Trevor Curran

I wanted to provide a “snapshot” of how we qualify a loan for a commercial property.

First, a commercial property is defined as that having 5 or more residential units, or a 1-4 family residential “mixed use” property where there is a commercial space incorporated into the property (think “corner store” with apartments upstairs), or any other type of non-residential property. That would include: hotels, gas stations, office buildings, strip-retail, warehouses, and factories.

For the purpose of this post, I will limit myself to a description of qualifying for an apartment building loan, say, six families.

Here’s what we do to qualify the loan:
1. Verify existing rentals in the property. We get this information from the Seller of the property. This is checked against New York City DHCR filings (if the property is in the confines of New York City). We may request leases.

We then multiply the monthly rentals to determine the annual “gross” income.

2. Next, we subtract an automatic vacancy percentage, usually 5% of gross income. Thus we create an “effective gross income” of the property annually.

3. We outline the expenses of the property including property taxes, insurance, utilities (for common areas), management fees, water/sewer, fuel, and various other miscellaneous fees involved in the operation of an apartment building.

We define an annual figure for the expenses, then subtract this from the effective gross income.

4. The bottom line number is the figure used to qualify a loan. Inherently, the rental income should be sufficient to sustain income for the property within a “Debt Servicing Ratio” predetermined by the Lender.

5. Appraisal value is not determined purely by market valuations. Instead, the appraiser must base the final valuation on the Income and Expense approach. That is, as in item 4 above, the net income must be sufficient to support the value.

This last part is where we run into trouble most often. In this crazy overheated market, we have such properties being sold for more than the rental income will sustain. And it is not just a matter of your having made a large downpayment. I have a client who is putting 50% downpayment, yet the appraisal will come in far short of the purchase price, thus requiring the Lender to lower the allowable loan amount. Unfortunately in the case of this client, that lower loan is $50,000 less than what he needs to acquire the property.

Of late there have been an increase in “limited documenation” or “no income verification” commercial loans. Lenders are responding to the market conditions. The money is out there to be had, but the Lenders view these loans as a riskier venture since the income of the property may not currently sustain the loan. Accordingly, interest rates are higher.

I received offers from three lenders this week for the client described above. The loan amounts met his needs, but the interest rates were, 7.50%, 7.37% and 7.00%. The loan types varied from variable rates to short term fixed rates.

I know a fourth Lender where I can obtain a substantially lower rate, but they are hitting the value of the property with the Income and Expense approach, thus offering my client the $50,000 lower loan.

There you have a “snapshot” on commercial loans. More to come, especially about the loan types and the process of obtaining a commercial loan.

I know that I say it elsewhere on my site, but I want to say it again. Gosh darn it. Listen, you must work with an experienced Realtor. That’s all there is to it.

Put some value on your time.

Do you want to waste your valuable time working with someone who doesn’t know the way around the marketplace?

No.

Put some value on your desire to own a home: it’s the single largest financial decision of your life!!!!

Would you entrust that to a person who knows not the vagaries of the marketplace?

Nope.

Put some value on your emotional cargo: YOUR DREAM.

Place that dream in the hands of a person who only began working in real estate three months ago (just because everyone else is doing it)?????

HECK, NO!!!

I have said this, too. So, I’ll say it again.

First question an experienced professional Realtor will ask you is, “Have you been prequalified for a mortgage?”

If that is not the first question, then hang up the phone. Period. (Now don’t split hairs, maybe not the first, but you know what I mean, in the opening stages of the conversation!)

There are plenty of experienced Realtors out there. Go find one. You’ll know you have when she asks you the question.

How To Find A Realtor

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I popped into the Consumer Action website to refer one of their excellent publications to a Craigslist forum member with a question about bankruptcy. I love the Consumer Action site. There is so much excellent information there about credit. I must remember to get them up on my Links page.

I came across this headline and the link to an article in Forbes about the best and worst neighborhoods to buy a home. So, it’s a link to a link. I didn’t read the entire article, but it looks pretty interesting nonetheless.

Best and Worst Neighborhoods

I found this article written by a British reporter in New York (“I’m an Englishman in New York…”) about BedStuy at brownstoner

BedStuy is the “hot” place to buy. But it’s difficult to guage where, and how much you should pay. My wife, the Realtor and I have recently been working with buyers in BedStuy. We’ve seen all kinds of houses. And that’s one of the neat things about that area: diversity. Needless to say, BedStuy is a good neighborhood for value and its proximity to Manhattan is excellent.

My favorite quote and similar to my response to clients when they ask me about BedStuy: “For all the grandeur of its original detail, our house still needs a lot of work to bring it back to its former glory. And so, too, does Bed-Stuy. Serious crime rates have dropped by more than 65 per cent since 1993, but there are still robberies, burglaries and the occasional shooting. And as with every inner-city area, there are some streets it is not sensible to walk down late at night.

But then some things are worth putting up with for a really nice original fireplace.”

Here’s the link: Big Apple’s Core Appeal

I was really happy to see someone asking a “planning to buy” kind of question at the Craigslist Housing Forum. It’s great to plan for buying a home; I highly recommend it. Although, sometimes things kind of catch up to you and you want to strike while the iron is hot, as it were.

Here are the links to two conversations at CL. One is the person planning to buy, preparing carefully. The second thread is similar, but with a good dose of the “circumstances say I should buy soon,” bug thrown in for good measure.

Self-employed Questions

Now or later Question

NYTimes.com has a great article today. The Times presents the present state of affairs in real estate as something of a stalemate. I saw the article as a confirmation of our thinking—me and my wife The Realtor—as we try to sort it all out over the past few weeks.

We work mostly with first time buyers who have a dream. We want to help make those dreams come true. But it has been really difficult these past few weeks trying to bring Buyers and Sellers together on price. We hear from other Realtors how they are having the same difficulty.

What to do? Ultimately I think it’s a matter of how you prioritize what you’re trying to do. Then you can screen out all the other chitter-chatter.

Housing is a necessity. Everyone needs a roof over their heads, whether living at home with Mom & Dad, renting or owning, one way or another, you need a place to live.

The problem has been the noise of all the investment money running into and around real estate has drowned out the true, fundamental dialogue that underlies every single house purchase: someone seeking a place to live.

If you screen out that background noise, what are you left with? I don’t know where the market is headed any better than the next person. That’s why I avoid predicting anything: it’s a waste of time. No one can predict.

I focus instead on that fundamental: housing is a necessity. As the NYTimes.com article points out, there is a confusing middle ground right now as Buyers and Sellers try to sort it all out. Buyers don’t want to pay too much and Sellers don’t want to sell for less than it’s worth.

It is a befuddling experience for anyone who is trying to buy or sell. Maybe the thing to do is just focus on your necessity. The rest will fall into place.

The NYTimes article is here: Hoping for Best in Home Sales

The consumer takes chances shopping for a mortgage. You really don’t know who it is on the other end of the telephone, email, or, the desk. The consumer has NO idea how to discern the seasoned professional from the newbie loan officer. When it comes to your mortgage loan, that’s a very precious item you are putting in the hands of someone you don’t know. So much is at stake when you apply for a mortgage: your downpayment on the contract, your credibility with the Seller and the real estate agent, and, most important of all, the realization of your dream of homeownership.

So, who is my competition? Who are these people out there who would make promises to you, the consumer? And, then, when the going gets tough, they get, umm, err…what do they get? Too often, they’ll leave you hanging.

I’m a Loan Officer and my competitors are other Loan Officers.

What does that mean, anyway, “loan officer?” It’s just a fancy word for “salesperson.” Same thing with “Account executive,” “Loan Consultant,” “SENIOR Loan Consultant,” “Loan Advisor,” and my all-time fave, “Vice President.”

Bottom line, we are all aSALEPERSON, SALESPERSON,SALESPERSON.

I put together this website entirely for the purpose of demonstrating to potential clients who I am and how I work. How many other Loan Officers do that? The vast majority of mortgage websites are come-ons. You have to enter all your information before you receive any information. I took a different approach with tcurranmortgage.com, following my work-style in real life: “There’s no such thing as a stupid question.” Give information, entrust potential clients with the benefit of my experience and the clients will, in turn, entrust me with their most precious dream: that of owning a home.

I don’t consider most other mortgage people to be the “competition.”

Sure, there are some folks who really are competitors. Those are the professionals. Those are the serious and dedicated people who work deliberately in this business to earn a good living by doing the right thing. Yes, those mortgage pros are the competition.

But the vast majority of people who claim to be mortgage professionals I do not consider competition. And, yet, they are out there spewing their nonsense and leading people to certain doom with their lack of knowledge, hunger for a buck at any cost, and disdain for ethics. They’ll tell a potential client what they want to hear; they’ll lie, make up stuff out of their heads, and generally keep talking until the client says, “Where do I sign?”

How does a consumer tell a real pro from a newbie time-waster? Honestly, I don’t know. I was asked that question the other night at a seminar. I’m working on an answer.

In the meantime, here are a couple of examples of “winners and losers:”

This thread starts with my reply to a question on Craigslist Housing forum. A mortgage person from California joins the conversation…
http://forums.newyork.craigslist.org/?ID=39673699

A consumer working with a banker expressed doubts and concerns about her “preapproval:”
http://forums.newyork.craigslist.org/?ID=39623002

A regular CL contributor decided to toy with a mortgage rep. via email. The reply from the mortgage rep. has to qualify for some kind of prize for Ultimate B.S.:
http://forums.newyork.craigslist.org/?ID=39632401

Confusion reigns too often when Buyers are trying to figure out house styles. What’s a Colonial? What’s a Dutch Colonial? A Cape has one bedroom on the first floor and two upstairs, right? Umm, no.

Here, then is the first in a series of posts to help sort the properly defined house from the poorly-listed house. With this information, you should be able to look at a house and rattle off the style of construction like a pro. Too, you can use your newfound knowledge to separate the “wheat from the chaff,” as far as real estate agents and listings are concerned. A good agent lists the house correctly.

I am writing this today after a conversation with my wife, The Realtor about house listings in the Mastic Beach area. Seems the builders and their cohorts (the local real estate agents) are building houses and calling them, “Victorians.”

Lorraine was confused. So was I. It’s not just a “Victorian.” There are different styles of Victorian house.

I ran through my bookmarks and sent her the link to this site Topeka Historic Homes. There are excellent descriptions and photographs of different housing styles. It’s a great place to start as you explore housing styles of construction.

A discussion of 100% financing at Craigslist Housing Forum today: http://forums.newyork.craigslist.org/?ID=39401116