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Rates as
Low as 3.9% |
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Lowest
closing cost Guaranteed |
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60 Seconds
Approval |
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Underwriting Guidelines
Commercial Lending Ratios
Commercial LTV
Ratio
Commercial
Debt Ratios
Questions to
Ask Yourself
Commercial Loan
Checklist
Commercial Financing
Options
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Underwriting
Guidelines Commercial Financing is underwritten on a
case by case basis. Every loan application is
unique and evaluated on its own merits, but there
are a few common criteria lenders look for in
commercial loan packages.
Financial Anaylsis
A
key component in making an underwriting evaluation
is the debt coverage ratio. The DCR is defined as
the monthly debt compared to the net monthly
income of the investment property in question.
Using a DCR of 1:1.10 a lender is saying that they
are looking for a $1.10 in net income for each
$1.00 mortgage payment. Typically they will
determine the DCR ratio based on monthly figures,
the monthly mortgage payment compared to the
monthly net income. The higher the DCR ratio the
more conservative the lender. Most lenders will
never go below a 1:1 ratio ( a dollar of debt
payment per dollar of income generated). Anything
less then a 1:1 ratio will result in a negative
cash flow situation raising the risk of the loan
for the lender. DCR's are set by property type and
what a lender perceives the risk to be. Today,
apartment properties are considered to be the
least risky category of investment lending. As
such, lenders are more inclined to use smaller
DCR's when evaluating a loan request. Make sure
that you are familiar with a lender's DCR policy
prior to spending money on an application. Ask
them to give you a preliminary review of the
investment property that you want to purchase.
Information is free, mistakes are not.
Loan to Value
Unlike
residential lending, commercial investment
properties are viewed more conservatively. Most
lenders will require a minimum of 20% of the
purchase price to be paid by the buyer. The
remaining 80% can be in the form of a mortgage
provided by either bank or mortgage company. Some
commercial mortgage lendeers will require more
than 20% contribution towards the purchase from
the buyer. What a bank/lender will do is subject
to their appetite and the quality of the buyer and
the property. Loan to value is the percentage
calculation of the loan amount divided by purchase
price. If you know what a lender's LTV
requirements are, you can also calculate the loan
amount by multiplying the purchase price by the
LTV percentage. Keep in mind that the purchase
price must also be supported by an appraisal. In
the event that the appraisal shows a value less
then the purchase price, the mortgage lender will
use the lower of the two numbers to determine the
loan that will be made.
Credit
Worthiness
For businesses less than
three years old, personal credit of principals
will be evaluated. This may hold true for longer
periods of time for tightly held companies. For
corporations, business performance and credit
ratings will be evaluated with a proven track
record.
Property Analysis
Fair Market Value and Fair Market
Rent will be analyzed. Special use property may
require additional underwriting. Age, appearance,
local market, location, and accessibility are some
other factors considered. |
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