Get the skinny on refinance requests upfront, and save everyone time

Barbara Press, senior loan officer, Windsor Capital Funding

As published in Scotsman Guide's Commercial Edition, December 2007.

To determine if a commercial real estate property qualifies for a refinance, mortgage brokers should use an initial prescreen. This requires a detailed question-and-answer period with potential borrowers. Using a prescreen in lieu of a standard mortgage application can save you, your borrowers and your lenders significant time because much of the information you gather will determine whether the loan will be approved or denied.

Let's look at some of the information to request when prescreening for refinances.

Ownership structure

First, find out when the borrowers assumed ownership of the current property. If it has been less than 12 months, stop. Unless the title is free-and-clear or there is sufficient equity, the lender will use the purchase price when considering the deal. That probably won't work for your clients.

You also may not have a deal if the borrowers put down 20 percent or less sometime in the past 12 months. Even if your borrowers are ready, the property is not.

If the borrowers were turned down by the bank, find out why. This is huge. If the bank denied them because it won't finance owner-occupied, mixed-use properties, then you may still have a deal. But if it turned them down because the borrowers' credit scores were too low, the property didn't cash flow or the subject location was in a rural area, then you'll face the same challenges.

History and market

Once you know about the ownership structure, analyze the property's history.

Ask about the original purchase price and estimated real estate value. When was an appraisal last completed and what was the appraised value? If it has been a long time since the borrowers refinanced, they may not know this. Most likely, the borrowers will have a higher opinion of their property than what it is actually worth.

Find out the net operating income and the cap rate for the subject area. Then do some basic calculations to get an idea of the income value.

Current mortgage terms

Here is where you get an opportunity to learn the borrowers' needs. If the borrowers are in a six-month loan or option ARM that has a balloon coming due in 60 days, refinancing isn't negotiable. These borrowers need a new mortgage. Period.

Asking them their long-term goals here is critical. Find out:

• Whether they are planning to sell soon;
• What kind of amortization they are looking at;
• If they are in a loan with a lockout period or prepayment penalty; and
• If the new loan can afford the lockout and prepayment costs.

If the borrowers don't know the answer to any of these questions, advise them to dig out a copy of their note.

The purpose

You'll also want to find out the reason for the desired refinance. Is it for their existing business, or is it to generate investment funds? Are your borrowers cashing out of one property to buy another?

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