A Lender LOI or also a Letter of Interest is a document that a Commercial Mortgage Broker or Lender will provide to you when you submit a loan package. This document will state the terms of the proposed loan that the lender will give you.
The lenders LOI is based on the information you provide.
So the more information you provide, the more accurate the loan quote will be. Too many times I’ve seen a lender quote a good rate with good terms, then turn around and not be able to provide those terms.
Why? Because during the due diligence phase, the lender finds out the borrower did not provide accurate or all of the information.
Remember, lenders are in a business and their business is based on known risk. A lender won’t be in business too long if they keep lending out bad loans!
So what kind of information should you expect to see in a Lender LOI?
Well, it should have the brokers or lenders name and contact information. Also the Lender LOI should include the following information.
Loan Name
This is usually the property name or address.
Loan amount
There is a requested loan amount and the loan amount the lender is going to lend. They will be listed on separate lines and the numbers may be different.
Quotation date & expiration date
The lender will only give you a specified amount of time to review their loan quote.
Loan terms
This is usually listed in years or months.
Amortization
This is usually listed in years or months.
Interest Rate Spread
This is a percentage over the current index yield.
Current Index Yield
The index yield on a given day.
Final Note Rate
This is the interest rate you will pay. It is the interest rate spread plus the current index yield.
Interest Rate Index
This is the index that is used in determining the current index yield. Examples are 10 yr Treasury, Prime or LIBOR.
Loan Type
This is stated as either fixed or variable loan.
Interest Accrual Method
This is how the lender will calculate your amount of interest.
Proposed DSCR
This is debt service coverage ratio for your loan amount.
Proposed LTV
This is the loan to value that the lender is willing to loan to you. This determines how much money you need to put down.
Prepayment
For paying off your loan early, some lenders charge a fee or penalty. That should be outlined in the lender’s quote.
Recourse Options
The loan will either be full recourse, partial recourse or non-recourse. Recourse determines if you are personally liable for any loan default.
Assumption & Assumption Fee
With most commercial loans, the loans are assumable for a new borrower for a small fee.
Junior Debt
Whether the lender will allow a 2nd to be taken on the property.
The lender will also state what conditions must be met for the loan.
Examples are clear title reports, inspection, occupancy, etc. Also, the lender will give an estimate of the fees (due on acceptance of loan and at closing).
