Before you put an apartment building deal under contract you should clearly understand your potential lenders’ loan terms and underwriting criteria.

Imagine this: you put a deal under contract and you assume a down payment of 20% and you later find that you’ll need to put 30% down? Or that you don’t personally qualify for the loan and you’ll need to find a co-sponsor? Or that the lender requires a 6-month reserve that you didn’t count on?

While sometimes “ignorance is bliss”, in this case these kinds of surprises could cost you a deal. And when you’re doing a deal, you don’t want surprises like these.

The lesson learned is this: clearly understand the terms of the potential loan and how the lender will “underwrite” the deal.

To “underwrite” is a fancy term that refers to how the lender assesses the risk of project, what they require of you as the sponsor to mitigate those risks, how it satisfies their lending guidelines, and the ultimate terms of the loan.

In order to understand your lender’s underwriting criteria, make sure you network with potential mortgage brokers or lenders long BEFORE you start making offers on deals.

Therefore it’s critical that you ask your commercial mortgage broker these 10 questions.

Read the complete article on Bigger Pockets here.

 

 

 

 

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