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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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Commercial Lending
Ratios Most of real estate lending can be boiled
down to the results of three ratios:
.
Loan-To-Value Ratio
.
Debt Ratio
.
Debt Service Coverage Ratio (DSCR)
The bulk of the energy spent
"processing" a loan is merely an attempt to verify
the numbers that go into the numerator and
denominator of the above 3 ratios.
The
Loan-To-Value Ratio (LTVR) is defined as follows:
Loan-To-Value= Total loan balances (1st
mtg+2nd mtg+3rd mtg) / Fair market value (as
determined by appraisal)
Loan-To-Value
Ratios seldom exceed 80% because the lender always
want some extra protection against default.
The second ratio that lenders use when
underwriting a loan is the Debt Ratio. The Debt
Ratio compares the amount of bills that the
borrower must pay each month to the amount of
monthly income he earns. More precisely, the Debt
Ratio is defined as:
Debt Ratio = Monthly Debt
Obligations / Monthly Income
Obviously
someone whose Debt Ratio is 150% is in trouble. A
Debt Ratio of 150% would mean that a borrower's
obligations are one and a half times his income.
Debt Ratios seldom are allowed to exceed 40% in
practice.
The final ratio used in lending
is the Debt Service Coverage Ratio (DSCR). The
Debt Service Coverage Ratio is a sophisticated
ratio only used for large loans on income
producing properties. It is defined as:
Debt
Service Coverage Ratio = Net Operating Income /
Debt Service
Net Operating Income is the
income from a rental property after deducting for
real estate taxes, fire insurance, repairs, and
all other operating expenses; and Debt Service is
the mortgage payment on the
property. Most lenders insist that this ratio
exceed 1.0. A debt service coverage ratio of less
than 1.0 would mean that the property did not
produce enough net rental income for the owner to
make the mortgage payments
without supplementing the property from his
personal budget. |
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