Assets America®, Inc. is a commercial mortgage banking and brokerage firm providing high-end capital and financial services to sophisticated real estate owners, developers, and business owners nationwide.

Real Estate Financing & SalesAssets America®, Inc. is a commercial mortgage banking and brokerage firm providing high-end capital and financial services to sophisticated real estate owners, developers, and business owners nationwide. Our firm focuses on providing financing for transactions ranging from $3 Million to $500 Million and beyond. We have developed a reputation for successfully closing complex and extraordinary transactions during both favorable and challenging market conditions.

We are direct Fannie DUS correspondents, and as a full service operation, we utilize money from Fannie, Freddie, FHA/Hud, Conduit, Portfolio, Life Companies, and our long-term Wholesale & Correspondent Banking sources to fund the Acquisition, Refinance & Construction of most commercial real estate market segments including Multifamily (Apartment Buildings including Senior Housing Facilities), Hospitality (Flagged and Non-Flagged Hotels), Retail, Office, Industrial, Medical, General Commercial, large Mobile Home Parks (minimum of 50 spaces), Self-Storage, and Mixed Use properties.In addition to permanent debt financing, we are able to structure transactions using bridge loans, high-leverage mezzanine debt, construction loans and straight equity. Since we are not limited by our affiliation with any one capital source, we are able to present the requested financing to a broad spectrum of capital sources and secure the best transactional specific terms and pricing the market can offer. We save our clients time and money by creating a competitive environment forcing the market to compete for the proposed financing, and we have the experience and the insight to collaboratively determine the best options. Ultimately, clients reap all the financial benefits of a superbly managed, effective, and highly professional transaction.

Why Choose Assets America

Our services include, but are not limited to, transaction evaluation, loan origination, deal structuring, document processing, financing request underwriting, electronic document management and storage, sophisticated package organization and preparation, loan placement submission, term sheet negotiation, further coordinated underwriting, third party report coordination, loan commitment negotiation, loan document review, and coordination of loan document signing, funding, recording and closing. We can also assist in advising, coordinating, and guiding mid-market Mergers & Acquisitions (M&A) transactions across multiple industries.

Many banks are constrained by loan products and underwriting guidelines that quite often don’t fit our client’s sophisticated and unique requirements. Bank loan officers are incentivized to maximize profits while pushing as much of the risk as possible onto the borrower and banks also force borrowers through a variety of hoops and typically provide very limited assistance managing transaction workflow.

Private Banking Experience: The Assets America® difference is best described by our private banking approach to supporting client objectives. Our professional relationships with our secure and well-funded domestic and foreign based private and institutional capital sources have proven invaluable to our success. We couple these relationships and market place knowledge with our highly disciplined transactional processing. By exclusively representing clients, by limiting the number of clients we agree to represent at any given time, by providing second to none, incredibly personal attention to each and every detail, and by managing the formation of all tiers of capital structured and tailored to each transaction, our clients benefit by receiving dedicated, focused, integrated and seamless financing with terms that are often superior to conventional approaches. This saves borrowers time, money and reduces transactional risk. Thus, we are able to provide a commercial banking experience that is substantially unique in today’s capital markets. In many cases, where our competition is unable or simply fails to deliver, Assets America® delivers refined, effective, capital solutions.

When commercial real estate owners select Assets America® for their financing needs, they know they are engaging a firm that possesses the knowledge, the credibility, and the long-term, sophisticated relationships with well-funded lenders and private decision makers thusly ensuring that their “deal gets funded!” Experienced deal makers clearly recognize that employing our firm, with its extraordinary personal service and attributes, provides them with a definitive and tangible advantage.

Make Assets America® part of your focused, diligent, commercial financing team. Submit your loan request by clicking on the appropriate “Loans – Apply Here” category in the upper left corner of this web page (Multifamily, Commercial, Construction, Private Money or Mergers & Acquisitions) or simply call us at the above phone number(s) to receive a timely and highly insightful response. We look forward to hearing from you!

How much you can borrow: One of the first steps in obtaining a loan is to determine how much money you can borrow. In the case of refinancing or purchasing a commercial property, you should determine how much you can afford even before you begin looking. By answering a few simple questions, we will calculate your buying power, based on our standard lender criterion.

LTV and Debt-to-Income Ratios: LTV or Loan-To-Value ratio is the maximum amount of exposure that a lender is willing to accept in financing your loan. Lenders are usually prepared to lend a higher percentage of the value to creditworthy borrowers. Commercial lenders build in “safety nets” for themselves. For example, most lenders will use a specific Debt Service Coverage Ratio (“DSCR” or DSC) for each commercial property type. The typical rule of thumb dictates that the Net Operating Income (NOI) of the subject property based on the most recent twelve month operating statement, (“T-12”), divided by a DSCR of say 1.25% will help protect the lender in the event there is a decline in the subject property income. The higher the DSCR that a lender uses, the lower the loan amount they will ultimately lend on the subject property, and thusly, the safer the loan is for the lender. Typical DSCRs can range from as low as 1.00% up to 1.50% with the average being around 1.25% for Multifamily properties (apartment buildings of 5+ units), and slightly higher DSCRs for office buildings, retail, and other commercial real estate market segments. Not only does the commercial lender underwrite the subject property’s income and expenses, but they will also underwrite the income and expenses of the borrower(s)/guarantor(s) as well. Another consideration in approving the maximum amount of loan for a particular borrower is the ratio of monthly debt payments (such as auto and personal loans) to income. Many commercial lenders will now utilize what is known as a “global underwriting” in that they underwrite the borrower as carefully and as strictly as they do the borrower and will calculate the borrower(s) debt in combination with the subject property’s debt. Borrowers with personal, high debt-to-income ratios may need to pay a higher down payment, in the case of a purchase, in order to qualify for the loan. It is also possible that a borrower/guarantor may need to pay down, or possibly pay off in full, any personal revolving debt or personal car loans if their personal debt-to-income ratio is too high.

Credit Scores & Midscores: Credit cores reflect credit risk of the individual in comparison with that of general population. It is based on a number of factors including past payment history, total amount of borrowing, length of credit history, searches for new credit (aka credit report inquiries), and type of credit established. When you begin shopping around for some type of new credit whether it is for a new credit card, a new car loan, a new mortgage on a residence, or a new commercial mortgage for a commercial property, that credit entity/lender runs your credit report which can lower your credit score a little bit each and every time it is run. Therefore, it is advisable that you authorize the mortgage professional to run your credit report only after you have chosen to apply for a loan through them. Midscores are the middle credit score, not the average credit score, of a borrower’s three major, credit bureau scores on their personal credit report. Midscores are used by virtually all commercial mortgage lenders in their credit decisions. It is a quantified measure of credit worthiness of an individual. For example, if a borrower has a 700 Experian(TM) score, a 735 TransUnion® score, and an 810 Equifax® score, their Midscore is a 735. The lender essentially throws out the high and low scores and really only looks at the middle score, again, not the average as one would think, but the middle!

Select the right loan program: Commercial loans come in many shapes and sizes. Deciding which loan makes the most sense for your financial situation and goals means understanding the benefits of each. Whether you are making a commercial acquisition, or simply refinancing, there are 3 basic types of loans. Each has different reasons you would choose them.

1) Fixed Rate Mortgage: Commercial fixed rate mortgages usually have fixed periods lasting 3, 5, 7, 10, 15 or 30 years; the most common of which are 5, 7 and 10 years. These fixed rate loans can have amortization periods that are typically 20, 25, or 30 years, and some may even have Interest Only options. Throughout those years, the interest rate and monthly payments remain fixed. You would select this type of loan when you:

  • Plan to own the subject property at least as long as the fixed rate period you choose
  • Like the stability of a fixed principal/interest payment
  • Don’t want to run the risk of future monthly payment increases

2) Adjustable Rate Mortgage: Adjustable Rate Mortgages (often called ARMs) can typically last for from 3 to 30 years, just like fixed rate mortgages. But during those years, the interest rate on the loan fluctuates; it may go up or down. Monthly payments increase or decrease. You would select this type of loan when you: Want the absolute lowest interest rate with the lowest payment Don’t mind having your monthly payment periodically change (up or down) Comfortable with the risk of possible payment increases in future Think the subject property income will probably increase in the future

3) Combination Rate Mortgage: Combination rate mortgages combine fixed interest rates and adjustable interest rates. Lenders often refer to these loans as hybrid loans. For the first few years (3-7), the interest rate is fixed. It remains the same and so does your monthly payment. During the remaining years of the loan, your interest rate becomes adjustable and can vary. You would select this type of loan when you: Want the stability of a fixed principal/interest payment in the short term Want to repair your credit by demonstrating your ability to make regular payments, then refinance for a lower interest rate Want to borrow more and get a lower monthly payment than a standard fixed rate loan By carefully considering the above factors and seeking/utilizing our professional advice, you should be able to select the one loan that matches your present conditions and needs as well as your future financial goals.

Begin loan processing: Although most lenders must conform to standards set by government agencies, loan approval guidelines vary greatly depending on the terms of each loan. In general, approval is based on three main factors:

  • Income of the subject property;
  • Value of the subject property; and
  • Borrower’s ability and willingness to repay the loan; credit history, etc.
  • Once your loan application has been received, we will immediately begin loan processing and underwriting. We will verify all of the information you have provided, and we shall update all of your financial statements, statements of real estate owned, rent rolls, operating statements, and more. If any discrepancies are found, either the processor or your loan officer will troubleshoot to rectify/adjust/clear the matter. This information includes:

Income/Employment Check Is the combined income of the subject property and your personal income sufficient to cover the requested loan amount monthly payments on a global underwriting analysis? We will carefully and diligently underwrite all documents and financial statements to make sure there exists sufficient income and assets to support the loan prior to any loan submission.

Credit Check What is your ability to repay debts when due? Your credit report is reviewed to determine the type and terms of previous loans. Any lapses or delays in payment are considered and must be explained in writing via a Letter of Explanation (“LOX”).

Asset Evaluation Do you have the funds necessary to make the down payment, pay all closing costs, and to still have sufficient reserves to meet the minimum reserve requirement for the requested loan? We will evaluate all such details and scenarios.

Property Appraisal Is there sufficient value in the property? The property is appraised via MAI® (Members of the Appraisal Institute®) appraisers to determine current market value. If the subject property is five (5) years old or less, the appraisal will be based upon three valuation methods: Income Approach, Market Approach, and Cost Approach. The appraiser will then reconcile the three valuations to make his final value determination. On the other hand, if the subject property is greater than 5 years old, the appraisal will only be based upon two methods of valuation: Income Approach and Market Approach; the appraiser will then reconcile the two valuations to make his final value determination.

Other Documentation In some cases, additional documentation may be required before making a final determination prior to receiving a loan commitment. In order to improve your chances of receiving a loan commitment (in commercial loans, a loan commitment is the equivalent of receiving a loan approval on a residential loan): Fill out your loan application completely. You may use our online forms to expedite the process. Respond promptly to any requests for additional documentation especially if your rate is locked or if your loan is due to close by a certain date, such as in a commercial property acquisition/purchase. Do not move money into or from your bank accounts without a proper paper trail. If you are receiving money from friends, family or other relatives, please prepare a gift letter and contact us. Do not make any major purchases or apply for any other loans whether personal or business until the subject loan is closed! Purchases cause your debts to increase and may have an adverse effect on your current application, credit scores, etc. During the loan application/processing period, if you find it necessary to make any financial moves, we would request that you contact us via email or telephone to discuss your desires prior to making any moves. It is best not to plan any out of town trips on or about your intended loan closing date. If you plan to be out of town, sign a Power of Attorney to authorize another individual to sign on your behalf when your loan is expected to fund. Again, during loan processing, underwriting, and before the loan closes, it is best just to be diligent about requested paperwork/documentation, and to be available during business hours.

Closing your loan: After your Loan Commitment is issued, mutually executed, the commitment fees are wired to the lender, and the rate is locked, you are now ready to sign the final loan closing documents. You must review the loan documents prior to or at signing and make sure that the locked interest rate and the loan terms are what you were promised at rate lock. Also, verify that the name and address on the loan documents are accurate. Signing takes place in front of a notary public and can be done using a mobile notary at your place of business, or the escrow/title company, or if you desire, we can even schedule your your signing at your residence after business hours! Of course, there are several fees associated with obtaining a mortgage and transferring property ownership which you will be expected to pay at closing. In the case of a purchase/acquisition loan, you may be required to take a cashier’s check for the down payment and closing costs with you to closing. Personal checks are normally not accepted. You also will need to verify that the proper insurance policy is in place, and any other requirements such as flood insurance, plus proof of payment. Your loan will normally close shortly after you have signed the loan documents. On commercial refinance loan transactions, unlike 1-4 unit residential transactions that fall under the federal laws of RESPA, there is no three (3) day Right of Rescission before your loan transaction can close.
 

Below is a list of documents that are required when you apply for a commercial mortgage. However, every situation is unique and you may be required to provide additional documentation. So, if you are asked for more information, please be cooperative and provide the information requested as soon as possible. It will help speed up the loan application process.

General Items:

  • Rent Roll – Signed, Dated & Certified
  • Income & Expense (P&L’s) – 2009, 2010, & Year to Date – Signed, Dated & Certified
  • Sample Rental Agreement – Subject Property
  • Management Agreement – Subject Property
  • Laundry Lease & any other Subject Property Leases
  • Mortgage Statement(s) – Current stmt & last year end stmt (for all loans)
  • Hazard Insurance – Subject Property – Acord 25S & Acord 28
  • Hazard Insurance Premium(s) – all properties
  • Statements – Bank Accounts, Stocks, Bonds, IRA’s, etc. – 2 Months each (all pages)
  • If Purchase – Copy of Buyer & Seller Executed Purchase Agreement, along with all offers and counter offers and a copy of the Escrow Instructions
  • Photos – Front, Back, Sides, Interior of some Units, Parking Area, etc.
  • Photos – Street Views: North, South, East & West
  • History of Subject Property

Limited Liability Companies (LLCs):

  • Filed copy Articles of Organization (LLC-1 or LLC-10 if restated) with all filed amendments (LLC-2)
  • Filed copy Statement of Information (LLC-12) along with all filed amendments (LLC-11)
  • Operating Agreement – Signed, include all exhibits, schedules, and amendments
  • Statement of Real Estate Owned (SREO) – Borrowing Entity
  • Balance Sheet – Borrowing Entity
  • P&L – 2009, 2010, & Year to Date – Borrowing Entity
  • Federal Tax Returns – 3 Years
  • IRS Form 8821

Managing Member(s), Member(s) with a 25% Interest, & Individual Applicants:

  • Personal Financial Statement
  • Schedule of Real Estate Owned (SREO) – Personal
  • P&L – 2010 & Year to Date (if self-employed), OR 2010 W-2 and recent two paystubs (if employed)
  • Mortgage Statement(s) – All Properties
  • Hazard Insurance Premium(s) – All Properties
  • Property Tax Bill(s) – All Properties
  • Homeowner’s Association Statement(s) – All Properties (if applicable)

Will an Appraisal be required?

An appraisal is generally required by a lender, prior to loan commitment, to determine that the requested loan amount is falls within the lender’s loan to value (LTV) guidelines. An appraisal for a commercial property is usually performed by an MAI® appraiser who is not only a state-licensed individual trained to render expert opinions concerning property values, but who is also a Member of the Appraisal Institute®. In an appraisal, consideration is given to numerous factors including, but not limited to: the subject property, its income and expenses, its location, its age, its amenities as well as its physical conditions.

Why get an Appraisal ?

The most common reason for ordering an appraisal is to obtain a loan on a property. However, there are several other reasons why an appraisal might be needed. Below are just a few other reasons:

  • to establish the replacement cost (insurance purposes).
  • to contest high property taxes.
  • to settle a divorce.
  • to settle an estate.
  • to use as a negotiation tool (in real estate transactions).
  • to determine a reasonable price when selling real estate.
  • to protect your rights in an eminent domain case.
  • because a government agency requires it.

What are the various Appraisal Methods ?

Appraisers use three common approaches when establishing the value of a given property:

  1. Sales Comparison Approach: In this approach, the appraiser identifies 3-6 comparable properties in the neighborhood which have recently been sold. Ideally, the properties are close in vicinity (within a 3 mile radius of the subject property) and have sold within the last 6-12 months. The appraiser then compares the sold properties to the subject property and makes monetary adjustments for the differences. The factors used in the comparisons include square footage, number of units, property age, lot size, view, and property condition, etc.
  2. Income Approach: In this approach, the potential net income of the property is capitalized to arrive at a property value. This approach is suited to income-producing properties and is usually used in conjunction with other valuation methods. The process of converting a future income stream into a present value is known as capitalization.
  3. Cost Approach: In this approach, the following formula is used to arrive at the property value: Value of the land (vacant), added to the cost to reconstruct the subject property, as new on the date of value, less accrued depreciation the building suffers in comparison with a new building. This approach is only used, in conjunction with the Sales Comparison (market) Approach and Income Approach IF the subject property is 5 years old or newer. If the subject property is older than 5 years, this approach will not be used.

After a thorough exercise of the three approaches, and usually just the first two approaches, a “reconciliation” of the values is made and a final estimate or opinion of value is determined. While most appraisers intend for their appraisals to be objective, many times an appraisal can be subjective and therein lies the rub and the single largest difficulty in today’s commercial loan financing is the valuation. If the appraisal comes in too low, the loan may very well not go forward. Fortunately, low ball appraisals are relatively seldom.

Who owns the Appraisal ?

Even though the borrower pays for the appraisal, the lender actually owns it. This is because the lender orders the appraisal on the borrower’s behalf, and the appraiser lists that lender on the appraisal report. However, the borrower has the right to receive a copy after the loan is funded.

May I use another lender even after the appraisal has been completed ?

It is certainly possible. In most cases, changing the lender does not mean you will have to pay for another appraisal. The first lender can conceivably transfer the appraisal to the new lender. Some appraisal firms may charge a small fee, however, because there is clerical work involved in editing the appraisal to reflect the lender. This fee is called an “Appraisal Retype Fee.” However, the lender who first ordered the appraisal has the right to refuse to transfer the appraisal to another lender. In this event, an entirely new appraisal would be required.

Who determines the sales price of commercial property ?

The seller of the property is the person who sets the price of the property, not the appraiser. This is because sellers normally do not order an appraisal when selling their property. Sellers wish to obtain the highest selling price possible for their commercial properties, and hence do not wish to be bound by the appraiser’s valuation of their property. The real estate agent, who receives a percentage of the sales price as compensation and often represents the seller in the transaction, normally assists the seller in setting the sales price.

Typically, the seller’s real estate agent performs a comparative market analysis (CMA). The appraisal laws in most states allow real estate agents to perform CMAs without an appraiser’s license or certification. A CMA is a necessary part of the agent’s preparation for a listing and consists of examining sales of properties in the area to arrive at a listing price. The reliability of the CMA depends upon the agent’s experience and the characteristics of the property and the surrounding area. Typically, the agent will suggest a selling price to the seller based upon the analysis. However, the seller may not accept that price and choose to list the property for a higher price.

What happens at closing ?

At the closing, ownership of the newly purchased property is officially transferred from the seller to you. It may involve you, the seller, the real estate agent, your attorney, the lender’s attorney, representatives from the title or escrow firm, and a variety of clerks, secretaries, and other staff. It is possible to have an attorney act on your behalf if you cannot attend the closing (for example, if the property is in another state). Closing can take as little time as an hour to sign all the forms and transfer ownership or it can take several hours, depending on the contingency clauses in the purchase offer (and any escrow accounts that may need to be initiated).

Much of the paperwork involved in closing (or settlement) is done by attorneys and real estate professionals. You may be involved in some of the closing activities and not in others, depending on local customs and on the professionals with whom you are working.

Before you close on the property, you should have a final inspection, or walk-through, to make sure any repairs you requested have been made and that items which were to remain with the property (light fixtures, etc.) are still there.

In most states, settlement is done by a title or escrow firm to which you forward all the materials and information along with the appropriate cashiers’ checks, and the firm will make the necessary disbursements. The real estate agent or another representative of the title company will deliver the check to the seller and the property keys to you

What is a credit report ?

Your credit payment history is recorded in a file or report. These files or reports are maintained and sold by “consumer reporting agencies” (CRAs). One type of CRA is commonly known as a credit bureau. You have a credit record on file at a credit bureau if you have ever applied for a credit or charge account, a personal loan, insurance, or a job. Your credit record contains information about your income, debts, and credit payment history. It also indicates whether you have been sued, have any public records such as liens or judgments, or if you have filed for bankruptcy.

Do I have a right to know what’s in my report?

Yes, if you ask for it. The CRA must tell you everything in your report, including medical information, and in most cases, the sources of the information. The CRA also must give you a list of everyone who has requested your report within the past year-two years for employment related requests.

What type of information do credit bureaus collect and sell?
Credit bureaus collect and sell four basic types of information:

Identification and employment information
Your name, birth date, social security number, employer, and spouse’s name are routinely noted. The CRA also may provide information about your employment history, home ownership, income, and previous address, if a creditor requests this type of information.

Payment history
Your accounts with different creditors are listed, showing how much credit has been extended and whether you’ve paid on time. Related events, such as referral of an overdue account to a collection agency, may also be noted.

Inquiries
CRAs must maintain a record of all creditors who have asked for your credit history within the past year, and a record of those persons or businesses requesting your credit history for employment purposes for the past two years.

Public record information
Events that are a matter of public record, such as bankruptcies, foreclosures, or tax liens, may appear in your report as well.

What is credit scoring?

Credit scoring is a system creditors use to help determine whether to offer you credit. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt, and to repay that debt in a timely and methodical fashion. A total number of points — a credit score — helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.

Because your credit report is an important part of many credit scoring systems, it is very important to make sure it’s accurate before you apply for a commercial loan. To get copies of your report, contact the three major credit reporting agencies:

Equifax: (800) 685-1111
Experian (formerly TRW): (888) EXPERIAN (397-3742)
Trans Union: (800) 916-8800
These agencies may charge you up to $9.00, or more, for your credit report.

Why is credit scoring used?

Credit scoring is based on real data and statistics, so it usually is more reliable than subjective or judgmental methods. It treats all applicants objectively. This purportedly “objective” scoring method may or may not beneficial to all commercial loan applicants. Judgmental methods typically rely on criteria that are not systematically tested and can vary when applied by different individuals.

How is a credit scoring model developed?

To develop a model, a creditor selects a random sample of its customers, or a sample of similar customers if their sample is not large enough, and analyzes it statistically to identify characteristics that relate to creditworthiness. Then, each of these factors is assigned a weight based on how strong a predictor it is of who would be a good credit risk. Each creditor may use its own credit scoring model, different scoring models for different types of credit, or a generic model developed by a credit scoring company.

Under the Equal Credit Opportunity Act, a credit scoring system may not use certain characteristics like — race, sex, marital status, national origin, or religion — as factors. However, creditors are allowed to use age in properly designed scoring systems. But any scoring system that includes age must give equal treatment to elderly applicants.

How reliable is the credit scoring system?

Credit scoring systems enable creditors to evaluate millions of applicants consistently and impartially on many different characteristics. But to be statistically valid, credit scoring systems must be based on a large enough sample. Remember that these systems generally vary from creditor to creditor.

Although you may think such a system is arbitrary or impersonal, it can help make decisions faster, more accurately, and more impartially than individuals, that is, when it is properly designed. And many creditors design their systems so that in marginal cases, applicants whose scores are not high enough to pass easily or are low enough to fail absolutely are referred to a credit manager who decides whether the company or lender will extend credit. This may allow for discussion and negotiation between the credit manager and the commercial loan applicant.

What can I do to improve my score?

Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change — but improvement generally depends on how that factor relates to other factors considered by the model.

Nevertheless, scoring models generally evaluate the following types of information in your credit report:

Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.

What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score.

How long is your credit history? Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances.

Have you applied for new credit recently? Many scoring models consider whether you have applied for credit recently by looking at “inquiries” on your credit report when you apply for credit. If you have recently applied for numerous new accounts, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make “prescreened” credit offers are not counted.

How many and what types of credit accounts do you have? Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may negatively affect your credit score.

Scoring models may be based on more than just information in your credit report. For example, the model may consider information from your credit application as well: your job or occupation, length of employment, or whether you own a primary residence.

To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. It’s likely to take some time to improve your score significantly.

What happens if you are denied credit or don’t get the terms you want?

If you are denied credit, the Equal Credit Opportunity Act requires that the creditor give you a notice that tells you the specific reasons your application was rejected or the fact that you have the right to learn the reasons, if you ask within 60 days. Indefinite and vague reasons for denial are illegal, so ask the creditor to be specific. Acceptable reasons include: “Your income was low” or “You haven’t been employed long enough.” Unacceptable reasons include: “You didn’t meet our minimum standards” or “You didn’t receive enough points on our credit scoring system.”

If a creditor says you were denied credit because you are too near your credit limits on your charge cards or you have too many credit card accounts, you may want to reapply after paying down your balances or closing some accounts. Though sometimes closing accounts may have a derogatory effect on your credit score. Credit scoring systems consider updated information and change over time.

Sometimes you can be denied credit because of information from a credit report. If so, the Fair Credit Reporting Act requires the creditor to give you the name, address and phone number of the credit reporting agency that supplied the information. You should contact that agency to find out what your report said. This information is free if you request it within 60 days of being turned down for credit. The credit reporting agency can tell you what’s in your report, but only the creditor can tell you why your application was denied.

If you’ve been denied credit, or didn’t get the rate or credit terms you want, ask the creditor if a credit scoring system was used. If so, ask what characteristics or factors were used in that system, and the best ways to improve your application. If you get credit, ask the creditor whether you are getting the best rate and terms available for your commercial mortgage application and, if not, why. If you are not offered the best rate available because of inaccuracies in your credit report, be sure to dispute the inaccurate information in your credit report.

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The traditional fixed rate commercial mortgage is one of many types of commercial loan programs, where monthly principal and interest payments never change during the life of the loan. Fixed rate commercial mortgages are available in terms ranging from 10 to 30 years. This type of mortgage is structured, or “amortized” so that it will be completely paid off by the end of the loan term.

Even though you have a fixed rate mortgage, your monthly payment may vary if you have an “impound account.” In addition to the monthly loan payment, some lenders collect additional money each month for the prorated monthly cost of property taxes and hazard insurance. The extra money is put in an impound account by the lender who uses it to pay the commercial property borrowers’ property taxes and hazard insurance premium when they are due. If either the property tax or the insurance happens to change, the borrower’s monthly payment will be adjusted accordingly. However, the overall payments in a fixed rate mortgage are stable and predictable, and who in the financial world doesn’t like stability and predictability?

Adjustable Rate Commercial Property Loans (ARM)’s are loans whose interest rate can vary during the loan term. These loans usually have a fixed interest rate for an initial period of time and then can adjust based on current market conditions. The initial rate on an ARM is lower than on a fixed rate mortgage which allows you to afford and hence purchase a higher end property. Adjustable rate commercial mortgages are usually amortized over a period of 30 years with the initial rate being fixed for anywhere from 1 month to 10 years. All ARM loans have a “margin” plus an “index.” Margins on loans range from 1.00% to 3.50% depending on the index and the amount financed in relation to the property value along with a myriad of other potential factors. The index is the financial instrument that the ARM loan uses for its adjustments, such as: 1-Year Treasury Security, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit (CD) and the 11th District Cost of Funds (COFI), to name a few.

When the time comes for the ARM to adjust, the margin will be added to the index and typically rounded to the nearest 1/8 of one percent to arrive at the new interest rate. That rate will then be fixed for the next adjustment period. This adjustment can occur every year, but there are factors limiting how much the rates can adjust. These factors are called “caps”. Suppose you had a “3/1 ARM” with an initial cap of 2%, a lifetime cap of 6%, and initial interest rate of 6.25%; the highest rate you could have in the fourth year would be 8.25%, and the highest rate you could have during the life of the loan would be 12.25%; again, this is just an example.

Some ARM commercial financing has a conversion feature that would allow you to convert the loan from an adjustable rate to a fixed rate. There is a minimal charge to convert; however, the conversion rate is usually slightly higher than the market rate that the lender could provide you at that time by refinancing.

Hybrid ARM Commercial Mortgages, also called fixed-period ARMs, combine features of both fixed-rate and adjustable-rate mortgages. A hybrid commercial loan starts out with an interest rate that is fixed for a period of years (usually 3, 5, 7 or 10). Then, the loan converts to an ARM for a set number of years. An example would be a 30-year hybrid with a fixed rate for seven years and an adjustable rate for 23 years.

The beauty of a fixed-period ARM is that the initial interest rate for the fixed period of the loan is lower than the rate would be on a mortgage that’s fixed for 30 years, sometimes significantly. Hence you can enjoy a lower rate while have some period of stability for your payments. A typical one-year ARM on the other hand, goes to a new rate every year, starting 12 months after the loan is funded. So while the starting rate on ARMs is considerably lower than on a standard mortgage, they carry the risk of future hikes.

Commercial Property owners can get a hybrid and hope to refinance as the initial term expires. These types of loans are best for people who do not intend to own their commercial property for a long period of time. By getting a lower rate and lower monthly payments than with a longer-term fixed rate loan, they can break even more quickly on financing costs. Since the monthly payment will be lower, borrowers on commercial property loans can make extra payments and pay off the loan early, saving thousands during the years they have the loan. Of course, a borrower does need to be cognizant of any prepayment penalties the loan/note may carry.

A Commercial Mortgage or Commercial Property Loan is called “Interest Only” when its monthly payment does not include the repayment of principal for a certain period of time. Interest Only Commercial Loans are offered on fixed rate or adjustable rate mortgages as wells as on option ARMs. At the end of the interest only period, the loan becomes fully amortized, thus resulting in greatly increased monthly payments. The new payment will be larger than it would have been if it had been fully amortizing from the beginning. The longer the interest only period, the larger the new payment will be when the interest only period ends.

You won’t reduce the principal balance during the interest-only term, but it could help you close on the commercial property you desire instead of only settling for a lower-end property.

Since you’ll be qualified based on the interest-only payment, and may possibly refinance before the interest-only term expires anyway, it could be a way to effectively lease your commercial property now and invest the principal portion of your payment elsewhere.

For example, if you borrow $1,000,000 at five percent (5.00%), using a 30-year amortization, your monthly payment would be $5,368. On the other hand, if you borrow $1,000,000 at five percent (5.00%) with a 5-year interest only payment plan, your initial monthly payments would only be $4,167. This saves you $1,201 per month or $14,412 per year in payments. However, when you reach year six, your monthly payments will jump once the loan is re-amortized. Hopefully, the property income will have risen accordingly to support the higher payments or you have refinanced your commercial property loan by that time.

Mortgages with interest only payment options may save you money in the short-run, but they may actually cost more over the 30-year term of the loan. However, most borrowers repay their mortgages well before the end of the full 30-year loan term.

Commercial Properties and Commercial Property Borrowers with sporadic incomes may benefit from interest-only commercial loans. This is particularly the case if the mortgage is one that permits the borrower to pay more than interest-only. In this case, the borrower may pay interest-only during lean times and use bonuses or income spurts to pay down the principal during better times.

To understand an ARM, you must have a working knowledge of its components. Those components are:

Index: A financial indicator that rises and falls, based primarily on economic fluctuations. It is usually an indicator and is therefore the basis of all future interest adjustments on the loan. Mortgage lenders currently use a variety of indexes.

Margin: A lender’s loan cost plus profit. The margin is added to the index to determine the interest rate because the index is the cost of funds and the margin in the lender’s cost of doing business plus profit.

Initial Interest: The rate during the initial period of the loan, which is sometimes lower than the note rate. This initial interest may be a teaser rate, an unusually low rate to entice buyers and allow them to more readily qualify for the loan.

Note Rate: The actual interest rate charged for a particular loan program.

Adjustment Period: The interval at which the interest is scheduled to change during the life of the loan (e.g. annually).

Interest Rate Caps: Limit placed on the up-and-down movement of the interest rate, specified per period adjustment and lifetime adjustment (e.g. a cap of 2 and 6 means 2% interest increase maximum per adjustment with a 6% interest increase maximum over the life of the loan).

Negative Amortization: Occurs when a payment is insufficient to cover the interest on a loan. The shortfall amount is added back onto the principal balance.

Convertibility: The option to change from an ARM to a fixed-rate loan. A conversion fee may be charged.

Carryover: Interest rate increases in excess of the amount allowed by the caps that can be applied at later interest rate adjustments (a component that most newer ARMs are deleting).

6-Month CD Rate

This index is the weekly average of secondary market interest rates on 6-month negotiable Certificates of Deposit. The interest rate on 6 month CD indexed ARM loans is usually adjusted every 6 months. Index changes on a weekly basis and can be volatile.

1-year T-Bill

This index is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of 1 year. This index is used on the majority of ARM loans. With the traditional one year adjustable rate mortgage loan, the interest rate is subject to change once each year. There are additional ARM loan programs available (Hybrid ARMs) for those that would like to take advantage of a low interest rate but would like a longer introductory period. The 3/1, 5/1, 7/1 and 10/1 ARM loans offer a fixed interest rate for a specified time (3,5,7,10 years) before they begin yearly adjustments. These programs will typically not have introductory rates as low as the one year ARM loan, however their rates are lower than the 30-year fixed mortgage. This index changes on a weekly basis and can be volatile.

3-year T-Note

This index is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of 3 years. This index is used on 3/3 ARM loans. The interest rate is adjusted every 3 years on such loans. This type of loan program is good for those who like fewer interest rate adjustments. The index changes on a weekly basis and can be volatile.

5-year T-Note

This index is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of 5 years. This index is used on 5/5 ARM loans. The interest rate is adjusted every 5 years on such loans. This type of loan program is good for those who like fewer interest rate adjustments. This index changes on a weekly basis and can be volatile.

Prime

The prime rate is the rate that banks charge their most credit-worthy customers for loans. The Prime Rate, as reported by the Federal Reserve, is the prime rate charged by the majority of large banks. When applying for a commercial loan which uses the prime rate as its index, be sure to ask if the lender will be using its own prime rate, or the prime rate published by the Federal Reserve or the Wall Street Journal. This index usually changes in response to changes that the Federal Reserve makes to the Federal Funds and Discount Rates. Depending on economic conditions, this index can be volatile or not move for months at a time.

12 Moving Average of 1-year T-Bill

Twelve month moving average of the average monthly yield on U.S. Treasury securities (adjusted to a constant maturity of one year.). This index is sometimes used for ARM loans in lieu of the 1 year TCM rate. Since this index is a 12 month moving average, it is less volatile than the 1 year TCM rate. This index changes on a monthly basis and is not very volatile.

Cost of Funds Index (COFI) – National

This Index is the monthly median cost of funds: interest (dividends) paid or accrued on deposits, FHLB (Federal Home Loan Bank) advances and on other borrowed money during a month as a percent of balances of deposits and borrowings at month end. The interest rate on Cost of Funds (COFI) indexed ARM loans is usually adjusted every 6 months. Index changes on a monthly basis and it not very volatile.

Cost of Funds Index (COFI) – 11th District

This index is the weighted-average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts, advances from the FHLB, and other sources of funds. The 11th District represents the savings institutions (savings & loan associations and savings banks) headquartered in Arizona, California and Nevada. Since the largest part of the Cost Of Funds index is interest paid on savings accounts, this index lags market interest rates in both uptrend and downtrend movements. As a result, ARMs tied to this index rise (and fall) more slowly than rates in general, which is good for you if rates are rising but not good for you if rates are falling.

LIBOR

L.I.B.O.R stands for the London Interbank Offered Rate, the interest rates that banks charge each other for overseas deposits of U.S. dollars. These rates are available in 1,3,6 and 12 month terms. The index used and the source of the index will vary by lender. Common sources used are the Wall Street Journal and Fannie Mae. The interest rate on many LIBOR indexed ARM loans is adjusted every 6 months. This index changes on a daily/weekly basis and can be extremely volatile.

Many commercial loan products have Balloon Payments. They have a note rate that is fixed for an initial period of time, and then the remaining principal balance is due at the end of the term. When the final balloon payment is due at the end of the term, the borrower basically has three choices: 1) Refinance, 2) Pay Off the balance in full, or 3) Sell the property. For example if you had a 7-year fixed commercial mortgage with an interest rate of 7.5%, your interest rate would remain constant for the full 7-year term, then at the end of 7-year term, the remaining principal balance would become due and payable in full.

So which type of mortgage is best for you, Fixed Rate, Adjustable rate, a Government loan? The truth is, there is no one correct answer! Given the many different types of loans and term lengths, the choice can be difficult. It is an extremely important choice and you can definitely benefit from research before you make your decision. Some time and effort right now can save you thousands of dollars in the long run. Your personal situation will determine the best type of loan for you. By asking yourself a few questions, you can help narrow your search among the many options available and discover which loan suits you best:

  • Do you expect your finances to change over the next few years?
  • Are you planning to own this property for a long period of time?
  • Are you comfortable with the idea of a changing mortgage payment?
  • Do you wish to be free of mortgage debt as your children approach college age or as you prepare for retirement?

Assets America® can help you use your answers to questions such as these to decide which loan program best fits your needs. Below is a general guideline that may be useful to consider when selecting the right mortgage for your property:

Years you plan to own your property Plan to Consider
1-3 3-year Fixed, or ARM
3-5 5-year Fixed
5-7 7-year Fixed
7-10 10-year Fixed
10+ 10, 15, 18 or 30-year Fixed

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