Real Estate Lending

Question 1

What are the two types of RE lending? What are the property types of each type of RE lending?

Answer 1

1. residential lending

2. commercial lending

Question 2

Real estate

- property type

Answer 2

Property type
- Residential Lending consists of lending to 1-4 SFR’s. Generally meaning owner-occupied loans with the underlying property consisting of 1-4 units max. This also includes condos and four-plexes
- Types of loans for residential
Long-Term Mortgages
- FHA Loans – Insured loans, Up to 30 year terms, Fixed Rate, 3.5% down, Min. FICO 580, (Housing) 40% & (Total) 50% DTI. (MIP possibly)
VA Loans - Insured loans, Up to 30 year terms, Fixed Rate, $0 down, FICO is subjective, (Total) 41% DTI.
Conventional Loans or Jumbo Loans - Up to 30 year terms, Fixed & Variable Rates, 5% down, FICO is generally 620 or better, DTI Differs by Lender (Lender Paid PMI)
Home Equity Loans & Lines of Credit (HELOC)
Home Equity Term Loans are similar to above however the Bank is in second position and 80-90% LTV.
HELOC: Up to 25 year terms, Variable Rate, 5-10 Year Draw Period, 10-20 year repayment, 80-90% LTV, FICO is generally 620 or better, DTI Differs by Lender

Question 3

commercial lending

- property type

Answer 3

• Commercial real estate is real estate that is used for commercial purposes which include operating a business and collecting rents from businesses or individuals.
• There are four main property types with all other properties being classified as special purpose:
  Industrial
  
  • Office
  • Multifamily (Apartments 5+ units)
  • Retail

Question 4

What are the criteria for evaluating the different types of commercial RE loans?
- owner occupied CRE

Answer 4

What are the criteria for evaluating the different types of commercial RE loans?

Owner occupied CRE

• Generally require a minimum business DSCR of 1.25x or greater without reliance on third party rents.
• Generally require a global DSCR of 1.25x.
• LTV max of 75-80% for general purpose property types and 50-70% for special purpose properties. SBA can go up to 90% financing on all property types.
• Generally requires the subject business to have a good equity position in there company and good liquidity. These terms are purposefully subjective.
• Individual guarantor’s cash flow net of taxes, debt service, and living expenses. Individual’s PFS (Adjusted Net Worth), Credit History.
• Property Characteristics: Useful Life, Environmental Concerns, etc.

Question 5

What are the criteria for evaluating the different types of commercial RE loans?
- Developer & Investor CRE

Answer 5

Developer & Investor CRE
- Generally require a minimum property DSCR of 1.25x or more based on both actual rents received historically and what the appraisal states are market rents.
Generally require a global DSCR of 1.25x.
LTV max of 75-80% for general purpose property types and 50-70% for special purpose properties.
Individual guarantor’s cash flow net of taxes, debt service, and living expenses. Individual’s PFS (Adjusted Net Worth), Credit History. Individual’s liquidity should be at least 10-20% of the total outstanding debt of the investors total portfolio.
Property Characteristics: Useful Life, Environmental Concerns, Management History, etc.

Question 6

What are the types of interest held in real estate?

Answer 6

What are the types of interest held in real estate?

• Fee Simple (Usually seen in owner-occupied properties)
• Leased Fee (Usually seen in investor owned properties)
• Leasehold Fee (Usually seen if the property owned is subject to an underlying ground lease)

Question 7

How are appraisals used in evaluating RE loan requests?

Answer 7

How are appraisals used in evaluating RE loan requests?
Generally in fee simple estates comparable sales are given the greatest weight in determining the value. Usually the value will be determined “As-Is” for existing buildings.
Under the Sales Comparison approach the appraiser will look at recent sales of properties that are similar to the subject property. The appraiser will make a note of which factors warrant a higher or lower worth for the comparable in relation to the subject property. These adjustments are based on items such as: property age, size, location, parking availability, etc. Once these adjustments have been made the appraiser will have a range of price PSF for the comps. They will generally take the average number rounded and then multiply that by the subject property’s square footage to arrive at the value.
In construction the cost approach is often given the most weight by the appraiser as it values the costs associated with the structure to determine the value as opposed to comps.

Question 8

What documents are used in CRE lending?

Answer 8

What documents are used in CRE lending?
Promissory Note
Business Loan Agreement
Deed of Trust
Corporate Resolutions
Guarantees
Estoppels
SNDA’s
Insurance Requirements
Security Agreement