Are you planning to apply for a loan and don’t know how to get started? Well, we understand that there are people who do not have much knowledge about the entire procedure. Questions like, who is a commercial loan underwriter, is the procedure hassle free, and more are still left unanswered.
If you are someone who wants to gather knowledge about the loan underwriting system, then this is the piece which is apt for you. So, let’s get started without any further ado. In olden times, commercial loan requests were known to be underwritten based on the commercial lender’s internal credit guidelines and policies. The commercial lender, most likely a mortgage bank, insurance company, or a normal bank would make sure that they underwrite every single commercial loan request on the merits of themselves. This is when the lender would take a look at the portfolio of the customer and then find out the saturation level for particular delinquencies, property type, and other related projects in the area and then finalize the request or even deny it if things are not right.
There are times when a commercial loan request would comply with the credit policy of the lender itself, they do get denied because the lender has reached the saturation level or may presently have been going through a high delinquency rate. Fortunately, commercial lending has now become mainstream with other funding options available for commercial real estate loans.
Cash Flow Analysis
One of the most essential components of the commercial loan origination system is the analysis of the subject’s property. Particularly, the subject property is known to have sufficient cash flow so that all the expenses of the property is covered. The ration here which is known to calculate the cash flow for the loan is known as DSC ratio or DSCR. Normally, a commercial lender is supposed to be having a minimum DSCR of 1.20x. Thinking what does this mean? Well, for every dollar debt is incurred. In addition to this, the property is supposed to be contributing one dollar and twenty cents in cash. This is done to support the commercial loan payment.
Loan to Value
Not like residential lending, all the properties which are the commercial ones are considered to be conservative. Basically, commercial lenders are supposed to be having a minimum of twenty percent of the purchase price. The same is done so that the price can be paid by the buyer while applying for a commercial loan. The rest of the eighty percent can either be in a bank, a reliable commercial company, or commercial mortgage. Some of the lenders will need to have more than twenty percent towards the purchase from the buyer itself. Now here the role of a commercial lender is to subject to their appetite and the quality of the buyer and the property loan. Loan to the value is nothing but the percentage calculation of the entire commercial loan amount divided by the purchase price. If you have an idea about the LTV needs, you can also calculate the loan amount by multiplying the purchase price by the percentage of the LTV. Nevertheless, you need to keep in mind that the purchase price should be supported by an appraisal. If the appraisal shows a value which by the way is less than the purchase price, then the commercial loan lender will make use of the lower of the two numbers in order to find out the commercial loan size.
Want to know more about the commercial loan system and Automated Underwriting Software? Speak to the professionals without any further ado.