Commercial Property Underwriting Is
The Key To Securing Property Financing!
Why Should You Have You Commercial Property Pre-Underwritten Anyway ?
We’ve been in the commercial financing and investing business for over 20 years and have financed over $1 Billion in commercial properties, Notes and Portfolios.
Like you, we also are property investors and understand the real world situations and the keys to getting and securing financing for commercial property acquisitions. We know from experience what Lenders look for and how to identify deal killing scenarios. When it comes to getting commercial deals financed creatively and efficiently, that’s what we do best!
Unlike residential investing which is Credit driven financing”, Commercial properties follow a completely different format.
By having your properties pre-unwritten opens new avenues and options that simply aren’t available with other financing.
Here are a few of the benefits you’ll achieve by having your property professionally underwritten:
- A Professionally underwritten loan package get the lenders immediate attention because rarely do they receive pre underwritten proposals. Your proposal automatically get the Lender attention because it’s and exceptional package.
- A pre underwritten proposal gives you the opportunity to identify any weaknesses in your proposal before submitting it to the Lender. You can address the weakness prior to submitting your proposal thereby eliminating the possible and obvious weaknesses in the proposal prior to submitting it to the lender.
- A pre underwritten proposal illustrates your attention to detail and illustrates that you have given great thought and consideration about your project
- A pre underwritten proposal makes it easier to negotiate with the Lender and to enter into a constructive dialog based on your numbers rather than speculations. Additionally, you can use this report to negotiate with the property seller by sharing the report and explaining that the property simply can’t meet the underwriting guidelines at the current price and will require a reduction in the price to meet the underwriting guidelines
A pre under written proposal is simply easier for a Lender to analyze and speeds up the process thus, your replies will be much faster because it’s simply easier for the lender to analyze your proposal. Without the report it could take weeks for the Lender to access your proposal. With a underwriting report, it will take days.
A pre underwritten proposal makes your negotiations with the Lender easier because all of the information the Lender needs is available.
- A pre underwritten proposal can be used to negotiate with a Seller for a lower price or better terms. “According to my underwriters, the property is only worth $$$$$$, here’s a copy of the underwriting report for you to review”.Additionally, as a property seller, the underwriting report can eliminate any negotiations and put you in a position to establish to your Sellers that the property is worth your asking price thereby eliminating the need for any price negotiations.
A pre underwritten proposal loan package identifies you as a serious borrower.
A pre underwritten proposal separated you from all you competition and put your loan in the front of all the other projects that are not underwritten.
You only get one time to make a first impression. A Professional proposal makes your first impression your best impression!
- 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 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.
Call For Special Discounts 770-716-3536