Property owners conducting a market mortgage refinance are often surprised by the new range of loan programs that have come to be available in the last 5 years. Programs such as market 30 year fixed, second lien position loans, etc are turning heads. However the process is still expensive and time interesting and underwriting is still tied to the fundamentals - loan to value, debt aid coverage ratios, global income, property analysis, and prestige worthiness of the borrower.
Below is a brief narrative of the underwriting guidelines for refinancing a market mortgage.
Loan-to-Value Ratio
Ltv
Loan to value restrictions on your typical market mortgage refinance are dinky to 80% on rate and term and 75% on cash out refinances. However this guild line is what separates many banks from each others. Some get more aggressive and offer higher ltv's while others stay conservative and stay well below the percentages mentioned above.
This ratio is requisite to banks as they underwrite files with the worst case scenario in mind - "what if the borrower defaults and we have to take this property back and sell it on the open market?" The lower the loan to value, the less risk for the lender and therefore lower rate for the borrower.
Dscr
On speculation properties the Debt aid Coverage Ratio restrictions are typically set at a 1:1.25. Meaning that for every .25 of net wage (income after taxes, insurance, repairs, etc) the property produces, the mortgage payments cannot exceed .00. Said in other way, after all expenses and the mortgages have been paid, the owner needs to net $.25 to qualify for the typical market mortgage refinance.
Lenders that allow lower Dscr are thought about more aggressive (and commonly charge higher rates) while banks with higher Dscr requirement are the thought about the opposite - more conservative.
Global Income
For owner occupants a distinct type of ratio is used called the Global wage approach. Basically this ratio compares All wage the borrower has, together with firm profit, salary, dividends etc to All the expenses the borrower has together with personal and business. The maximum Global ratio commonly is 60%. For example, on monthly basis, if the borrower's total personal and firm wage is ,000, his total monthly debt cost would not be allowed to exceed ,000.
Property Analysis
The type of construction being refinance has a major impact on what financial options are available. For example, there's a huge distinction in what a bistro would qualify for vs. An apartment building. Market value, Market rent, appearance, location, accessibility, local Market conditions, as well as other factors play a major role into what refinance options will be available.
Credit Worthiness
The personal prestige worthiness of the borrower will be heavily scrutinized as this is an leading component. A 680 prestige score is the threshold for the best finance options. For smaller mortgages, prestige scores play a bigger role in the underwriting decision and interest rates are heavily influenced by the borrower's prestige score.
Every market mortgage refinance is unique and needs to be thought about on an individual basis. However, the above can give you a good idea of what the basic underwriting parameters are.
Underwriting Parameters of commercial Mortgage Refinance
