By Jeff Rauth
Apartment finance is weathering the current credit crisis nicely compared to other sectors of the commercial mortgage business. For example, owner occupied conventional mortgages are experiencing significant restrictions and loan requests above 60% loan to value, that do not fit the SBA guidelines have few, if any options.
In contrast, 80% financing on purchases and 75% loan to value on refinances, is still an option. Long term fixed rates, like five, ten year and even 30 year is available. Also, interest rates themselves are very low (2/10/09) as we are seeing low 6%'s and even high 5%'s for strong borrowers on these long term high rate. As a result many borrowers that went with floating conduit loans are now opting to refinance into long fixed rates due to concerns with where rates will go if inflation kicks in.
Apartment Finance
One of the main changes with multifamily finance is with underwriting going "global". Many veteran apartment owners will be unaccustomed to the additional scrutiny. Historically, most of the underwriting focused on the property itself, primarily in concern to the cash flow of the property. Better known as the debt coverage ratio, underwriting wanted to determine if the properties income could carry all of the associated expenses, and the proposed loan. That's essentially was the main focus.Now however, underwriters also want to examine all of the borrower's income and expenses both personally and from other, none related businesses. What they are investigating is whether the borrower is above water on a cash flow basis, over the entire financial picture, including the subject property.
Most borrowers will put up with the additional "brain damage" as they really have no other choice with apartment finance. As the golden rule points out "he who has the gold, makes the rules". And besides just accepting it, the loan programs are still very attractive for the borrower.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan a national commercial mortgage firm. Their focus is on commercial loans from $400,000 - $10,000,000. 248 885-8797. apartment loans or commercial bridge loans
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