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Winstonrowe

How To Refinance A Commercial Mortgage

Tuesday, November 20, 2018 - Article by: Winstonrowe - Winston Rowe & Associates - Message

There are several good reasons to pursue refinancing of commercial property.

Reasons to refinance a commercial property mortgage:

The main reason investors refinance commercial property is to take advantage of the savings from a lower interest rate and longer loan terms, which simultaneously reduces long-term debt as well as monthly payments.

Taking cash out on refinancing gives the owner funds to make improvements on the property that they can then justify an increase in tenant rents.

Refinancing also lets the borrower get out from under an adjustable-rate commercial property mortgage.

Common commercial mortgage refinance requirements:

A lender starts the process of refinancing a commercial mortgage by checking the property owner's business credit.

When refinancing through a bank, the lender reviews the available collateral in the property, as well as the net operating income (NOI) of the investor or the underlying business that owns the property.

NOI is one of the most important factors lenders evaluate in deciding whether to refinance a commercial property.

What you need to qualify:

A commercial real estate mortgage is not like refinance a home mortgage. You're refinancing a business. A potential capital source is going to look at Three things.

First, does the business cash flow, make a profit and are there cash reserves on hand for unexpected business and operating expenses. The quality of the tenant's, term and age of leases and are there annual rent increases. Is the rent charged below or above current market rents in the area?

Second, current value of the property based on Two factors. Area comparable property value and building class. For example, do you own a C class property in an A neighborhood. Demographics, what is the neighborhood median income. Basically, can incomes support market rents. If not, your property is in a declining market.

Third, you as the business owner (borrower). Personal credit is very important, 700 FICO score is generally required for a best rate and term long term conventional mortgage. Secured and unsecured debt that you personally hold.

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