|Want to Purchase? Financing Your New Office Building
Financing Your New Office Building
(See "Calculators" on the side bar to determine your payments).
TERMS - "Loan Lingo" terminology has also been included below.
Most Common Loan Types: Conventional, SBA Guaranteed Loan
Conventional Loan: A "Conventional Loan", is made directly from a bank or institution.
Amortization: (The number of years the loan is calculated to be paying back). "Conventional Loans", are amortized to be paid back over 7-25 years with no pre-payment penalty. (Be sure to check with lender)
Balloon Payment: (Large principal payment due at pre-determined Time during your loan.) Usually is due on the 3rd, 5th, 7th, or10th year of the loan regardless of the 15 to 25 years the loan may be amortized. Most likely you will have to incur another set of closing costs associated with a new loan in order to continue with the same lender.
Call: (Time event, pre-determined to adjust rate or call loan due). Similar to a "Balloon Payment", however usually on the 3rd, 5th, 7th, 10th year anniversary of the loan, the interest rate is adjusted for another fixed period of time, or called due. Some lenders require full or partial closing costs and a few lenders charge a low administrative fee as an incentive to stay with them for another term. (This must be asked for and negotiated).
Loan to Value: (This is the % of loan amount you may borrow from the "lender", based on the contract price, or appraisal value, which ever is lower). For example, if you were buying a building for $100,000, and it appraised at that value, the "lender" may offer you 75 to 90% loan to value, or $75,000 to $90,0000. This negotiated % based on your credit, and what business you offer the "lender". You have to ask, many medical businesses are offered 100% financing, however it will never be stated in writing on the "lender’s" wall.
Down Payment: This is the amount of initial investment, or equity that the "lender" will require along with the loan proceeds to close the loan. This will correspond to the "loan to value %". For example, based on a $100,000 contract price, and appraisal, if you obtain a 90% loan to value, or $90,000 loan, you will need to bring a 10% "down payment", or $10,000 to close the loan. In addition to this you will be required to pay separately in certified funds, or by increasing the loan amount, all your customary closings costs, i.e. appraisal, origination fee, intangibles tax, title insurance for the lender & you, filing fees, and prorating for property taxes, hazard insurance, association dues, capital contributions, etc.
Fixed Rate, Fully Amortized Loan: (This "Conventional Loan", is fully amortized at the same interest rate, over a 15 to 25 year term). There is no "call" or "balloon payment" due, however there may be a pre-payment penalty for the first through fifth year of the loan for this locked in rate.
Adjustable Rate, Fully Amortized Loan: (This "Conventional Loan", is Amortized over a 10 to 25 year term, however the interest rate may change Monthly or quarterly). The interest rate floats, based on the fluctuation, of the prime rate, or cost of funds. The payment changes each time the rate adjusts.
Adjustable Rate, With Call or Balloon: (This "Conventional Loan", while amortized 10 to 25 years, usually will have a rate locked in for a specific period, which then triggers a "call or "balloon payment"). Usually one of two things happens at the 3rd, 5th, 7th, or 10th year of the amortization. The loan is called due by a balloon payment or re-adjusted at a new interest rate for another amount of time equal to the original terms. For example you may be offered a 15 year amortization, with a rate of 9.5%, for 5 years, and then the loan is due to be paid in full, or re-rated at that time, and continued for another 5 years, and then again one more time until the loan is paid in full.
Closing Costs: (From most to least in cost)
Origination Fee: (This is a fee to the "lender", based on the amount borrowed). It doesn’t matter whether it is fully amortized, or a 25-year amortization, with a 3yr "call" when a "balloon payment" is due. The fee is collected at the closing of the loan. Many a lender collects this each time adjust the loan rate, and continue the loan again with that lender. Others lenders may wave this fee in order to keep your business with them. Customary fees range from 1 to 2% of the amount borrowed, however depending on each individual situation, and what you offer the bank as far as additional business, we have seen "origination fees" from 0 to .75%.
Appraisal Fee: (A third party on the "lenders" approved list, prepares A report of comparable values, lease rates, and construction costs in order for the bank to justify or decline the requested loan amount). These fees are usually a pass through expense for the "lender", and not a profit center. Fees range from $250 to $5,000 depending on the situation. In most office parks there are a few pre-selected ‘lenders" who will usually offer a lower appraisal fee due to the volume of closings done with the seller. If you are buying outside of an office park, or in an area with a lower amount of turn over, expect the $1000 to $2,500 range. Most loans requested under $500,000 to $1,000,000 require a low in house review fee.
Intangible Tax: (This county tax is based on a rate multiplied by the amount borrowed). This fee in mandatory, and is non-negotiable with exception to who pays it. The seller or buyer may negotiate this, however the buyer usually pays it.
Transfer Tax: (This county tax is based on a rate multiplied by the contract price, and is non-negotiable with exception to who pays it. The seller or buyer may negotiate this, however the seller usually pays it.
Title Examination: (This is a fee for examining the title to the property To make sure there is a clean chain of title conveyed at closing). This is usually paid by the borrower to protect them and the lender.
Lender’s Title Insurance: (This one time fee is to protect the lender, and is usually paid by the borrower, to protect the lender from loss). Post closing, should the title be clouded, or someone proves ownership, the title insurance would pay the loan amount in full to the lender. This insurance will not pay you back for your down payment or equity. You will need to purchase "owner’s title insurance", see below.
Owner’s Title Insurance: (This one time fee is to protect the borrower, is usually paid by the borrower, to protect them from loss). ). Post closing, should the title be clouded, or someone proves ownership, the title insurance would pay the equity amount in full to the borrower, and the "lender’s title insurance", would pay off the loan in full to the lender.
Attorney’s Fees: (This is the fee charged to prepare the closing documents, review and complete the paperwork package for the "lender", record all paperwork at the county, and disperse earnest money, proceeds to required parties in the transaction). The attorney usually represents the lender, not the borrower or seller. The make sure the outstanding debt from the building is paid off, brokers are paid any fees, and manages all the copies of paperwork for all parties to take from the closing. Fees range from $500 to $1500 for closings under $1,000,000.
Recording, Filing, Overnight Fees: (These fees or out of pocket expenses, are reimbursed to the closing attorney for filing paperwork, deeds at the county courthouse, copies, and overnighting paperwork to any required parties.