| Property owners conducting a commercial | | | | Lenders that allow lower DSCR are considered |
| mortgage refinance are often surprised by the | | | | more aggressive (and normally charge higher |
| new range of loan programs that have become | | | | rates) while banks with higher DSCR requirement |
| available in the last 5 years. Programs such as | | | | are the considered the opposite - more |
| commercial 30 year fixed, second lien position | | | | conservative. |
| loans, etc are turning heads. However the process | | | | Global Income |
| is still expensive and time consuming and | | | | For owner occupants a different type of ratio is |
| underwriting is still tied to the fundamentals - loan | | | | used called the Global Income approach. Basically |
| to value, debt service coverage ratios, global | | | | this ratio compares ALL income the borrower |
| income, property analysis, and credit worthiness | | | | has, including business profit, salary, dividends etc |
| of the borrower. | | | | to ALL the expenses the borrower has including |
| Below is a brief description of the underwriting | | | | personal and business. The maximum Global ratio |
| guidelines for refinancing a commercial mortgage. | | | | normally is 60%. For example, on monthly basis, if |
| LTV | | | | the borrower's total personal and business income |
| Loan to value restrictions on your typical | | | | is $10,000, his total monthly debt payment would |
| commercial mortgage refinance are limited to | | | | not be allowed to exceed $6,000. |
| 80% on rate and term and 75% on cash out | | | | Property Analysis |
| refinances. However this guild line is what | | | | The type of building being refinance has a major |
| separates many banks from each others. Some | | | | impact on what financial options are available. For |
| get more aggressive and offer higher ltv's while | | | | example, there's a huge difference in what a |
| others stay conservative and stay well below the | | | | restaurant would qualify for vs. an apartment |
| percentages mentioned above. | | | | building. Market value, market rent, appearance, |
| This ratio is critical to banks as they underwrite | | | | location, accessibility, local market conditions, as |
| files with the worst case scenario in mind - "what | | | | well as other factors play a major role into what |
| if the borrower defaults and we have to take this | | | | refinance options will be available. |
| property back and sell it on the open market?" | | | | Credit Worthiness |
| The lower the loan to value, the less risk for the | | | | The personal credit worthiness of the borrower |
| lender and therefore lower rate for the borrower. | | | | will be heavily scrutinized as this is an important |
| DSCR | | | | component. A 680 credit score is the threshold |
| On investment properties the Debt Service | | | | for the best finance options. For smaller |
| Coverage Ratio restrictions are typically set at a | | | | mortgages, credit scores play a bigger role in the |
| 1:1.25. Meaning that for every $1.25 of net income | | | | underwriting decision and interest rates are heavily |
| (income after taxes, insurance, repairs, etc) the | | | | influenced by the borrower's credit score. |
| property produces, the mortgage payments | | | | Every commercial mortgage refinance is unique |
| cannot exceed $1.00. Said in another way, after all | | | | and needs to be considered on an individual basis. |
| expenses and the mortgages have been paid, the | | | | However, the above can give you a good idea of |
| owner needs to net $.25 to qualify for the typical | | | | what the basic underwriting parameters are. |
| commercial mortgage refinance. | | | | |