Commercial Loan Underwriting Approval Process
Professional underwriting systems are commonly used in the commercial funding industry today.
An automated underwriting process is used in order to determine if the lender should provide funding for specific properties or potential borrowers.
The underwriter inputs information about the property and the borrower into the underwriting software system, which then analyzes all the information and provides a decision as to whether the property and the borrower meet the requirements of the specific loan program.
With this type of system, loan approval is broken down to the basics.
The computer system looks at a variety of factors to determine if they fit into a suitable range.
The criteria can vary greatly in commercial funding.
For now, though, we'll look at just one of these factors - recourse verses non-recourse loans.
If the loan program being considered is non-recourse, the borrower (or borrowing entity) does not have to qualify for the loan and is not liable for the loan because the property itself has to qualify.
The property's qualification is based largely on income minus operating expenses, or Net Operating Income (NOI).
If the occupancy level and rental revenues of an apartment complex are such that they more than pay all expenses of maintenance and daily operation, with margin remaining, the NOI is a positive amount and may qualify for a non-recourse loan.
In the event of a loan default down the road, the lender takes back the property and the borrower is not held personally liable.
Other commercial loans are not non-recourse.
Even if the property enjoys a positive cash flow, the borrower has to qualify through his personal credit reports, income, debt, assets, cash on hand, etc.
The computer system will look at each of these things to make a decision based on the specific guidelines of the particular loan program.
Knowing that approval for your commercial loan application is likely going to be decided by a computer program, putting your application through a pre-underwriting process can give you a strong advantage when it's submitted to the actual lender.
You'll have an opportunity to uncover any weaknesses in your application and make important adjustments ahead of time.
Proper assembly of all documentation will also render an advantage.
When all of the necessary information is organized and easy to identify, there is far less chance of something being missed during entry into the underwriting system or questions remaining unanswered.
Pre-underwriting and loan application packaging by an experienced professional may cost a few thousand dollars, but since it very well may be the difference between approval and rejection, it's a worthwhile investment to make when you know you have an opportunity at a great commercial property deal.
An automated underwriting process is used in order to determine if the lender should provide funding for specific properties or potential borrowers.
The underwriter inputs information about the property and the borrower into the underwriting software system, which then analyzes all the information and provides a decision as to whether the property and the borrower meet the requirements of the specific loan program.
With this type of system, loan approval is broken down to the basics.
The computer system looks at a variety of factors to determine if they fit into a suitable range.
The criteria can vary greatly in commercial funding.
For now, though, we'll look at just one of these factors - recourse verses non-recourse loans.
If the loan program being considered is non-recourse, the borrower (or borrowing entity) does not have to qualify for the loan and is not liable for the loan because the property itself has to qualify.
The property's qualification is based largely on income minus operating expenses, or Net Operating Income (NOI).
If the occupancy level and rental revenues of an apartment complex are such that they more than pay all expenses of maintenance and daily operation, with margin remaining, the NOI is a positive amount and may qualify for a non-recourse loan.
In the event of a loan default down the road, the lender takes back the property and the borrower is not held personally liable.
Other commercial loans are not non-recourse.
Even if the property enjoys a positive cash flow, the borrower has to qualify through his personal credit reports, income, debt, assets, cash on hand, etc.
The computer system will look at each of these things to make a decision based on the specific guidelines of the particular loan program.
Knowing that approval for your commercial loan application is likely going to be decided by a computer program, putting your application through a pre-underwriting process can give you a strong advantage when it's submitted to the actual lender.
You'll have an opportunity to uncover any weaknesses in your application and make important adjustments ahead of time.
Proper assembly of all documentation will also render an advantage.
When all of the necessary information is organized and easy to identify, there is far less chance of something being missed during entry into the underwriting system or questions remaining unanswered.
Pre-underwriting and loan application packaging by an experienced professional may cost a few thousand dollars, but since it very well may be the difference between approval and rejection, it's a worthwhile investment to make when you know you have an opportunity at a great commercial property deal.
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