A number of people want to gather all the information when it comes to commercial loan underwriting procedure. Are you one of them? If yes, then there is good news for you. We have got your back. Here in this piece, we have explained the basics of the procedure that will be performed by a commercial loan underwriter.
Whether you are applying for a residential loan or a commercial one, a lot of factors are taken into consideration. Before your application gets accepted, the lender will find out if you are meeting all the eligibility criteria. In addition to this, there is so much more that goes into the whole procedure. Let us get started without any further ado.
The basics of commercial loan underwriting procedure
Before you get started with the procedure, you need to understand the basics of the loan underwriting process. Below mentioned are them. Continue reading and learn about it now.
- Potential gross income: This displays the maximum income one can get from a certain property. Let us take an example here. A borrower already has a ten unit apartment building. he/she gets about $1000 per month. Now if we calculate the gross income here, it would be somewhere around $120,000 per year.
- Operating costs: There is no denying the fact that every single apartment has its own expense. From repairs to garbage, maintenance, utilities, taxes, and insurance there is so much that takes place. All of these operating expenses should be reviewed in the right manner before getting started. This is because so many owners, agents, and sellers most of the time take the operating costs as a joke and then face the consequences later.
- Underwritten costs: Some of the costs are most of the times taken by granted. The sellers and brokers often underestimate the underwriting costs. In addition to this, factors like repair allowances, commissions, enhancement of the property, and more are also neglected. Know that mostly underwriters assign about a five percent vacancy factor. This is for lost rents when the tenants move in and out. Again management money is needed here. All the vital duties will be performed by the owner of the property beforehand. Moreover, if the property needs to be repaired, the owner will do that as soon as possible. All these factors will be taken into account.
- Net operating income: The operating cost and the underwriting one will be reduced from the gross income and then the net operating expense will be determined.
The Final Word
We hope this piece of information has been useful to you. Contact the professionals for more. These are people who know about the procedure. Let them know what you need and they will help you in the best way possible.