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Commercial loan underwriting guidelines come down to cash flow ( Dcr), loan to value (Ltv), reputation worthiness and asset analysis. Although the process to evaluate a possible market mortgage is basically the same from one bank the next, their various appetite for both risk and minimum rates of return are what separates one bank from the next.

Underwriting market Loan Cash Flow

Cash flow is noted to underwriting market loans. Within the commerce the cashflow pathology is refereed to as the Debt Coverage Ratio ( Dcr). For both owner occupied and speculation transactions underwriters normally want to see ratio's above a 1.20. In other words, for every of mortgage debt the asset or business has to have .20 of net revenue to meet the mortgage payments.

Debt coverage ratio minimums vary from one lender to the next, asset type and occupancy (investment or owner occ). "Riskier" asset types such as hotels or car washes will be required to have higher cash flow levels, ie Dcr at or above 1.3.

Credit Worthiness

The borrowers personal and business reputation worthiness is also foremost and will be heavily scrutinized. Personal reputation scores have become a bigger issues as the acceptance of the three bureau have become widespread. D & B's as well as other measures are normally used to asses the creditworthiness of businesses that are involved.

Property pathology market Underwriting
Fair market rent and fair market value is heavily measured. Condition, age, appearance, town population, market trends as well as other more asset type specifics are examined.

Commercial Underwriting - Loan to Value

Loan to value is simply the value of the subject asset vs the loan amount. I.e if the asset is worth ,000,000 and the loan whole is ,500,000 the Ltv is 75%. This is a huge issue within market loan underwriting and a big separator in the middle of lending institutions. Some lenders will get very aggressive with this while other will be very conservative.

The asset type has a major affect on loan to values that are offered on market loans. For example bistro loans will normally be capped at 65% while more normal purpose properties such as retail will be exiguous to 75%.

Commercial underwriters will give more leeway to structure that are owner occupied vs. speculation properties. Loan to value on buy can go as high as 90% on owner occupants vs 75% on investments, for example.