As with residential loans, banks and independent lenders are actively involved in making loans on commercial real estate. However, they are more cautious than in the past, and often look twice before engaging. Also, pension funds, insurance companies, private investors and other capital sources, including the U.S. Small Business Administration’s 504 Loan program, make loans for commercial real estate.
(TopDoma.com) – To avoid any unpleasant surprise, here is a list (not consummate) of ten points not to be neglected before presenting your file to a bank or a credit broker. Here are 10 tips from Topdoma.com to put all the chances on your side:
1) The amount of the contribution-
There is no miracle. Banks, which in the past have been able to finance real estate projects up to 100% or even 110%, are now very strict on the financial contribution of the borrower. It must bring at least 10% of the amount it borrows. Most banks consider that the contribution must make it possible to cover the various expenses – notary, file and guarantee, in particular. Depending on the institution and the records, this rate varies, and some banks prefer that their client has at least 20% intake. Savings book, home savings plan, early unlocking of your participation
2) Professional stability-
More than ever, banks fear instability. “And above all professional instability. Open-ended contracts and seniority are the new seeds of access to credit. For the liberal professions and craftsmen, it is recommended to provide two or three years of balance sheet.
3) Stop discovering!-
Before deciding whether to grant a credit, the bank studies the borrower’s financial situation. It is therefore advisable to avoid being uncovered in the three to six months preceding the credit application and, to the extent possible, to repay its revolving type consumer credits. If the borrower is irreproachable on this point, it will be easier for him not only to obtain a mortgage, but also to negotiate with his bank the terms of the loan.
4) Monitor its debt capacity-
This is perhaps the best known rule of the borrowers, the so-called “33%”. The exact rate varies from one bank to another and depending on the file, but generally the amount of the loan must not exceed one third of the net income of the borrower. And if the banks have been able to be flowing in the past, the rule is now applied strictly.
5) Justify for regular savings before borrowing…
At least as much as the level of the borrower’s income, it is to his ability to save that the bank will be sensitive. Some banks will prefer to lend to a client who, without necessarily receiving a large salary, manages to put money aside regularly, even little, to another who earns his life better but finds himself exposed on the 15th of each month. It is preferable to defer a few months his request, time to improve his managerial qualities.
6) … but also afterwards!
Banks are also increasingly concerned about the borrower’s level of savings once the credit is granted. The repayment of the monthly payment should not completely exhaust its ability to put money aside. Keep this in mind when preparing your application.
7) Watch out for missing parts
Perhaps we should have started with this: according to Ari Bitton, “giving a complete file to his banker or broker is the baa-ba of the mortgage application.” Presenting yourself with only half of the necessary documents, or sending your pay slips and other statements over the water will have the gift of enervating your caller – and will make you potentially suspicious to him.
To be sure not to forget anything, here is the list of documents to gather. In addition to the sales agreement if it is already signed, each co-borrower must provide:
- Its last two tax notices;
- Its last three pay slips;
- Its last three bank statements;
- Proof of identity (Passport);
- A proof of domicile (electricity or telephone bill, etc.)
8) Do not take too much time-
In the same vein, it is better not to wait too long to look for funding. From the receipt of the sales agreement, the buyer of a property has a period of 45 days to justify the seller to obtain his credit. It is recommended not to waste time.
9) Beware of where you buy-
The more the real estate market of the place where you buy is dynamic, the higher the chances of reselling your property quickly and in good conditions are high. You do not necessarily think of it when you buy, but your bank is very likely to pay attention to it.
10) Trying to reduce its borrowing time-
The risk of the bank increases with the duration of the loan it grants. It can therefore be well seen to reduce to the maximum the duration of its loan … as far as possible. “A year or two may be enough. Of a hundred files funded over 25 years, about thirty could as well be on 23 or even 22 years, “says Ari Bitton. A solution that is all the more interesting because this reduction in duration can be accompanied by a slight decrease in interest rates.