I.  I just refi'd a loan and was wanting to escrow, but the lender said they don't do it.

You could always set up a separate account for fixed costs or set aside the funds in some other way each month.

Brandon Turner · Answer

Hey @Jean Bolger  it could be either way. When a residential loan includes taxes and insurance - it really actually doesn't.  Instead, your bank just sets up an "escrow account" to pay those fees, so they aren't actually connected to the loan at all. The same is true on this new commercial property. You could choose to set up an escrow account, or not to. Some banks might encourage you to do so, but I don't think most would. 
	
	Hope that helps some!