Board Topic: comm'l loan 5 family home
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comm'l loan

Posted by: John Oct 19 2003, 06:16 PM
I am currently lookihng to purchase a 5 unit wood frame victorian home in a residential neighborhood. I estimate that it will sell for $600,000. So far the banks I have contacted require 25% down with a 15 year term at 6%. I have $60,000 available. I also own a 2 family with my sister and I own a second home used for rental and vacation. The $60,000 I have is from equity from the home with my sister and there is not much equity on the vacation home.

Posted by: loanuniverse Oct 19 2003, 10:18 PM

I donít think that your post had a question. By the way you wrote the paragraph, I am going to guess that you have in mind a question about getting a loan with less than the usual 20% to 25% down payment.

The bad news is that a regular commercial bank will probably not do the loan under those conditions. The down payment rules on commercial real estate are hard coded in the credit policy of these institutions. There has to be a good reason for the bank to go under 20%, and there better be a very good reason to go as low as 10%. These reasons are called mitigations in the body of the analysis.

Is there some way to salvage the loan?

Well you could ask the seller to keep a second mortgage on the property so that the bank can enjoy the 25% cushion that it wants. This would work like this:

Purchase price: $600,000
Your money: $60,000
Seller Mortgage: $90,000
Bank loan: $450,000

The bank enjoys the 75% loan to value that it wants.

I hope this is what you wanted to ask. If it is not let me know.

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