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What's Included in Our Commercial
Underwritten Loan Package?
Commercial
Underwriting Guidelines
Financial Analysis
A key component in making an underwriting evaluation is the debt
coverage ratio (DCR). 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 is 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.
When we underwrite your loan, all of these factors are included
in the underwriting process.
Loan to Value (LTV)
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. But there
are exceptions to this.
The remaining 80% can be in the form of a mortgage provided by
either a bank or mortgage company. Some commercial mortgage
lenders 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 lender will use the lower of the
two numbers to determine the loan that will be made. When we
underwrite your loan, these factors are included in the
underwriting process.
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. When we underwrite your loan, these factors
are included in the underwriting process.
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. When we underwrite your loan, these
factors are included in the underwriting process.
MSA IRP - Industry-Standard Commercial Mortgage Reporting
Format
The Commercial Mortgage Securities Association (CMSA) represents
the secondary market for commercial mortgage-backed securities
and created an industry-standard commercial mortgage reporting
format called the Investor Reporting Package (IRP). The IRP
breaks down the financial reporting guidelines by property type,
so that regardless of where a property is located, the manner in
which operating performance is analyzed is the same across the
board.
Direct Commercial Lenders. The commercial mortgage loan
division at Wells Fargo, the conduit lending division at LaSalle
Bank, the Fannie Mae commercial loan programs at ARCS, SBA loans
at CIT Group; these are a few of the lending institutions that
are participating in our underwriting network in addition to
Lenders for Fixed Rates, Floating Rates, Construction, Bridge,
Mezzanine, and Loan Consolidation.
Sample Underwritten Loan Package
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