Refinance Application - a Mortgage Renewal Risk?

[RE123RE]

Hello,
My friend has an apartment building mortgage.
If I understand correctly, the bank should send his new options to choose from - different terms and their interest rates, about 2 months before renewal/before the end of the current term.
If my friend wants to refinance instead of simply renewing (and obviously tells the bank that), is there any financing risk not being able to renew the mortgage at all?
Or usually the worse thing that can happen is just not being approved for a refinance?
I am asking as for a simply mortgage renewal the bank does not need much information from you on you or the building, especially if you have good payment history with them.
However, to approve a refinance they want to know everything about you and the building again - NOA, Rent Roll, financial statements etc.
(What if you were an employee earning 150K for example when applying and being approved 5 years ago when purchasing the building, and now you only make 50K as you are self employed paying yourself dividend. If I understand correctly, your current income is information the bank does not care much about to just renew you. but will ask for that to refinance you)
Thank you

 

[Tyler - Picket Fence Properties]

For just a renewal, especially if the account is paid as agreed they will not ask many questions. If there is equity in the property and the debt service works there is no issue with asking to refinance the property, it wouldn't jeopardize the existing mortgage for renewal.

The personal income will not have any weight in deciding whether or not the refinance can happen. The decision will be based on the asset ie: rent roll, financials, etc.

If the debt service ratio of the building can support it the bank will allow you to take the property to 65-75% of the lesser of the most recent sale price or appraisal within the last 2 years. Although some banks may require a new appraisal to do the refinance regardless of how old the most recent one is.

 

[adriano]

Now days most banks will make you go through an appraisal to refinance.unless there has been a huge increase in value since you got the mortgage you may be. Able to get more money by the assessment but as was stated above probably only to about 65%

 

[Thomas Beyer]

There is no renewal in multi-family. Mortgage is due and a new application is required. Some banks have more relaxed paper trail requirements but most need condition report, new appraisal and financials. Shop around. The lender you used to have might not the best choice today.

 

[Vine Group]

Unfortunately, not all banks are good at updating their clients on renewal. I would recommend your friend go to the bank immediately and review the renewal options. Also, if the plan is to refinance, this process can take 2 – 4 months. Keep that in mind when renewing so he or she is not locked in and can explore other lenders.

Applying for a refinance and being denied should not impact the renewal. That being said, some lenders just simply renew the loan and others require a financial review to complete the renewal. To complete a refinance, your correct that the lender will need to update all the details just like any new mortgage.

 

[Thomas Beyer]

No commercial lender will automatically renew a commercial loan. It is very different than residential lending practices.

 

[Tyler - Picket Fence Properties]

No commercial lender will automatically renew a commercial loan. It is very different than residential lending practices.

Incorrect. I can't speak for all lenders but I was a Relationship Manager in the commercial division for a Big 5 bank and if you are current on your account and provide your annual financial statements each year as agreed to in your commitment letter you will be provided renewal options.

 

[Thomas Beyer]

Of course lenders will provide options and usually want to retain clients. Especially those that pay above market.

Never in my $250M of multi-family real estate ownership of 30+ properties over the last 17+ years have I seen a term sheet for a multi-family loan close to renewal time that says " sign here " and you get another 5 years. Never.

Besides TD I have also never used one of the top 5 commercial banks for loans as their terms are usually uncompetitive.

 

[RE123RE]

Interestingly it sounds like both Thomas and Tyler are correct each in your box of banks not working with other banks:
- Top 5 banks do easily renew you if you paid on time.
- Other banks not that easily.
Not knowing yet with which bank my friend will work, both Thomas and Tyler's response would also be appreciated on the next question:
To refinance his property, do you recommend he gets an appraisal done now (3 months before renewal), in addition to the appraisal his current bank will initiate? Or save the money for now as maybe the current bank he is with will approve his refinance?
Thank you

 

[Thomas Beyer]

Commercial banks do not initiate appraisals. You do. And yes they usually want to see one. Usually but not always. Banks usually issue a term sheet or LOI with docs they wish to see. Usually financials, appraisals and building condition report, and sometimes an environmental update or roof report.

 

[Tyler - Picket Fence Properties]

Agreed...you wouldn't want to go out and get an appraisal because often the bank has a list of approved firms that have designations such as AACI and carry liability insurance. This is also true for environmental studies...better to get the term sheet first and see what the lender requires for a commitment.

 

[RE123RE]

Thank you Thomas and Tyler for sharing from your valuable knowledge and experience, and for your quick response.