Mortgage Funding Info

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The reason why most commercial mortgage deals don't get funded is not because you can't find a lender. More often than not, the reason can be traced back to the "presentation" of the loan request. For example, when completing a residential loan, you fill out a 1003 using Point, Genesis, or another FNMA 1003 program. For a commercial loan request, what do you fill out?

Since there is no uniform commercial mortgage application, most brokers submit a 1003, an operating statement, and possibly a rent roll. However, this would be akin to submitting only the borrower's tax return and pay stubs, expecting a preliminary approval. In other words, it is clearly inadequate.

"As lenders we see hundreds of loan requests, and most of these requests are incomplete and poorly prepared," says Chris Lewis, VP of Commercial Lending for Wells Fargo, Los Angeles. "Complete loan requests, however, go to the top of the stack as this shows that the broker understands the issues and has some control over the deal."

Packaging a commercial mortgage loan is significantly different than packaging a residential loan. The main difference is that you need to determine whether the property -- not the borrower -- is generating sufficient "rental" income to cover the mortgage payments on the proposed loan amount (e.g., DSCR), and whether there is commensurate value to meet the lenders' loan-to-value requirement (e.g., LTV).

To calculate the DSCR and LTV, the stabilized net cash flow (NCF) must be determined. In most cases, lenders must re-create the operating statements to conform to their respective underwriting models, which requires identifying certain property-specific expenses.

Credit Info

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Did you know that 75% of all mortgage lenders use a three-digit credit score to determine your loan eligibility? This score is based on the information contained in your credit report. And the interest rate you will be charged is based on your credit score, so raising your credit score as little as 15 points could result in a lower interest rate and thousands in savings. You can save anywhere from a few hundred dollars in credit card interest charges, thousands of dollars on your next car loan, and tens of thousands of dollars on a mortgage loan simply by improving your credit score as much as possible.

The information below offers general guidelines as to what your credit score might be. Each lender sets its own guidelines for approving loans and issuing credit. For this reason, the information below offers only general guidelines. Your debt-to-income ratio also plays a role in determining whether or not you will be issued credit. Some lenders require a debt-to-income ratio that may be higher or lower than those stated below. See bottom of this page to find out how to calculate your debt-to-income ratio.

The information below is based on the FICO scoring model which ranges from about 375 to 900. Other lenders might use their own in-house scoring systems or another scoring model. General rules to determine your credit score and creditworthiness are as follows:

A rating [Credit score 660 or higher] -- You can easily obtain financing at the best rate; you can get approved for a credit card online in a few seconds. Note that a score above 700 means you have extremely good credit.

Typical debt- to- income ratio: Below 35%

Mortgage: You have not been late with a payment in the last 24 months

Installment loan: You have been 30 days late making payments 0 or 1 time within the last 12 to 24 months

Revolving credit: You have been 30 or 60 days late with a payment 0 or 1 time in the last 12 to 24 months

Additional requirements: Good/excellent credit during the last 2 to 5 years; no bankruptcy within the last 2 to 10 years

B rating [Minimum credit score 620] You can get approved, but not at lowest rate. You can get credit cards and such, but at a higher rate than someone with an A rating.

Typical debt-to-income ratio: Around 50%

Mortgage: You have been 30 days late with a payment 2 or 3 times in the last 12 months

Installment Loan: You have been 30 days late with a payment 2 to 4 times during the last 12 months

Revolving credit: You have been 30 days late with a payment 0 to 2 times in the last 12 months

Additional requirements: You have no 60-day late mortgage payments; if filed bankruptcy, it must be discharged 2 to 4 years ago

C rating [Minimum credit score 580] Have trouble getting approved. Very high rates.

The lender might ask you to get someone to co-sign for you.

Typical debt-to-income ratio: 55% or higher

Mortgage: You have been 30 days late with a payment 3 or 4 times in the last 12 months

Installment Loan: You have been 30 days late with a payment 4 to 6 times during the last 12 months

Revolving credit: You have been 60 days late with a payment 2 to 4 times in the last 12 months

Additional requirements: If you filed bankruptcy, it was discharged 1 or 2 years ago

D rating [Minimum credit score 550] Serious trouble getting approved. Co-signor required.

Typical debt-to-income ratio: Around 60%

Mortgage: You have been 30 days late with a payment 2 to 6 times in the last 12 months; and 60 days late 1 to 2 times during the last 12 months

Installment Loan: You have a few 90 and 120 day late payments during the last 12 months

Revolving credit: You have a few 90 and 120 day late payments during the last 12 months

Additional requirements: If you filed bankruptcy, was discharged within last 12 months

E rating [Credit score under 550] Unlikely to be approved.

Typical debt-to-income ratio: Around 65%

Mortgage: You have a pattern of 20, 60, 90 and/or 120 day late payments

Installment Loan: You have a pattern of 20, 60, 90 and/or 120 day late payments

Revolving credit: You have a pattern of 20, 60, 90 and/or 120 day late payments

Additional requirements: You may have a current bankruptcy or foreclosure

How to Calculate Your Debt-to-Income Ratio

The formula for calculating your debt-to-income ratio is monthly fixed expenses divided by gross monthly income (before taxes and deductions). Monthly fixed expenses include all debt, such as the following: house payment or lease, credit card and other revolving credit balances that it will take you longer than 6 months to pay off; car payments, alimony, child support, etc. Do not include grocery, telephone, and utility bills or any debt that will be paid off in the next few months.

Sample calculation:

Gross monthly household income: $5,000

Fixed expenses: $1,560

[house payment $540.00 + car payment $370.00 + credit cards $250.00 + child support $400.00]

Debt-to-income ratio calculation:

$1,560

$5,000 = 31%

Fico Scores Effect Purchasing

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FICO® scores were developed by Fair Isaac & Company, Inc. for each of the credit repositories. The scores are: (Equifax) Beacon®, (Experian formerly TRW) Experian/FICO and (TransUnion) Empirica®. They are simply repository scores meaning they only consider the information contained in a person's credit file; they do not consider a persons income, savings or amount of a down payment for a mortgage.

The scores were designed to assess risk. They are useful in directing applications to specific loan programs and to set levels of underwriting, i.e. streamline, traditional or second review. The scores are objective, consistent, accurate and fast.

Many people in the mortgage business are skeptical about the accuracy of FICO scores. Scoring has only been an integral part of the mortgage process in the past few years; however, the scores have been in use since the 1950's by retail merchants, credit card companies, insurance companies and banks for consumer lending. The data from large scoring projects emphasizes the accuracy, the predictive quality of the scores. Large portfolios have been scored for mortgage servicing and investment groups, and again, they demonstrate that FICO scores work.

The scores were developed from each repository's database using actual loan performance. A sample of over 750,000 consumers per repository was used. The repositories have each made great strides to increase the accuracy of their respective database through computer technology and internal monitoring. There is a new standard reporting format for credit grantors to use when sending electronic information to the repositories; this is the critical first step to providing accurate data.

The scores use a multiple scorecard design. Each repository uses 10 individual scorecards, and the models at each repository are the same. This increases accuracy and optimizes the predictive variables for each subpopulation. (For example, a borrower with two 30-day late payments will be scored against a population with some minor delinquencies.) This feature may cause a borrower with delinquencies to score in the same range as a borrower without delinquencies. Scorecards are reviewed and updated every twenty-four months.

The actual scoring process is proprietary, and the algorithms are copyrighted. We can share the predictive variables, the portion of the credit file considered and the weight as provided by Fair Isaac. They are:

Previous credit performance (35%)
Current level of indebtedness (30%)
Time credit has been in use (15%)
Types of credit available (15%)
Pursuit of new credit (less than 5%)

FICO has changed the way it factors credit checks, inquiries. These changes should minimize the "negative" effects that aggressive rate shopping or the normal mortgage process can have on a mortgage applicant. In the new Beacon version, the deduping process has been expanded beyond seven days. One variable counts the number of days within 365 days of scoring. If there has not been an inquiry, the deduping mechanism is not activated. If there is a consumer originated inquiry within the past 365 days from mortgage or auto related industries, these inquiries are ignored for the first 30 calendar days from scoring; then, multiple inquiries within the next 14 days are counted as one. Each inquiry will still appear on the credit report.

Scores should not change significantly because the variable in the model using inquiries contributes less than 5% of the predictive power of the model. According to Equifax statisticians, an average of 5% of the credit reports in the Equifax consumer credit reporting database (over 200 million consumer files) will see a change in score due to this. Fewer than 5% of those will see a change significant enough to effect a loan decision.

In order to get a score a borrower must have the following conditions in his/her file:

No "Deceased" indicator on the credit file
At least one undisputed trade line that has been updated in the last six months
One trade line open at least six months

Scores range from 350 (high risk) to 950 (low risk). A scorecard of 660 will be 660 on Beacon 96, Empirica and Experian/FICO if the data on each file is the same. However, each repository is likely to contain different data.

Every score is accompanied by a maximum of four reason codes. Reason codes identify the most significant reason that a consumer did not score higher. They are not red flags. Consumers with scores in the 800 range get reason codes just as consumers with scores in the 500 range. The reason codes may be used in describing to the consumer the reason for adverse action. Scores are not part of the credit file and are not covered by the Fair Credit Reporting Act. Scores, if disclosed to the consumer, must be related to the credit file - using the reason codes - since the score has no meaning in itself; the meaning or risk level is assigned by the lender and the investor.

When applicants have erroneous information reported, document the inaccuracies. The easiest way to do that is to have your credit-reporting agency upgrade the merged in-file to an edited mid-range report or to a Residential Mortgage Credit Report. With the upgraded report, you can ignore the score! The file will have to be handled in a traditional manner for underwriting and investment purposes. The developed report will provide the paper trail that investors want.

Property Rights

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Property Rights

Real Property Definition

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Real Property Definition

Property Investment

Sat, 4 Feb 2012 23:05:04 +0000

Property Investment

Property Trust(s)

Sat, 4 Feb 2012 23:05:04 +0000

Property Trust(s)

Negotiating a Contract

Sat, 4 Feb 2012 23:05:04 +0000

Negotiating a Contract

Real Estate Negotiation

Sat, 4 Feb 2012 23:05:04 +0000

Real Estate Negotiation

Dont Let It Fall Through

Sat, 4 Feb 2012 23:05:04 +0000

Dont Let It Fall Through

Sell Your Home Fast

Sat, 4 Feb 2012 23:05:04 +0000

Sell Your Home Fast

Real Estate Tax Advice

Sat, 4 Feb 2012 23:05:04 +0000

Real Estate Tax Advice

Property Inspection

Sat, 4 Feb 2012 23:05:04 +0000

Property Inspection

Pick An Offer

Sat, 4 Feb 2012 23:05:04 +0000

Pick An Offer

Open House Expectations

Sat, 4 Feb 2012 23:05:04 +0000

Open House Expectations

Your Open House

Sat, 4 Feb 2012 23:05:04 +0000

Your Open House

Marketing Info

Sat, 4 Feb 2012 23:05:04 +0000

Marketing Info

Listing Real Estate

Sat, 4 Feb 2012 23:05:04 +0000

Listing Real Estate

Selling My Property

Sat, 4 Feb 2012 23:05:04 +0000

Selling My Property

Multiple Offers

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Multiple Offers

Getting Real Estate Ready

Sat, 4 Feb 2012 23:05:04 +0000

Getting Real Estate Ready

Real Estate List Price

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Real Estate List Price

Housing Market Info

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Housing Market Info

Pricing Your Property

Sat, 4 Feb 2012 23:05:04 +0000

Pricing Your Property

Property Appraisal

Sat, 4 Feb 2012 23:05:04 +0000

Property Appraisal

Real Estate Appraisal Info

Sat, 4 Feb 2012 23:05:04 +0000

Real Estate Appraisal Info

More Tax Advice

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More Tax Advice

Real Estate Agent

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Real Estate Agent

Real Estate FSBO Advice

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Real Estate FSBO Advice

Real Estate Appraisal

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You should look at each home for its individual characteristics. Generally, older homes may be in more established neighborhoods, offer more ambiance, and have lower property tax rates. People who buy older homes, however, shouldn't mind maintaining their home and making some repairs. Newer homes tend to use more modern architecture and systems, are usually easier to maintain, and may be more energy-efficient. People who buy new homes often don't want to worry initially about upkeep and repairs.

Only an appraiser can give a real home value, but one thing your Tulsa real estate agent can help you with, is determining the 'sold' value of homes around the area. This is especially important when writing an offer!

Real Estate Tax Shelter(s)

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Real Estate Tax Shelter(s)

Real Estate Tax Benefits

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Real Estate Tax Benefits

Loan Closing Advice

Sat, 4 Feb 2012 23:05:04 +0000

Loan Closing Advice

Escrow Advice

Sat, 4 Feb 2012 23:05:04 +0000

Escrow Advice

Home Loans

Sat, 4 Feb 2012 23:05:04 +0000

Home Loans

Closing Costs

Sat, 4 Feb 2012 23:05:04 +0000

Closing Costs

Review A Closing

Sat, 4 Feb 2012 23:05:04 +0000

Review A Closing

Closing a Home

Sat, 4 Feb 2012 23:05:04 +0000

Closing a Home

After The Loan

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After The Loan

Credit History

Sat, 4 Feb 2012 23:05:04 +0000

Credit History

Negotiating Tips

Sat, 4 Feb 2012 23:05:04 +0000

Negotiating Tips

Property Negotiation

Sat, 4 Feb 2012 23:05:04 +0000

Property Negotiation

Safety Inspection

Sat, 4 Feb 2012 23:05:04 +0000

Safety Inspection

Home Inspector Worksheet

Sat, 4 Feb 2012 23:05:04 +0000

Home Inspector Worksheet

Home Insurance

Sat, 4 Feb 2012 23:05:04 +0000

Home Insurance

Home Inspection

Sat, 4 Feb 2012 23:05:04 +0000

Home Inspection

Debt To Income Ratio

Sat, 4 Feb 2012 23:05:04 +0000

Debt To Income Ratio

Your Loan

Sat, 4 Feb 2012 23:05:04 +0000

Your Loan

Apply for a Mortgage

Sat, 4 Feb 2012 23:05:04 +0000

Apply for a Mortgage

Select a Mortgage

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Select a Mortgage

Mortgage Alternatives

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Mortgage Alternatives

Basic Mortgage

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Basic Mortgage

Mortgage Loan

Sat, 4 Feb 2012 23:05:04 +0000

Mortgage Loan

Effective Offer Writing

Sat, 4 Feb 2012 23:05:04 +0000

Effective Offer Writing

Mental Control

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Mental Control

Comparison Shopping

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Comparison Shopping

Home Selection

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Home Selection

Home Hunt

Sat, 4 Feb 2012 23:05:04 +0000

Home Hunt

Approval Letters

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Approval Letters

Real Estate Ads

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Real Estate Ads

House Search

Sat, 4 Feb 2012 23:05:04 +0000

House Search

Your Wish List

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Your Wish List

Find your Dream

Sat, 4 Feb 2012 23:05:04 +0000

Find your Dream

A REALTOR Can Help

Sat, 4 Feb 2012 23:05:04 +0000

A REALTOR Can Help

Confidence and Experience

Sat, 4 Feb 2012 23:05:04 +0000

Confidence and Experience

Ownership Advice

Sat, 4 Feb 2012 23:05:04 +0000

Ownership Advice

Young Buyer

Sat, 4 Feb 2012 23:05:04 +0000

Young Buyer

Home Ownership: Are You Prepared?

Sat, 4 Feb 2012 23:05:04 +0000

Home Ownership: Are You Prepared?

Buying an Affordable Home

Sat, 4 Feb 2012 23:05:04 +0000

Buying an Affordable Home

Home Ownership : How To

Sat, 4 Feb 2012 23:05:04 +0000

Home Ownership : How To

Buy vs Rent

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Buy vs Rent

Checklist for Home Buyers

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Checklist for Home Buyers

Buying and Selling Real Estate in Tulsa OK

Mortgage Funding Info

Credit Info

Fico Scores Effect Purchasing

Property Rights

Real Property Definition

Property Investment

Property Trust(s)

Negotiating a Contract

Real Estate Negotiation

Dont Let It Fall Through

Sell Your Home Fast

Real Estate Tax Advice

Property Inspection

Pick An Offer

Open House Expectations

Your Open House

Marketing Info

Listing Real Estate

Selling My Property

Multiple Offers

Getting Real Estate Ready

Real Estate List Price

Housing Market Info

Pricing Your Property

Property Appraisal

Real Estate Appraisal Info

More Tax Advice

Real Estate Agent

Real Estate FSBO Advice

Real Estate Appraisal

Real Estate Tax Shelter(s)

Real Estate Tax Benefits

Loan Closing Advice

Escrow Advice

Home Loans

Closing Costs

Review A Closing

Closing a Home

After The Loan

Credit History

Negotiating Tips

Property Negotiation

Safety Inspection

Home Inspector Worksheet

Home Insurance

Home Inspection

Debt To Income Ratio

Your Loan

Apply for a Mortgage

Select a Mortgage

Mortgage Alternatives

Basic Mortgage

Mortgage Loan

Effective Offer Writing

Mental Control

Comparison Shopping

Home Selection

Home Hunt

Approval Letters

Real Estate Ads

House Search

Your Wish List

Find your Dream

A REALTOR Can Help

Confidence and Experience

Ownership Advice

Young Buyer

Home Ownership: Are You Prepared?

Buying an Affordable Home

Home Ownership : How To

Buy vs Rent

Checklist for Home Buyers