Hey thanks for reply. Not having much luck with my local banks. They say that their rates are 7.25% - 7.5% and only for 10-15years. So i'm still looking around. Also, do all commercial mortgages have prepayment fees or it's possible to find some without?

We've had a lot of Commercial loans over the years-- we currently have over 10 through WAMU Commercial Group.
Though the loans go through the National Operations Center, your local Senior Loan Consultant at WAMU's Multi-Family Lending Dept. actually processes the application.
The Commercial Loan Dept only lends on 5+ unit properties.

Our loans were refinanced within the last year. They are all amortized over 30 years, but the rate is
only fixed for 10 years.

The lowest is 6.22%-- the highest is 6.62% 7 year step-down prepayment (5-5-4-4-3-2-1)

The application is very simple and as pugster pointed out, mostly based on the property (of course you must have good credit)

The rate is even lower if you fix for a shorter period.
We're in escrow now on a 10-plex that we will rehab. We are trying a different loan product (also through WAMU)
5 years fixed at 5.73% 3 year step down pre-payment (also amortized 30) (we'll refi after the units are remodeled)

All these loans are non-recourse.

Commercial underwriting is different than owner occupied.

Most lenders use a formula something like this: (I've plugged in sample numbers)

Total potential income for all units, including rent, laundry, pet fees etc. 235,000
Number of units 20
Deduct 5% or actual vacancy or actual vacancy -7000 3%
EGI or Effective Gross Income 228,000
Deduct 5% or market cost from EGI for management fees -11000
Deduct total of all expenses. Property taxes, insurance, maintenance, labor, legal/accounting etc. -47000 20%
Deduct $270 per unit per year for reserves -5400
Result is NOI or net operating income 164,000
Enter the DSCR required Debt Service Coverage Ratio. 1.2
Divide the NOI by the DSCR for the maximum amount available to pay the mortgage. 136,666

The debt service ratio (net operating income divided by the debt service) measures the property's ability to cover mortgage payments using its net operating income. Currently, lenders' standards for debt service ratios vary from 1.15% to 1.4%. (Last time I asked WAMU's was 1.2) The mean debt service coverage is 1.24% The 1.15% standard falls somewhat close to the "risky" level where available net operating income is only 15% higher than the debt service.

The bottom line is that the Lender wants to make sure there are ample funds to cover the mortgage each month. WAMU also conducts an annual audit of each loan and requests an update with your current rents and operating expenses.

Hope this helps!

Yeah i understand all that i just can't seem to find a c mortgage in my range.
I'm looking at LTV at 80%
and DCR of about 1.25
free standing retail building (c store) with a long term 20yr NNN tenant.

I want the maturity and amortization to be as long as possible 30/30 would be ideal, but now it seems to be unrealistic so 20/30 or 20/20 would have to do.

Problem being the rates that i keep getting are 7.25+ some quoted 8.5% (that's just ball parking it without knowing anything about the property) where my ceiling is 7%.

Oh and i'm in PA so no WAMU they say they don't cover PA

pugster said:Why don't you call a mortgage broker? They can get call several banks and make them compete the best rate for you. I never tried that route, but you can also call mortgage companies who specialize on commerical loans.

I don't think you have an issue since you live in PA, but when you told the bank the price and the income of the multifamily home, did they say that you can be approved? The reason why I asked is because I brought my building in Brooklyn, NY and the price tends to be a little inflated so I had a hard time to get appoved for a loan.

Hey pugster-- though I know lots of mortgage brokers who help secure loans on 1-4 unit complexes I've never known anyone who used a mortgage broker for a multi-family 5+ loan. We (and our clients) have always dealt directly with the lender-- as I mentioned, typically WAMU (but some have used First Federal)

I know that WAMU is huge here on the West Coast but there may be different lenders who specialize in East Coast properties.

If someone is considering a smaller property (1-4 units) I recommend SunTrust or Aurora. They have amortized 30 fixed 30 that have the option of interest only (NOT negative am) during the first 10 years (and then recast) Most people I know pay the fully amortizing amount each month with the "insurance" that during a bad cash flow month they could pay interest only.

I've never done any retail/commercial investment , only residential.

But it looks from their website that WAMU does those too--

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