If you’re interested in obtaining a multifamily Loan, it’s crucial that you understand what commercial mortgage underwriters look for. The lending industry as a whole has changed a lot over the past decade and commercial lending has not been an exception. This article will detail some of the most important things to consider before submitting your multifamily loan for approval.
As commercial lending is primarily asset based, lenders will first evaluate the subject property itself. They will heavily scrutinize the current rent roll and the operating history of the apartment building. The property should demonstrate strong operating performance and income production for the previous two years. Lenders will typically want to look at an apartment building that has had an occupancy rate of at least 90% for the trailing 90 day period. Additionally, lenders will always make sure that the property is in legal compliance and has no violations. The property must conform to the relevant zoning regulations and the borrower must have Certificates of Occupancy and all required property licenses and permits. Last but not lease, lenders will want to evaluate the condition of the apartment building. Lenders typically prefer newer construction but older properties in good shape are acceptable. It’s important to lenders that the property doesn’t require major repairs, that the remaining life of the property surpasses the amortization period and that the property be free and clear of any potential environmental hazards.
Next, the lender will evaluate the surrounding neighborhood of the property. It’s best if the property is located in either an established or a growing market with a minimum population of 50,000 people. Highly rural neighborhoods with smaller populations will be highly scrutinized by lenders. The area should demonstrate a strong and diverse employment base and should not be experiencing a substantial decline in population. Lastly, it is crucial that the apartment building be located near major highways, job opportunities and other demand generators.
After looking at the subject property and its neighborhood, the lender will look at the credit worthiness of the borrower. Lenders want to work with sponsors that have good credit scores. Typically, a minimum FICO score of 680 is required although lower scores may be acceptable on an individual basis. Borrowers must also have adequate net worth and liquidity to qualify for a loan. In general, lenders want to see a minimum net worth equal to the loan amount and a minimum liquidity equal to six months worth of principal, interest, taxes and insurance. Lenders highly scrutinize cases where an owner is looking to pull cash out of an apartment building after a short period of ownership. Lastly, lenders want their borrowers to have adequate experience owning and managing properties similar to the subject property.
Applying for an apartment loan can be a difficult undertaking. However, obtaining great financing on a multifamily property can significantly advance your financial situation. Understanding the above factors will significantly help you know what property is worth pursuing and what is not. There aren’t many things worse in mutlifamily investing than spending a lot of time evaluation a property only to realize it won’t qualify for an apartment loan. We hope this article has helped to give you some sense of what to look out for in your property search!
If you are looking for a freddie mac multifamily loan. commercial mortgage or an apartment loan, please do not hesitate to reach out to the professionals at Select Commercial Funding at 516-596-8937 or 516-596-8297. For a quick quote, click the button below! For a quick quote, click the button below! Get a free loan quote today!