FAQ (Frequently Asked Questions)

Q:      Does NATIONAL FUNDING lend in my area?

A:     Yes, we can provide you with a mortgage anywhere in the United States you reside or wherever the property is located.

Q:      What are the current rates and terms?

 A:    We have several programs available based on your needs and each program is unique. An example of our most popular program rates and terms can be found by clicking on the tab labeled “Latest Commercial Rates”.

Q:      How do I know which program my property will qualify for?

 A:    Just call or email us with some information about the property. We’ll ask you a couple of questions, do some quick math and then let you know what we think. If our programs sound good to you, the next step is to pre-qualify the property to make sure the numbers work and make sense before we move on to actually doing the loan. Remember, every loan is treated individually because every property and borrower are unique.

Q:      What is meant by pre-qualifying?

  A:    We verify the property is qualified by reviewing the Income &    Expense data for the previous 2 years and YTD. We also prepare a forecast for the lender to illustrate the properties potential to earn enough income to produce a proper debt coverage ratio. We also will review the borrowers’ financial data to ensure there will be no barriers to financing. Finding any red flags at this point is preferable to getting some bad news during the week we expect to close the loan.

Q:      Whatis thehighest LTV (Loan to Value) on a purchase or refinance that I can borrow?

 A:    That will depend on the mortgage program that the borrower and property qualify for. Generally, LTV’s are in the range of 70-80% on purchases and 65-75% for refinances. See our “Latest Commercial Rates” for specific program guidelines.

Q:      What is the time frame for loan processing and how much does it cost?

  A: The first step for loan qualification is to pre-underwrite the property, by calculating the Debt Coverage Ratio and review the properties general information. There is no cost to pre-underwrite a property. Upon completion of this review, we will research the borrowers basic financial information and issue a Letter of Interest outlining the best program available and the terms under which we will proceed with your loan application. After you have returned a signed copy of the Letter of Interest to us along with any required third party fees (appraisal, rate lock, etc.) we will register the loan and if directed, lock the rate. The fees required for each specific program are listed on our loan costs sheet. Our time frame to close the loan starts at this point and usually is accomplished in 45 to 60 days from registartion to closing. Please be aware however, if there are delays in receiving documents from the buyer or seller we cannot make up this lost time at the end of the loan process.

Q:      What is a yield maintenance prepayment penalty?

 A:    All of the conduit programs have this type of prepayment penalty  because the loan is sold to the bond market and those bond holders have purchased a 10 year bond in which they are paid part of the monthly mortgage payment. Therefore, the yield maintenance prepayment penalty is basically all of the interest due on the loan which is what the bond holders bought for that fixed period of time. A more simple way of stating this is that if the borrower wants to refinance the property they will have to pay all of the interest on the mortgage left on the balance of the note to pay off those bond holders. The other common type of Pre-pay on a conduit loan is defeasance, which allows you a purchase a bond that can be stripped of the interest to pay the interest for the loan.  You will be able to keep the bond after the interest for the loan has been paid off.  However, a mortgage is assumable for 1% by a new qualified borrower if the current owner wishes to sell the property.

Q:      Whatis a lock out period?

 A:    Lock out periods are usually only seen on conduit type of loans. It means that usually for the first 3-5 years of the loan the borrower cannot refinance the loan. However, the property can be sold at any time because the loan is assumable for 1%.

Q:      What is a recourse loan and a non-recourse loan?

 A:    Recourse means the borrower is guaranteeing the loan personally and a lender can legally go after the personal assets of the borrower if the loan goes into default.  A non-recourse loan means that the borrower is NOT guaranteeing the loan.  A non-recourse loan always has  a single asset entity formed for the property. A single asset entity can be an LLC, LLP or a corporation. If the loan defaults for any reason the mortgage lender can only retrieve their losses through the sale of the property.

Q:      Can a borrower pick their own attorney, escrow or title company for closing?

 A:    Generally, there are no restrictions in this area. We can help you pick a company that has a proven record of success if you so desire.

Q:      Can we use our own appraiser?

 A:    Typically, the lender will order the appraisal using third party reporting agents of their choosing. Reports ordered by the current owner, buyer, real estate agent or mortgage broker may not be acceptable to the lender.

Q:      Will we have to have an impound account for taxes and insurance?

 A:    Most of our programs require impound accounts, but there may be exceptions based on the borrowers history or with LTV’s of 50% or below.

Q:      What is the NetOperating Income (NOI)?

 A:    Net Operating Income is the Effective Gross Income less all property Expenses, except the Mortgage payments Capital Expenses and Depriciation.

Q:      What is Debt Service Coverage Ratio (DCR or DSC)?

 A:    Divide the NOI by the Annual Debt Service (P&I x 12)

Q:      What is Annual Debt Service(ADS)?

 A: Monthly principal and interest times 12 months. Do not include taxes and insurance.

Q:      What is Maximum P&I?

 A:    NOI divided by DCR = Maximum Annual P&I.  Divide this figure by 12 to get the maximum monthly P&I.

Q:      What is CAP Rate?

 A:    A measurement of the rate of return on an investment. NOI divided by the purchase price. NOI/Cap Rate = Value

Q:      What should I use as Income and Expenses for the property?

 A:    Use the actual expenses (Schedule E) or the sum of real estate taxes, insurance premiums, utilities, supplies plus $100 per unit for miscellaneous (decorating, painting, janitorial, repairs & maintenance). Use $250 per door for replacement reserves and add 5% of gross rents as management expense for the building. For purchases, subtract a minimum of 10% from gross income for vacancy factor or the actual market vacancy. For refinances use the actual income of the property. Please have the current owner convey to us the last 2 years plus YTD operating statements along with a current rent roll to allow us to pre-underwrite the property.

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