Applying for a commercial or multifamily mortgage involves several steps, from preparation and gathering documentation to application and approval. Here's a step-by-step guide to help you navigate the process effectively:

Step 1: Assess Your Financial Situation

Evaluate Your Finances:

• Personal and Business Financial Health: Review your personal and business financial statements, including balance sheets, income statements, and cash flow statements.
• Credit Scores: Check your personal and business credit scores. Address any issues or discrepancies before applying.

Determine Your Budget:

• Budget Analysis: Assess how much you can afford to borrow based on your financial situation and the property's expected income and expenses.
• Down Payment: Determine the amount you can contribute as a down payment, typically ranging from 20% to 35% of the property’s purchase price.
• Closing Costs: Closing costs can run from 3% to 5% of the loan amount, so budget these funds on-top of your down payment requirement.
• Reserve Requirements: If you are looking for a fix-and-flip, rehab, or construction loan, most lenders want to see you have at least 10% cash reserves, based on either the total loan amount or the project cost. You might also need additional reserve funds for up to six months’ interest payments if interest is not capitalized into the loan.
• Liquidity: If you are looking to refinance a loan, don’t limp into the deal with $20 in your bank account. Lenders want to see that you have 5% to 10% of the loan amount in a liquid bank or investment account. This shows responsible money management on your part.

Step 2: Prepare Your Documentation

Gather Financial Documents:

• Business Tax Returns: Collect the last 2-3 years of business tax returns.
• Personal Tax Returns: Include the last 2-3 years of personal tax returns, if applicable.
• Business Financial Statements: Provide recent balance sheets, income statements, and cash flow statements.
• Personal Financial Statements: You may download our PFS workbook, which includes a Schedule of Real Estate Owned.
• Bank Statements: Submit recent bank statements for both personal and business accounts.
• Mortgage Statements: For any refinance transaction, provide your most recent mortgage statement(s) for the loan you wish to replace.

Prepare Additional Documentation:

• Property Information: Gather details about the property, including the purchase agreement, property appraisal, and rent roll (for multifamily or commercial investment properties).
• Business Plan: Prepare a business plan outlining your investment strategy, property management plan, and expected financial performance (projections).
• Legal Documents: Include business licenses, articles of incorporation or partnership agreements, and any existing loan agreements.

Step 3: Research Lenders and Loan Options

We Help You to Identify Potential Lenders:

• Types of Lenders: Traditional banks, credit unions, commercial mortgage brokers, and alternative lenders, such as REITs, life insurance companies, private lenders, CMBS or agency lenders (e.g. SBA, USDA, Fannie Mae, Freddie Mac).
• Lender Specializations: Through our lending network, we are able to identify funders that specialize in the type of transaction you seek. This saves a lot of time, as we can target your application directly to these optimal funding sources.

Compare Loan Options:

• Loan Terms: Compare interest rates, loan terms, amortization periods, and fees.
• Loan Types: Consider different types of loans, such as conventional loans, SBA loans, or FHA and USDA loans for multifamily, investment, and owner-user properties.

Step 4: Prequalify and Obtain a Term Sheet

Quick Application Form:

• Submit a Quick Application Form to us.

Prequalification:

• Initial Assessment: Provide basic financial information to us so as to receive an initial assessment of how much you can borrow.
• Prequalification Letter: Obtain a prequalification letter from us to show sellers and brokers that you are a serious buyer.

Pre-Approval:

• Submit Detailed Information: Provide detailed financial documentation and property information to us for a more thorough review.
• Funding Fee Agreement: Accept and sign our funding fee agreement prior to receiving term sheets.
• Term Sheet: Obtain a term sheet, which indicates that we are willing to finance the property based on the provided information.

Step 5: Complete the Full Mortgage Application

Accept Term Sheet:

• Term Sheet: Review and accept the best term sheet offer that we obtain for you.
• Deposit: Follow the lender’s instruction to submit your deposit for third-party fees. Any unused funds will be credited to you at escrow.
• Processing Fee: Pay the processing fee to us at the same time as you make the lender deposit. In some cases, you will pay both to us, and we will remit the deposit to the funder on your behalf.

Submit Full Application:

• Application Form: Continue working on your full application once you have accepted a term sheet from one of our funders.
• Documentation Submission: Submit all funder-required documentation, including financial statements, tax returns, property information, and legal documents.

Application Review:

• Lender Review: Our processing team will work with the lender to assemble the final package required to close your loan as efficiently and quickly as possible. Be sure to be responsive to any information requests, as any delay on your part will slow the loan process.

Step 6: Undergo Due Diligence and Property Appraisal

Due Diligence:

• Inspection: Complete a property inspection to identify any potential issues or needed repairs.
• Environmental Reports: Obtain environmental assessments, such as Phase 1 and Phase 2 Environmental Site Assessments, if required.

Property Appraisal:

• Appraisal Process: The lender will order an appraisal to determine the property’s market value.
• Appraisal Report: Review the appraisal report to ensure it meets your expectations and aligns with the loan amount.

Step 7: Close the Loan

Finalize Documents:

• Closing Disclosure: Review and sign the closing disclosure, which outlines the final loan terms, costs, and other details.
• Legal Review: Ensure that a legal professional reviews all closing documents to confirm accuracy and completeness.

Closing Meeting:

• Sign Documents: Attend the closing meeting to sign all required documents and finalize the loan.
• Funding: The lender will disburse the loan funds, and you will complete the purchase or refinancing of the property.

Step 8: Post-Closing and Management

Loan Servicing:

• Payment Schedule: Set up a system for making timely loan payments according to the agreed-upon schedule.
• Record Keeping: Maintain records of all loan-related documents, payments, and correspondence.

Property Management:

• Ongoing Management: Implement your property management plan to ensure the property is well-maintained and operates efficiently.

Periodic Reporting:

• Financial Updates: Some loans require that you provide quarterly, semi-annual, or annual financial reports to the lender. Be sure to be aware of this schedule and diligent in providing these reports, so as not to find yourself in default on the loan terms.

Conclusion

Applying for a commercial or multifamily mortgage involves several critical steps, from assessing your financial situation to closing the loan and managing the property. By following this step-by-step guide, you can streamline the application process, ensure that you provide all necessary documentation, and increase your chances of securing favorable loan terms. Careful planning and thorough preparation will help you navigate the complexities of commercial and multifamily financing effectively.