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Consider whether the borrowers own other real estate that may have available cash-out-refinance equity. Does the borrower have other options, such as:
Gift from a relative for down payment;
Loan against borrower's 401(k) account;
Seller second mortgage (on the property being purchased or another property owned by the borrower);
A corporation or limited-liability company that is being formed, thereby using partners with additional down-payment funds;
Assets to sell; or
Secured borrowings on other assets (cars, boats, motorcycles, etc.)?
Although this includes most options for down payment, creativity can sometimes solve the high-LTV issue.
In today's multifamily world, many programs are offering the highest LTV while still providing aggressive low rates -- for example, combo loans with a blended rate in the high sixes. Like residential, there are programs that have 85-percent combined LTVs (80/5). The terms may be different, but the results are the same.
The term for the 5-percent portion of an 80/5 program would be considered a second mortgage in the residential world. In the commercial world, it is referred to as "mezzanine debt financing." This program currently only exists for loans with purchase prices greater than $1 million, but in the future, I anticipate mezzanine-debt programs will have lower combined loan sizes.
As in the residential market, however, there is always a new program on the horizon. The vastness and creativity of Wall Street is constantly evolving, creating new and different ways to operate our businesses.
Making the transition
So can a residential loan officer evolve and transition into the multifamily world? Absolutely.
When loan officers want to transition into the multifamily and apartment world, they should understand the cost-benefit tradeoff and explore all loan options available. This will help them avoid common pitfalls such as paying unnecessary rates and selecting loan products that don't fit their customers' requirements.
When transitioning into multifamily and apartment financing, residential loan brokers must learn the lingo and program guidelines. Many programs are different, but many of the standard underwriting guidelines remain the same -- such as good credit and borrower financial strength.
In the commercial arena, accuracy is key. Loan officers entering the commercial world must learn to be thorough on the paperwork side of the business. Attention to detail will go a long way in allowing proper due diligence and smoother underwriting. And of course, it can make room for an easy and timely loan closing.
is the president of Lighthouse Commercial Mortgage and has more than two decades of lending experience in the residential, commercial and apartment/multifamily loan industries. LCM is located in Columbus, Ohio, and does business in most U.S. states. More information about LCM can be found at www.LighthouseCommercial.com.
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