Questions to Consider Before Approaching a Lender

There are three groups of questions to consider before approaching a lender for a particular property.

Financial Requirement Questions

-Are reserve build-ups required, such as in the case of the cost of replacement appliances for a multi-family property?

The lender may expect you to have a reserve fund equivalent to a certain amount in order to sell you the property.

-What extra fees will be charged in addition to the sale of the property, such as legal fees?

These are extra fees that the institution has track of and expects to incur. There are other extraneous fees that are not their responsibility that you should also be aware of.

-Does the lender require a guarantee besides the property itself, or “recourse”?

Lender’s Documentation Requirements

-What proof does the lender need of your tenant’s financial strengths, such as credit reports?
-Does the lender need the usual forms (building condition inspections, environmental reports, etc.) filled out in a certain way that they specify?

Some larger lenders will have templates for certain forms that you need to use in order to apply for funding at their institutions.

-Will the lender allow prepayment, and if so, what kind of penalty will they charge?
-Will the terms of the loan put restrictions on your ability to sell the property?
-Do you have the right to renew or renegotiate the mortgage?

Lender’s Financial Status

-Does the lender have the money to fund the purchase?

Try negotiating the mortgage at a more favourable rate if they have more requests for loans than money available.

Get answers from at least three different lenders to these questions and pick the one that you are most comfortable with. These are just a selection of the questions to lenders that we suggest asking in our book, Commercial Real Estate Investment in Canada (www.realestatementor.ca).