Chicken and egg - prequalification and offer

5 Replies

Hey folks - I'm in the process of looking at a few medium-sized multi-family properties (4 - 12 units) and am finding that for the commercial loan needed for 5+ unit properties, I'm stuff in a chicken and egg situation. The banks I have reached out to say that I need to have an offer letter signed before I can apply for a loan, but my agent is telling me that a good offer needs to have a pre-qualification attached.

How did others navigate this - am I just working with the wrong banks, or should I push for my agent to make offers with a contingency on the financing? Not sure what I'm missing here. Thanks!

@Steve Katuska  1-4 unit is residential. For that you should get pre-approved and that would need to be attached to the offer.

5+ is commercial. For that you will need to identify the property first before the bank will look at the loan. Commercial loans a much more dependent on the cash flow of the property.
Originally posted by @Jay Hinrichs :

you should just ask for a pre qual letter stating that based on your credit and cash your qualified but final determination will be made in underwriting blah blah blah.. pretty standard stuff

 Is this something fairly standard that the banks do, or do I need to find a specialist / someone who actually does this? Thanks.

@Upen Patel - so my experience with commercial is fairly common, that the order is basically: 

  1. Find a specific property
  2. Work with the bank to quality financing on that specific property
  3. Using that financing, finalize the offer

Makes sense on the <4 unit properties, shouldn't be too hard to find a bank that will pre-qualify that and then I can just take my time finding the right place.

Appreciate the response.

@Steve Katuska   you should ask Joel Owens  he will know.

I have not done any commercial offers in a while.

one thing I can recall was sellers wanting a POF before they enter into an contract.

IE proof you have the 20 to 30% down in the bank.. or in a 1031..

last commercial deal I brokered a few years back was a 80 unit 4 million dollar apartment here in ORegon.. and my folks were paying cash.. we provided copy of the purchase contract and the fact that they owned the vegas multi free and clear and were 1031 .. that did it.. now on another note this was 06  these folks absolutely timed it perfect.. Vegas had peaked and PDX had not yet came one.. I bet the property they sold devalued by 30 to 40% while the one they bought in PDX went up at least 20% the last 8 years as its been full this whole time and rents have incrased by 20 to 30% since they bought it.