Commercial Property Loan includes:
- Office Building, Strip Shopping Center, Self storage, Mixed Use, Retail Building, Warehouse
- Hotel Loan
- Church Loan
- Construction Loan
- Land(Lot) Loan
- Business Loan(SBA)
Commercial Financing is underwritten on a case by case basis. Every loan application is unique and evaluated on its own merits.
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. 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 and the monthly mortgage payment compared to the monthly net income. Most lenders will never go below a 1:1 ratio. DCR's are set by property type and what a lender perceives the risk to be. Make sure that you are familiar with a lender's DCR policy prior to spending money on an application. Ask them to give you a preliminary review of the investment property that you want to purchase. Information is free, mistakes are not.
Unlike residential lending, commercial investment properties are viewed more conservatively. Nowadays, most lenders will require a minimum of 30% of the purchase price to be paid by the buyer. The remaining 70% can be in the form of a mortgage provided by either a bank or mortgage company. 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. Keep in mind that the purchase price must also be supported by an appraisal. In the event that the appraisal shows a value less than the purchase price, the lender will use the lower of the two numbers to determine the loan that will be made.
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.