Documents required to close commercial real estate loans vary greatly, as there are different types of lenders, each having their own credit package guidelines. For our purposes, we are interested in outlining what makes a great credit package from a private mortgage banking point of view. Great credit packages get underwritten immediately and are priced more attractively for the borrower than do poorly packaged loan applications and information.
Complete Loan Application
The private lending community is focused on the borrower’s profile, which is completely encapsulated in the URLA (the mortgage loan application) or something equivalent such as a personal financial statement (PFS). Complete each and every little box. Private lenders read all of the details and extrapolate and make large assumptions when data is missing or incorrect. Great private lenders, like us, are looking for small clues in the application—clues that show that the client is more or less than what the application presents. Bottom line, complete all sections: for example include the year your asset was purchased as well as price (that’s always critical) and the schedule of real estate (in case the lender needs to cross collateralize the asset) as well as details about debt load. These are areas the loan brokers and borrowers typically miss or leave incomplete.
Include something that supports the income earnings stated in the URLA. The best interest rates are reserved for quality loan candidates and quality properties to be leveraged. Include bank statements OR tax returns OR paystubs OR whatever can substantiate stated income. Bottom line here is that private lenders need to know that the payment can be serviced. Other important documents required include rental agreements and rent rolls evidencing income for the pledged asset.
As to credit… most private lending operations do not focus on credit rating, though better credit or responsible credit is always more highly regarded. Include a credit report if you have one, otherwise don’t bother providing.
Document Any Debt not on your Credit Report
Debt load is important to make known to the lender. Again, the lender wants to know in great detail where the stresses are for the loan applicant. Child or spousal support, business agreements or obligations, mortgages on other real estate assets, co-signing for others (co-sign for kid on a vehicle) . . . we want it all. Knowing these numbers allow the private lender to ascertain what is the debt ratio and make a quick, high quality decision with an offer to lend.
So what do you have to fall back on in case hard times arrive? Are other assets available, such as CD’s, retirement monies, liquidable assets such as collectable cars, art, coins or stamps, cash stuck away in an old coffee can, etc. Private lenders look at all types of assets as “savings”.
Master List of Needed Documents for a Mortgage:
You will only need to provide items from the list below that pertain to your specific situation…most private loans require only a small portion of the exhibits listed. It’s best to wait for the lender to provide you with a list of needed items. Oftentimes, there are alternatives to the documents requested; for instance, 3 month’s bank statements are good substitutes for tax returns and a recent—less than 12 months—appraisal can be used instead of ordering a new valuation. Loan documents requested pretty much match the complexity of the transaction: high labor intense underwriting require more back up documentation while simple, straight forward deals require very little documentation.
- Most recent pay stubs on all employment for the last 30 days
- The last two (2) years complete tax returns
- The last two (2) years W-2 and 1099 forms
- Award letters for social security or disability income (if applicable)
- Award letters from pension or retirement income (if applicable)
- Mortgage statements on all open real estate loans (including rentals)
- If a refinance, evidence of hazard insurance policy
- If pursuing a second trust deed, copy of the promissory note on your first mortgage is required
- If pursuing a rehab or construction loan, a detailed budget is required, detailing materials and labor
- If the loan has a short timeframe, provide a specific mandatory close date
- Rental agreements (if you currently have tenants renting from you)
- Profit and loss statement for rental assets
- Any old appraisals that might support a value at some time
- Any old credit report that might support credit standing at some time
- If in escrow, copy of current escrow instructions, fully executed purchase contract and preliminary title report
- If the subject collateral asset is industrial or similar, a Phase I environmental report will be requested. Providing any environmental reports—old or recent—is useful
- Checking/Savings accounts and other assets including bank addresses, account numbers, and if available 3 months most recent bank statements.
- Complete bankruptcy papers (if applicable). Copy of petition and discharge, handwritten explanation of reason for bankruptcy, evidence of excellent credit since the bankruptcy
- Complete divorce papers or separation agreements (if applicable)
- Name and address of current landlord (if applicable – purchases only)
- Letter of explanation for any derogatory credit
- Cash out letter (if you are obtaining a loan with extra cash out, explain what you intend to use the cash for)
- If you are NOT a US citizen, we will need a copy of your green card (front & back)
- If you are NOT a permanent resident of the US, we will need a copy of your H-1 or L-1 visa.
If self-employed you will also need:
- A year-to-date profit and loss statement
- K-1 forms (if applicable)
- Partnership and/or corporate tax returns (if applicable)
- If borrowing entity is not an individual lender will need entity formation papers such as articles of incorporation, by laws, resolution, letter of good standing by DOC
- If transaction is a joint venture then pro forma numbers should be provided, along with an executive summary describing the entire plan for the transaction