ATLANTIC BEACH, NY—What are some of the most common commercial mortgage underwriting questions? What are the reasons a loan might be approved or turned down? Find out the methodology employed by commercial mortgage underwriters when presented with a loan application in this below column (in Q&A format) from Stephen Sobin, president of Select Commercial Funding LLC. Sobin has more than 30 years experience underwriting, approving, and funding commercial mortgage loans.

The views expressed below are the author's own.

Q:  Is there a minimum credit score that I must have?

A:  All commercial mortgage loans are underwritten based on many different qualifications, however most lenders like to see credit scores of 650 or higher.

Q:  Are there any minimum liquidity or net worth requirements?

A:  Lenders often expect to see minimum net worth equal to the loan amount and six to nine months of monthly payments as a cash reserve.

Q:  Am I able to refinance and take cash out of my property?

A:  Yes. However, situations where an owner seeks to take cash out after a short period of ownership will be reviewed carefully.

Q:  Can I buy a commercial property with no money down?

A:  No. These days, lenders will require a cash down payment from the borrower. Typically, lenders will lend up to 80% LTV on a multifamily property and 75% on a commercial property. Owner occupied properties might qualify for up to 90% financing.

Q:  I am a first time buyer. Is this acceptable?

A:  Lenders will look for a borrower to have experience owning and/or managing similar properties. In the event that a borrower does not have experience, a professional property manager might be required.

Q:  Are there any restrictions regarding neighborhoods or areas to consider?

A:  Lenders will expect to see a population count of 50,000 or greater in the metropolitan area where the property is located. Properties in highly rural areas will be underwritten very carefully.  The area should also exhibit positive employment and demographic trends.

Q:  How about property condition? What do I need to know?

A:  Lenders expect to see properties in good repair that do not require major rehabilitation or suffer from deferred maintenance. Properties that are in rentable condition are most preferred. The property should also be free of any environmental hazards or risks.

Q:  What do I need to know about when looking at a property's rent roll?

A:  Is the property occupied or vacant?  Are there long-term leases or short term expiring leases? Are the tenants' credit worthy and paying their rent on time?  Do collections match the rental agreements? Is there enough cash flow to cover the proposed mortgage?

Q:  What do I need to know about when looking at a property's operating statement?

A:  The operating statement is the profit/loss statement for the property. It should show good operating performance with no material declines in revenue or net operating income over the past year.  The income should be reviewed to see if it matches the lease agreements. The expenses should be analyzed for accuracy and completeness. The net operating income must be sufficient to cover the proposed mortgage payment.

Q:  Are there other items I should look at upfront when considering a property?

A:  You should review the applicable zoning to determine if the property is in compliance. You should check to see if the property has a valid certificate of occupancy. The property should also have all applicable licenses and permits for its intended use.

Q:  I am considering a commercial property. What should I do first?

A:  You should contact a competent commercial broker for advice.  The broker will help you analyze the investment and make sure you qualify for a loan. The broker should offer multiple options or choices for you to consider. You should choose a broker that does not require an upfront application fee.