Four Areas of Business Mortgages Underwriting

Business mortgage underwriters are the people that set the important areas that the commercial mortgage lenders will examine when they are determining whether to approve or not to approve your commercial mortgage.

The most important consideration for business mortgage underwriters is the cash flow of the property. The cash flow of a property that is being considered for a commercial mortgage must be strong enough to cover not only the prospective commercial mortgage payment but also the expenses of the property itself.

Now the business mortgage underwriters don’t just guess as to whether this cash flow is strong enough, they actually follow a mathematical formula. This formula is known as the debt to service coverage ratio (DSCR) or the debt coverage ratio (DCR). The net operating income is divided by the total debt service or expenses of the property. If the result is equal to the minimum accepted ratio, then you have a good chance of having your commercial mortgage accepted. The minimum ratio shows the lender that the commercial mortgage can be repaid over a determined period of time.

The next area of consideration by the business mortgage underwriters is the loan to value ratio. This is the ratio of the commercial mortgage amount divided by the purchase price of the property. If you are already familiar with what the loan to value ratio is, then you can multiply that percentage by the purchase price of the property yourself. You will also have to make sure that an appraisal is done on your prospective property, building or land.

The property evaluation or the property appraisal will be used to figure out what the fair market value of the property is. In determining the value for the commercial mortgage underwriters, the will look at the age of the property, the size of the property as well as where it is located at and what kind of upkeep or maintenance it will need.

The final area that underwriters scrutinize is what your credit looks like. If your business is under three years of age, they will look at both your personal and your business credit. If a business is occupied by someone that does not own the business, that an entity is created to take ownership. Those that are part of the entity must be credit worthy and be able to provide proof of their income.

Knowing this information ahead of time will help you to have an idea if you would be approved for a commercial loan. If you do not meet some of the areas that the lenders look at, then take some time before you make application for a commercial mortgage loan to fix those areas. You might need to increase your income or cash flow, or you might be able to cut some of the property expenses. If you would like more information about how you can meet the criteria, feel free to contact your business mortgage specialists for consultation.