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Apartment Mortgage
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Recent Articles: Apartment mortgage underwriting boils down to three main ratio’s. Debt Service Coverage Ratio, Global Cashflow, and Loan to Value. All other components of underwriting are of less importance. All in all, underwriters confirm that both the property itself, as well as the borrower personally cash flows. Loan to value is a lessor factor, and the primary point of this ratio is to make sure that the borrower has some "skin" into the deal, as it has been proven many times over that high leverage loans have a much higher probability of default. Multifamily Loan - Global Cashflow.Global Cashflow aka Personal Debt Service Coverage Ratio, basically asks can the borrower afford ALL of their current expenses (both personal and business) based on ALL of their current income. As the credit crisis lingers this ratio is becoming much more prevalent even on multifamily loans. Many borrowers, especially those that are use to non recourse loans (and or multifamily loans over $3,000,00) are often surprised to learn that not only does the property have to cash flow, but that the rest of their financial picture will be scrutinized and will have to meet minimum ratio's as well. This calculation can become complex fast, depending on how many properties, businesses and debt that the borrower has. However, the normal ratio on the personal expense side of the equation is to double all the annual payment that show up on the borrower credit report. This can be expressed as a 1.50 PDSCR or a 50% DTI. The rest of the business debt will normally have to meet the standard DSCR of a 1.2 or greater.
Apartment Mortgage - Debt Coverage RatioAlso referred to as Debt Service Coverage Ratio (DSCR), this ratio verifies that the subject properties cash flows. Underwriters look at the net operating income of the property (net income after all expenses but before depreciation, taxes and mortgage payments) compared to the proposed mortgage payments. The bank wants to see that the cash flow of the property exceeds all expenses and the proposed loan. Most apartment lenders want to see that the NOI exceeds the debt service by a ratio of 1.2. Another way of saying this, is that for every $1 of mortgage payments, the properties will have to have a minimum of $1.20 of net income. The owner after they pay all expenses and the mortgage will still have $.20 left over. So again NOI/Debt Service. All lenders and including apartment lenders are now being more conservative with this ratio. For the most part, gone are the days of being able to use projections and or getting down to 1.1 ratios. In addition, many banks have increased the vacancy rates and management fee for underwriting purposes. Also, lenders are getting more strict on purchase transactions about examining the current owners previous two years of tax returns. They want to underwrite the file based on what the previous owner reported as the properties expenses. Obviously this can create issues as a lot of owners under report income and over report expenses. We know who the active sources are. We know which banks are really still funding apartment mortgages and doing so competitively. Fill out our pre approval form now for real answers.
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