FICO Scores Determine Your Commercial Loan Interest Rate

"What is the borrower's mid-point FICO score?" This is a question I get from commercial loan underwriters within the first few minutes of a pre-qualification phone call. Why? Well, let's go over what they know before I call them about your opportunity.

Private lenders or commercial banks know the quality of the subject type property and the appropriate loan to value. They also know the likely default rate of the tenants in the property or of the owner occupied business in the building. They also have a feel for the economic circumstances surrounding the borrower's geography. If you look at their websites, you get a sense as to what these companies already know. So why do that want to know your mid-point FICO score.

Simply, FICO scores are the key determinate of the total risk premium applied to the lender's cost of funds. More simply, it affects your interest rate. Your FICO scores - for the most part - shows the lender your willingness to pay your bills, and also how leveraged is your personal cash flow. How much of an impact can your FICO score have?

Take the last two deals that I closed. Both deals involved similar mixed use properties. All properties had no vacancies, and good quality tenants. So when one deal had an interest rate of 10.25% and the other 7.25%, I knew the only difference was the borrowers' FICO score. The borrower with the lower interest rate had a FICO score approximately 95 points better than the other borrower. In dollars, the borrower with the lower (worse) FICO score paid approximately $18K a year in additional interest.

So be careful with your FICO score. It can cost or save you a lot of money on your commercial deal.