Tweet In the best of times when a borrower or mortgage broker would bring a scenario to a lender, an LOI, or letter of interest, would typically be fairly easy to obtain. This "indicated" that the lender, or the broker in conjunction with the lender, was providing a pre-approval of your loan based on a set of conditions being met. One of these conditions is that the third party reports come back satisfactorily. Often, some lenders or brokers would require a fee on top of that to put the process in motion.
Today, these LOI's may still be somewhat easy to obtain, but in an environment where money is tight and lenders are backing off, it becomes that much more critical to be SURE that the lender you are bringing a scenario to is actually the right lender for your property type and borrower of a certain level of strength. Remember that if you get an appraisal done for one lender and don't get a commitment, another lender will require third party reports as well, typically by the people they use. Time is money and much time can be wasted with the wrong lender that drags the process out saying they can do a loan when in fact they can't.
Times are hard, but we can't compound the problem by not doing our homework. We can go the the right lender for our property and borrower and still not get the commitment, but we need to give ourselves the best chance at success. What might an LOI look like. Tale a look below and see that the disclaimer is in it that all of the details need to be satisfactory. Sometimes, even when they are the lender will still "find" a reason to back off.
June 18, 2008, 2008
Re: 123 ABC Ave.
Brooklyn, NY, 11223
Dear Mr. Doe,
In response to your request for financing for the above referenced property, I am pleased to inform you that you are approved pursuant to the following terms and conditions;
Loan amount: $850,000 or debt service coverage of not less than 1.30
Term: 5 year fixed/ ARM 20 year amortization
Interest Rate: 9.250 %
Prepayment Premium: 5 years interest guarantee + 3% penalty for 8 years
Borrower may prepay up to 20% of the principal balance of the loan in any 12 month period without penalty
Processing fee to CCA in the amount of $695.00 payable at closing.
The borrower shall pay all 3rd party fees including but not limited to; legal fees, appraisal fee, environmental and assessment fees, title, flood search and tax recording fees.
Rate locks at final underwriting approval
Loan approval will be subject but not limited to:
Appraisal in the amount of $1,062,500 representing the complete value of the property.
Review of borrower’s credit not less than 700 mid score at time of closing
Insurance naming lender as first loss payee.
Title report acceptable to the lender’s attorney.
Receipt of all commercial leases
Property Tax and Insurance impounds are required.
Agreed and accepted Sincerely,
This is not a commitment. It is an offer based upon information provided by the applicant based upon rates and programs available today. A formal commitment will issue after the application process is complete.