9 Questions to Ask Your Commercial Lender
Whether you end up taking an Agency or Bank loan on your next apartment deal, there is no shortage of questions to ask your lender. Or maybe you haven’t committed to a particular finance source yet and are still vetting a few options. We’ll start with some things to ask when screening a lender, and then move on through the loan application process.
1. Are you an expert in my market?
You wouldn’t work with a broker who is unfamiliar with a market, would you? Your lender/originator should be an expert in the market — and at the very least familiar with the submarket — you are looking to invest in. Some of the better originators out there will supply you with custom market research or even pre-screen a particular property you have in mind.
2.What is the average loan size you work on?
If your lender/originator is used to closing loans in the $50+ million range, are you confident they will provide you with the best service possible on your $1 to $5 million apartment loan? Find a lender who is used to closing in this range.
3. How long does it typically take to close?
This will ultimately depend on the loan product you select, and how responsive you (and your legal team) are. That being said, some apartment lenders have developed new technologies to speed up document processing. No more scanning and emailing or — perish the thought — snail mailing signed documents back and forth.
4. What other loan options are available?
While you might have your eyes set on a particular product or loan terms, your originator may be able to present a few other viable options you haven’t yet considered.
5. What are the application fees — and how do they break down?
Look for a lender that is transparent about fees. Application fees cover things like processing costs and site inspections (e.g. the appraiser and engineer). Lenders should be getting multiple quotes for these services and producing a high deal volume in order to keep costs low. Any difference between the costs and what is collected from vendors should be refunded at closing. It is tempting to use a lender with a smaller fee, but sometimes the fee is hidden elsewhere (like in your rate).
6. Can I have a copy of my appraisal, credit report and engineer report?
If you have paid for these services in an application fee, you are entitled to a copy of the reports. Might as well use the opportunity to get these into your records.
7. What is the good faith deposit?
Typically ranges from 1% to 2% of the loan amount, and is refundable at closing.
8. How long can you lock in my rate?
Rate lock usually occurs once a lender has offered commitment, and might be contingent on a good faith deposit. The rate lock period ranges anywhere from a week for a fixed-rate product to 120 days for some floating products. Early/index rate-locks are sometimes an available option.
9. How much insurance do I need?
Insurance requirements will vary depending on the size and type of loan you obtain. But you will need property damage insurance written to at least 100 percent of the estimated replacement cost of your asset. There could be additional recommendations for boiler and machinery insurance, and perhaps an annual inflation adjustment. If you are in a flood zone you should plan to obtain flood insurance.