How to Know Your Bank Interest Rate When Financing Commercial Real Estate
How to Know Your Bank Interest Rate When Financing Commercial Real Estate
When making offers on commercial real estate it is imperative that you know what your interest rate is likely to be as your payments on your loan (debt service) will eat up most of your cash flow. Because of this, it is super important to know beforehand what sort of interest you will be paying. Granted, there are several factors at play in making this determination as the bank will assess the value of the property, the financial strength and credit worthiness of the guarantor for the loan, and several other parameters that banks love to keep a mystery.
Knowing the interest rate you will be paying will weigh heavily on what properties you can write offers on and for how much. In searching for a good loan, you can call several banks yourself but you may burn bridges with them or waste a ton of money on upfront fees if you don’t do it right. If you find yourself a solid commercial mortgage broker (make sure they are solid as there are many, many brokers who are “joker brokers”) it will be well worth it as they can steer you toward the banks they know are lending and they’ll know how to best present your loan package. When starting a relationship with a new broker, be sure to be very open and honest with them about your credit worthiness, financial standing. You must help them help you by divulging as much information as possible up front. If you lie and tell them your credit is 720 when it’s really 520 or have pending tax liens you’ll end up wasting a ton of time and money for everyone involved. Once the broker knows more about you, they’ll be able to give you a decent ballpark figure as to what your interest rate will be.
Keep in mind, commercial real estate loans are usually based on the 10 year treasury rate. Find out from your broker how many basis points to add to the 10 year treasury and you’ll know at all times what your interest rate will likely be once you lock it down with your bank.
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