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When underwriting a
commercial real estate
loan,
apartment loan, or
conduit loan, there are 3 main ratios
commercial lenders
use to analyze the
approvability of a
commercial loan request.
The three ratios are:
-
Loan-To-Value Ratio
-
Debt Ratio
-
Debt Service
Coverage Ratio
(DSCR)
The first ratio
commercial lenders look
at is the
Loan-To-Value Ratio.
The (LTV) equals the
amount of the commercial
mortgages divided by
the market value of the
property as determined
by a commercial
appraisal. Typically, Loan-To-Value Ratios
for commercial real
estate loans are capped
at 75% or 80%. Recently,
many
commercial mortgage
lenders have
developed non-conforming
commercial loan programs
that provide 90%
commercial financing.
The
second ratio that
commercial lenders use when
underwriting a
commercial mortgage loan is
the Debt Ratio. The Debt
Ratio is the amount of
personal monthly debt a
borrower has divided by
personal monthly income.
In commercial lending,
rarely does a commercial
lender analyze the
borrowers personal
debt-to-income ratio,
rather the underwriter
focuses more on the
property's income and
expenses. However,
should the commercial
property fail to
properly service the
debt, a global cash flow
analysis is used where
by the property and
borrower's income and
expenses are combined in
an attempt to get proper
coverage for the
commercial loan request.
The final ratio used in
underwriting a
commercial mortgage loan
request is the Debt
Service Coverage Ratio
(DSCR). The Debt Service
Coverage Ratio is a
ratio used for
commercial loans,
apartment loans , and
conduit loans. The DSCR equals
net operating income
divided by debt service.
Net operating income is
the gross rental income
minus expenses. Most
commercial lenders
require a minimum DSCR
of 1.20x.
To learn more about
CommercialBanc's
commercial real estate
loan and
apartment loan
programs contact a
commercial mortgage loan
specialist at
1-866-706-BANC.
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