Commercial Underwriting Guide Lines
Commercial Financing Expeditor

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.

True 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. 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 Based On The Property
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.

Financial 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.


Non-Recourse Financing And Personal Guarantees
A professional underwritten package can greatly influence :

  • Whether you will be required to personally qualify for your loan or will your property qualify for your loan for you?

  • Whether you will be required to personally guarantee your loan
    or whether your property will be the only recourse.

  • Whether you will be required to pay lender reserves or not.

    In today's financial and economic environment, Lenders are looking for the quality projects and quality borrowers, a underwritten loan proposal is simply a higher quality submission and says a lot about you and your project.

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