Where to start?
You may want to refinance your commercial real estate loan to reduce monthly payments, lower your interest rate, or take cash out of your commercial property. Before you refinance your existing commercial loan, it is best to determine the loan-to-value (LTV) ratio, Debit Service Coverage Ratio (DSCR), and add up all of the upfront costs that may be associated. These fees may include application, appraisal report, loan origination, recording, title & escrow, document preparation, environmental reports, and lender processing fees.
What do lenders look for?
Lenders may require a loan-to-value (LTV) ratio of 80% and a DSCR of 1.25x or higher. Your DSCR can be calculated by dividing your Net Operating Income by your Debt Services. Lenders will also want to know the current value of the commercial property. To avoid paying unnecessary fees, you can check the value of your property using online appraisal sites. However, the online appraisal websites are not always accurate so we suggest you obtain 3 appraisals and use the average.
Best practice tips:
- Check with your current mortgage lender to see if there are possible penalties or prepayment fees
- Budget for refinance fees which include an appraisal report and application, loan origination, recording, title & escrow, and document preparation fees
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