I believe these old posts are necessary

Dec 12 2005, 01:29 PM Post #1


Part-Time Teller



Joined: 12-December 05
Member No.: 1,040



Scenario:

We purchased a brick commercial building in NC, two stores and an office strip mall in May. The building was in great disrepair. It is located on US 25 highway and is currently being widened to 4 lanes . The price was $160,000. We paid $20,000 down with owner financing at 8%.

We are over 60 years, active, vibrant and efficient and have remodeled properties before. We also have good credit, high 600's low 700 scores. We are self employed with few assets. We are not currently incorporated.

Since purchasing the property we have put in $34,000 in labor (@20.00 pr hr), $7000 in materials, $12,000. for one unit mechanicals, $5000 for electrical services and $1000 for trash removal. We still have one unit to finish, parking areas, landscaping, mechanicals and electrical for another unit, totaling about $75,000. It is possible to open a business without the parking lot and landscaping as it is in the county not in the city.

I have been reticent to apply for credit by giving our ss# as I do not want to have credit run until I know that I have the appropriate lender and loan. We understand that we are in a precarious position and wish to have our goals of construction met. I did call one local small bank and he cheerfully told me to bring a list of our assets and I was discouraged by his need to project this first and did not visit his bank.

Our intentions are to
1. finish the building
2. refinance
3. sell the property or open a restaurant
(experienced background).

There is no restaurant from the interstate for 3.5 miles into town. A successful restaurant was located across the street and was torn down for the road widening.

We are self employed with a small income and work history for my husband. I still have a small business in FL.

I respectfully offer this information for your review and comments.


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Quick Edit Commercial LO Dec 12 2005, 01:56 PM Post #2


Sr. Credit Analyst


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You'll need to overcome your reticence. No bank will commit to or even review a loan request unless you are willing to provide key information.

You will also need to clearly define what it is you intend to do with the building. Lenders don't like indecision. If you plan to rent it as an investment, you will need to get tenants. If you plan to open a restaurant, you will need a comprehensive business plan. If you plan to sell, the bank will need to know that also.

At the very least you need to show the following to get a lenders interest:

Personal financial statement
Use of funds statement with construction bids
Three year personal tax returns
A brief resume on yourselves
Descriptionof the property
Pro-forma projections if you plan to hold the building either as an investment or restaurant (the property must be able to cash flow and service its own debt)
Business plan
Leases for investment space
Good credit

Once a lender has reviewed the information above, they will then need additional documentation to underwrite your request

Remember the burden of documentation is on you. If you are not willing to step up with even the most basic of information such as credit reports and personal financials, you cannot expect any lender to step up for you.











Part-Time Teller


Group: Members
Posts: 3
Joined: 12-December 05
Member No.: 1,040



Dear Sir,

Perhaps you misunderstood my intentions.

I understand that many loan officers become weary of applicants who are evasive. I felt that I mentioned I was seeking the company who would have the funding we needed. On the internet many companies advertise but do not clarify loan limits either low or high or loan parameters required by their institution ie: home loans or commercial.

Having your credit report run numerous times will lower your scores.

Indeed I am sure that in the title of my request I mentioned mortgage or bridge?

I thought that this site was to assist the individual in seeking a loan. I feel as if I have been attacted for wanting to protect my credit.

As to your statement regarding necessities for application, It is af if you assumed that I did not have these requirements available.

Personal financial statement: Information is available and could be completed in an afternoon

Use of funds statement with construction bids (Mechanicals and electric are a duplicate of work completed. Landscaping would be done by us, I have a parking lot bid.

Three year personal tax returns These are in my office

A brief resume on yourselves On demand

Description of the property (Photos before and after and legal available)

Pro-forma projections if you plan to hold the building either as an investment or restaurant (the property must be able to cash flow and service its own debt) I understand this. It could within 4 to 8 months.

Business plan Is it necessary to provide a full business plan if the intention to sell is in 12 months? I realize that estimates must be provided, building permits and a time schedule.

Leases for investment space: Leases are not advisible at this time as the work is not completed. Are you saying that no lender will lend without leases in place?

Good credit: I mentioned our scores.

You are correct in your notice of vascillation. I was merely stating the options. I do not believe that it is possible to open a restaurant in our current situation. It is necessary to explore all options. I thought this was an advice forum and I could be open here.

Thank you for your professionalism, time and input.




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Quick Edit loanuniverse Dec 12 2005, 03:12 PM Post #4


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In my opinion, there is no way around it. At one point or another, you will have to give the lender access to your personal financial information, and the lender will run credit before giving you the commitment. Your access to credit will depend on the terms that you got from the seller. Did he file a mortgage on the property? Did he include a clause indicating that you are prohibited from borrowing against the property?

You also mentioned that you have “few assets”, but I see several properties being mentioned, you also mentioned a business in Fl., and sufficient money to refurbish the building half-way. The lender is going to want you to sign on the dotted line.

Believe it or not, the whole idea of you starting a restaurant in the building actually makes it less appealing to me creditwise. If I could establish that there is demand for rental space in the area, a better argument could be made for permanent financing.

There are different ways to structure a loan like this. I would personally set it up as a line of credit initially. Getting the $75K you need should not prove that difficult specially if the property is not encumbered. This is what your local banker was probably thinking of doing when he called you in. However, he also needed to show that your overall financial picture. When talking about this size loans, the loan becomes more about the collateral and the individual than the project itself. If this was a bigger request and it crossed my desk, I would have to feel comfortable about a lot of things that the local bank might not think important enough.



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loanuniverse Dec 12 2005, 03:22 PM Post #5


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I don’t think Commercial LO was attacking you, he was simply being direct and to the point.

The fact is that a lender is going to want to feel comfortable before committing and this means your financial information comes in first.

I also believe that there is a very good chance that the lender might not ask for all of the information listed by Commercial LO. I know that I would if I were to underwrite it or one of my analysts was to underwrite it. However, having an analyst underwrite a $75K loan is not cost effective.

This will be handled mostly based on the loan-to-value of the property and your personal financial condition.



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Commercial LO Dec 12 2005, 04:23 PM Post #6


Sr. Credit Analyst


Group: Members
Posts: 142
Joined: 6-May 05
Member No.: 561





I was not attacking you, but merely pointing out that you need to present the deal properly and be open in order to get a lenders attention. You said that you did not go to a local bank simply because they wanted to see you personal financial statement. You also said that you would not allow them to pull credit "until I know that I have the appropriate lender and loan".

Try the local bank that you called. Take then everything I mentioned. If they like what they see, let them pull credit. It does not substantially lower your credit scores. If they don't like it, ask them why and what you have to do in order to get a loan.

Try several local lenders. That's your best bet, especially for rehab work. LOenders with a presence in your area are most likely to fund rehab work.

Ask all of the lenders to review your income and projected financials first.

You say that you do not have much in the way of assets and only a small income. This will be a problem if you do not have tenants/leases in place to show that you can make the debt service, since there are no other assets to mitigate risk and you lack the income to service the debt.






I first posted in December under the same title.

As advised, we went to a neighborhood bank. After two weeks we were denied a loan based on our low income last year as we were working on remodeling a building. We were sent to a mortgage company who offered us a stated income loan. He said that his company was the only one who could offer this loan in the country. He stated that we would have a claus that would require $12,000.00 as a prepayment penalty if the loan were paid off before 8 years passed.

The interest rate is not clarified as of now but will be between 10 and 15%. He is a broker therefore he wants $5000 for broker fees plus closing costs which will amount to about 8% of the requested loan.

I presented all and more of the information requested in a professionally prepared manner, Our credit store is at present with our debt heavy with remodeling costs is still 653. The building which we purchased one year ago for $160,000 is now worth $350,000 and nearly finished. The balance is $139,500 at 8% with a private party. We are asking for a $100,000. The mortgage broker states that his lender would not allow us to keep this loan. It would have to be a new mortgage.

Our parking lot is not finished and requires $15,000. We do want to open the restaurant and we need funds. It is possible to wait a year and survive without the loan. My husband has just opened a new business.

I would appreciate all advice. Thank you, Mary

Mary,

Your previous Mortgage guy was right about a new loan. Lenders aren't going to loan you money and want to be in 2nd lien position behind the owner financed mortgage. If your credit scores are still in the 650's or better, you can get a Stated Income Cash-out Refinance mortgage for probably 85% of a new appraisal. If the property does appraise for the $350,000 you state, then 85% would be $297,500 minus closing costs, minus your first mortgage of $139,000 = $100,000+ in your pocket. This gives you the funds you want. Your only upfront out of pocket cost will be the appraisal. All other costs come out of the loan.

I hope this helps you.