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The purpose of the Apartment Lending
Underwriting Guidelines is to set forth a foundation from which all
underwriting decisions will be made by Apartment Lender. Primary consideration
for apartment financing will be given to:
SECTION I - PROPERTY
The property is analyzed in order to
determine the level and sustainability of the net operating income
stream from the property, the property’s financial capacity to repay
the apartment loan, and the collateral value of the property securing the
apartment mortgage. An underlying assumption is that the property is for
an investment purpose, even when the Borrower(s) may occupy one of
the apartment units.
SECTION II - BORROWER(S)
The overall creditworthiness of the
Borrower(s) is analyzed in order to determine personal
debt-to-income ratios, credit history, real estate ownership,
management experience, cash reserves, and related information.
SECTION III -
APARTMENT LOAN PARAMETERS
The overall
apartment loan request is
reviewed in order to insure it complies with the apartment financing parameters of
a particular loan plan.
SECTION I -
APARTMENT LENDING PROPERTY
U100.00 LOCATION OF PROPERTY
Apartment Lender originates apartment loans in
locations within market areas as approved by Lender’s
Product/Pricing Committee. Questions regarding a property’s
location, when determining eligibility, may be directed to Lender’s
Underwriting Department.
U100.10
Apartment Lending Markets
Lender makes apartment loans in selected markets
of the United States of America and the District of Columbia.
U110.00 ELIGIBLE PROPERTY TYPES
Apartment Lender offers first lien adjustable
rate and fixed rate apartment mortgages for apartment properties having 5 or
more total residential units and Mixed-Use properties provided there
are at least 5 residential units, the overall percentage of current
gross potential annual income from the commercial units does not
exceed 25%, the number of commercial units does not exceed 25% of
the total legal units, all commercial units have leases, and the
real property ownership interest is held in a fee simple estate.
In Lender’s opinion:
A. Property shall generate
enough gross income to support the proposed apartment mortgage loan
debt service, operating expenses, reserves, and a sufficient return
on investment to Borrower(s);
B. Property shall be in
overall good condition, without excessive deferred maintenance, and
without building code violations. Any properties where the appraiser
has rated the “Condition of Improvements” as “Fair” will be
considered, subject to underwriter’s review of a Property Condition
Assessment completed by Lender’s approved consultant at Borrower’s
expense (see Section
U140.00 ;
C. Property shall provide the
tenants with acceptable living conditions, lacking in functional
obsolescence;
D. Property shall be free of
non-abatable environmental hazards;
E. Property shall conform to
the zoning of the site. Property that does not conform may be
acceptable (legal non-conforming), provided Apartment Lender’s Property and
Liability Insurance Requirements (See
Section U160.00)
are met;
F. Proposed
apartment loans
that collateralize multiple apartment buildings must have the
buildings contiguous and adjacent to each other, forming an
apartment complex. Multiple lots and multiple assessor property
numbers are acceptable. Non-contiguous buildings will be considered
if all buildings are secured under a blanket apartment mortgage with no
partial releases being honored during the life of the apartment
loan, within a half a mile radius from each other, each separate
complex must have at least 5 residential units, and each separate
complex that are not contiguous must have sufficient value to meet
the minimum apartment loan amount requirements and sufficient income
to meet the DCR requirements. See
Section U300.30
for minimum loan size and starting at
Section U310.21
for DCR parameters. Apartment Lender must be provided with separate rent
rolls and income and expense operating statements for each separate
complex;
G. Condominiums or Planned Unit
Developments (PUD) where the borrower owns 100% of the units
contained in the separate structure(s) defined as the collateral
property even though the structure(s) may be only a portion of the
condominium association or PUD;
H. Properties with seasonal
occupancy where the market area does support year-around occupancy
and/or year-around employment;
I. Properties with a
studio/efficiency (i.e. units not containing any bedrooms) unit mix,
as long as they are typical of the subject’s market;
J. Properties with
concessions and/or concessions in the property’s submarket will be
considered based on the final adjusted Debt Coverage Ratio (DCR) as
determined by underwriting. See
Section U310.20
for further explanation;
K.  Properties
where the electrical is master metered wherein the landlord pays one
utility bill to the public utility company provided that this is
typical of the market;
L. Properties where tenants
are “doubling-up” (i.e. the units have more occupants than intended
for the unit, which is generally more than two occupants per
bedroom) will require a 10% reduction to the applicable LTV;
M. Properties with furnished
housing, as long as they are typical in the subject’s market.
Lender will not include any premiums or excess rent above market in
the underwriting analysis. Lender must be provided with sufficient
information in order to be able to isolate the excess rent from
furnished housing units;
N. Properties that do not
have public-provided water and sewer (e.g. a private well and/or
private septic or sewage treatment system). A satisfactory well
inspection (performed by local authority) and a septic inspection
(performed by a licensed contractor) reflecting that there are no
life/safety issues will be required;
O. Properties with master
leased elements will be considered under the following
requirements: Up to 10% of the units in the subject may be leased
by corporations, partnerships, trusts, or other entities. No more
than 5% of the total units in the subject may be leased to any
single corporation, partnership, trust, other entity or individual;
P. Properties with up to
100% of the tenants receiving rent subsidies (i.e. Section 8 only).
Lender will utilize the lower of the market or contract rents for
underwriting purposes. Lender will not consider a building with a
HAP contract (entire building under contract); and
Q. Properties with
convenient stores where liquor, including beer and wine is sold and
is not consumed by customers on-site.
U130.00
PROPERTY CONDITION ASSESSMENT
FOR MULTI-SERIES APARTMENT LOAN PROGRAM
Apartment Lender requires a Property Condition
Assessment (PCA) when the subject property or apartment loan request
is one of the following types:
A.
An
apartment/mixed-use building that is 50 years of age or older (at
time of loan application) coupled with a loan which is in excess of
$500,000, unless a property has gone under significant
rehabilitation, and can be classified as an “A” or “B”, see
Preamble for
classifications; or
B. An apartment loan
request that is a ‘cash-out’ refinance of $100,000 or more; or
C. A property where
the appraiser has rated the “Condition of Improvements” as “Fair”.
In addition, a PCA may be required if
recommended by the appraiser and/or Apartment Lender underwriter due to the
condition of the property, environmental, or other issues. PCA’s are
subject to review and/or modification by Apartment Lender’s Underwriting
Department. The PCA will help determine if the need for a
Repair/Modernization letter and/or monetary holdback is required.
When a PCA is not required on a
particular property, the property shall still meet the minimum
guidelines set forth in Apartment Lender’s Property Condition Assessment
Guidelines and Procedures.
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