The more you and your borrower know about the lending process, the better

William Jones, broker and partner, San Diego Lending Inc. and WJ Commercial Enterprises

As published in Scotsman Guide's Commercial Edition, October 2005.

Mortgage brokers who educate their clients about the lending process provide a great service by letting their clients know what to expect.

A borrower can better choose a lender by understanding what lenders face when they are reselling loans, raising funds and facing external and internal lending restrictions and parameters. It also helps to understand how lenders make money, what their liquidity is and what their lending preferences are (i.e., whether they prefer retail or industrial over multifamily).

Knowing a bank’s annual loan-origination goals also can help a borrower get a loan. For instance, if a lender targets its annual loans primarily to industrial properties and those targets are falling behind, the lender may be more prone to funding an industrial building.

Below is a list of 10 things to consider, for your benefit and that of the borrower, before the loan process gets started:

 1. Debt-service-coverage ratio (DSCR) vs. loan to value (LTV): Aggressive LTVs are great for buyers. Underwriters, though, can quote a great LTV initially and drop the LTV upon discovering that the DSCR isn’t there. Unless borrowers know this early in the loan process, they could be disappointed if it happens.

 2. Appraisals: Low caps are the norm in this hot seller’s market. Appraising in an appreciating market can be difficult because higher prices are set by new transactions before comparable sales can justify them. The lender can say no to the transaction price. This leaves the borrower with a smaller loan based on the lower appraisal value and not on the transaction price.

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