Hey, so i was digging around and saw a couple of threads about home mortgages but almost nothing on commercial mortgages. So i wanted to hear what AVERAGE mortgage rate one can expect for a commercial property in todays market. If there are any good deals out there now / favorite places to get your C mortgages? Whether to go with BM bank or try online?
I'm interested in 30yr amortization with a max term/balloon like 30/30 20/30 fixed rate.
PS: I know that the rate depends on multiple variable, but just ball park it or share your rates. As an example say retail store with a long term national tenant in place NNN with 20% down payment.
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Based on your example you might be looking at the 10-year CMT currently 4.23% plus a spread anywhere from 2.25% - 3.00%, so an overall rate in the 6.50% range. Your best bet is look at a local community bank for your loan needs or a conduit lender. The community bank will have higher underwriting guidelines with a DCR over 1.25x based on a 25-yr. amo., and up to an 80% LTV.
The projected NOI would be helpful to determine the rate, based on the DCR.
As for term you, what is normal is a 10/25, 10/30, or a 20/20. Once you exceed 10 years, your amortization is most likely going to match, but doubtful to get a 30/30.
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?
I got a commerical loan for my building more than 2 years back. In a commerical loan, you are qualified based on the cost of the property vs the income that is produced from the property, and usually not based on your personal income. So don't expect the loan to be as easy to get as a regular home loan and I have never seen a 30 year commerical loan.
Expect the commerical loan to be about 1-2% higher than a regular home loan and have to pay about 2% in fees when you apply for the loan.
Besides what barsotti0 says, I would also look for a mortgage broker who can also help you to shop for a bank, not a mortgage company. For me, the mortgage broker presurred the bank to give me a favorable rate and no prepayment penality. So the fees to the broker was well worth it.
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.
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
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.
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 am. I just wanted to get a feel for the market. And the quotes i keep hearing range from 7.5% to 12% and majority fall at about 8%, where i was hoping to hear something below/at 7%.
And like i said it's not for a multifamiliy but a convenience store.
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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LaJollaInvestor said: 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.
Mortgage brokers probably cater to people who would otherwise would have problems through a traditional bank. Like I have mentioned, none of the traditional banks would consider me for a loan when I could easily get a loan if the home was not a commerical home. When I spoke to my mortgage brokers 3 years ago, he already knew of a commerical loan given by WAMU that I could not refuse. The broker tried to seal the work out the loan with WAMU they balked on us and but got a loan from Wachovia instead.
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JK. Interesting information on how they calculate whether you are qualified the loan.
and majority fall at about 8%, where i was hoping to hear something below/at 7%.