FREQUENTLY ASKED QUESTIONS

  • CRE stands for Commercial Real Estate and refers to bank lending focused on income-producing properties.

  • CRE stands for Commercial Real Estate and refers to bank lending focused on income-producing properties.

  • A commercial loan is debt financing provided by a bank to a business entity for various business purposes. goes here

  • Risks of commercial lending include credit risk, market risk, collateral risk, interest rate risk, refinancing risk, liquidity risk, concentration risk, and regulatory/legal risk. 

  • The 5Cs of commercial lending are Character, Capacity, Capital, Collateral, and Conditions. 

  • Pros include access to significant capital and supporting business growth, while cons include a complex application process and strict eligibility requirements. 

  • Commercial mortgages differ from residential mortgages in borrower, property type, underwriting focus, loan terms, complexity, and recourse.

  • Common property types include multifamily, office, retail, industrial, hospitality, and mixed-use properties. 

  • Key financial metrics include Loan-to-Value (LTV) and Debt Service Coverage Ratio (DSCR), as well as borrower financial strength and experience. 

  • Life company correspondent lending involves insurance companies (life companies) providing commercial real estate loans through a network of approved third-party originators (correspondents). 

  • Advantages often include competitive interest rates, longer loan terms, and a focus on high-quality, stable assets.

  • A commercial mortgage banker can act as a correspondent, originating loans that meet the life company's criteria and submitting them for funding. 

  • Life companies often finance stable, income-producing properties such as apartments, office buildings, industrial facilities, and retail centers.

  • Typical loan terms can range from 10 to 30 years, often with fixed interest rates. 

  • Fees can include origination fees, servicing fees, and other transaction-based charges. 

  • Debt Yield is a metric calculated by dividing the property's Net Operating Income (NOI) by the loan amount, indicating the lender's initial cash-on-cash return if they took ownership. 

  • An appraisal contingency allows the borrower to withdraw from the loan if the property appraisal comes in below a certain value.

  • A Loan Commitment is a formal agreement from the lender to provide financing under specific terms and conditions. 

  • Due diligence includes reviewing property financials, leases, environmental reports, and legal documentation. 

  • Freddie Mac provides liquidity and stability to the multifamily rental housing market by purchasing and securitizing apartment building loans.    

  • Freddie Mac finances various multifamily properties, including conventional apartments, affordable housing, seniors housing, and student housing.  

  • Fannie Mae supports the multifamily housing market by purchasing and securitizing mortgages on apartment buildings through its DUS (Delegated Underwriting and Servicing) program.    

  • Fannie Mae offers fixed-rate loans, variable-rate loans, small balance loans, and affordable housing loans for multifamily properties.

  • Loan terms typically range from 5 to 30 years, with amortization up to 30 years for both Freddie Mac and Fannie Mae.

  • Both Freddie Mac and Fannie Mae may allow LTVs up to 80% for certain multifamily properties

  • The minimum DSCR requirements generally start around 1.20x to 1.25x for both agencies, but can vary.  

  • Most Freddie Mac and Fannie Mae multifamily loans above a certain size are non-recourse with standard "bad boy" carve-outs.    

  • Commercial mortgage bankers act as approved lenders or correspondents, originating and underwriting loans according to Freddie Mac's or Fannie Mae's guidelines.

  • Advantages include competitive interest rates, non-recourse options, and the stability of government-sponsored enterprises.