August 16, 2016
Most commercial loan investors want to get the maximum size mortgage loan they can get in order have a bigger investment, and a bigger property. There are certain things you can do to maximize your loan. In this blog, I am going to share two things you can do to have a maximum size loan.
- Get a loan with maximum amortization.
The greater the amortization, the smaller the loan payments. Thus the lender can lend you more money. If you are getting an apartment loan, optimally you will want to get a loan with a 30 year amortization. The amortization can even be greater if it’s a multifamily new construction loan – as high as 40 years.
Most banks have 15 or 20 year amortization. At times they have 25 year amortization. Our company Business Loan Store nearly always has 30 year amortization for multifamily financing. Of importance, most of the time we beat banks in rates and terms.
However, there are investors though who want a lower amortization. Why? - because they want to make larger payments to pay off the loan more quickly. But, most investors want maximum leverage to get a bigger loan.
- Find a lender who lends to the actual rate.
The actual rate is the stated rate without any underwriting adjustment. If you are given an actual rate, you will be given more loan dollars. Many commercial lenders adjust the rate higher to protect the investor and lender from a very big rate increase that may exist when the loan expires.
Most commercial lenders stress the rate higher than the actual rate to hedge against rates going up by the time the loan expires. This adjusted rate is called the Underwriting Rate.
A lender will lend to the actual rate if they’re not concerned with loan rates having gone up substantially by the time the loan expires. But, there is a risk here.
If for example, loan rates were to increase from 4% to 8% during the time span of the loan, it might give the investor and the lender a big financial headache. This is because when the investor wants to refinance the loan, they will likely have a bigger loan payment which they may not be able to afford.
There is a risk here to the lender as well as to the investor. With substantially higher loan payment for refinancing - what if the investor cannot qualify for refinancing, and the present lender is stuck with loan? Therefore, many lenders do not lend to the actual rate. They lend based on somewhat of a higher rate (called the underwriting rate) to protect against the risk of a substantial rate increase that may exist at the time of the expiration of the loan.
When you get a loan that is figured to the actual rate, you will get a bigger loan.
However, if you get a loan at the actual rate, I recommend you have put away some “rainy day” money. You could do this to protect you from a large rate increase resulting in a bigger loan payment when you refinance. This would act as insurance to protect you financially.
This is a secret most lenders won’t bother to tell you. An uneducated investor is an investor who sooner or later is likely to make costly mistakes. An educated investor is an investor who is much more likely to increase their wealth.
Contact us to see if you pre-qualify for our best multifamily, commercial, construction, hard money/bridge, or business loan rates and terms. Also, contact us if you would like to discuss your particular commercial lending needs, or if you have any other questions. Call 214-695-7310, or send an email to firstname.lastname@example.org
To discover more about our loan products as well as rates and terms, visit https://www.apartmentloanstore.com, http://www.bridgeloanstore.com (link is external), or http://www.businessloanstore.com (link is external)
Bruce Painter, Director of Marketing, Business Loan Store