Now that we have discussed types of loans and lenders, it is time to prepare you to underwrite an appealing loan package to entice a prospective lender. The next two chapters will introduce you to the basic underwriting of the two major sectors of commercial mortgage finance.

These two major sectors are multifamily (apartment buildings) and commercial.
They are also the only two sectors for which you can obtain loans on a stated basis.

Remember, stated loans makes it easier for your clients to move quickly when purchasing or expanding their business. After a detailed review of both the multifamily and the owner occupied underwriting guidelines in Chapters 6 and 7, Chapter 8 will show you how to do multifamily and owner-occupied on a stated basis. Subsequent chapters are dedicated to providing the underwriting guidelines for the other commercial mortgage finance sectors (e.g., office, retail, hotel/motel), which must be underwritten as full documentation loans rather than stated basis loans.

The CRES Solutions CD contains all of the forms you will need to input and calculate the underwriting guidelines detailed below. I will refer to the CD throughout this discussion and provide instructions for using the CD to prepare the loan package. Before we begin discussing apartment underwriting guidelines, allow me to overview the basic steps you will need to take to prepare the loan package. Keep these in mind as you read this chapter:

*Obtain a completed rent roll
*Obtain property income and expenses for the year to date
*Obtain property income and expenses for the last two years
*Then, enter all the above information into one of the credit memo forms
provided on the CD. The software will do the rest of the work for you.

Sounds easy, but of course you'll want to know what lenders look for in a good apartment loan so you'll be able to look at your finished loan package and evaluate its strengths and weaknesses. This chapter is dedicated to explaining loan analysis from the lender's point of view. You'll have a much stronger chance of getting your client's loan funded once you understand what the lenders look for and why certain characteristics are more desirable than others.

So, let's get started with apartments. One of the biggest sectors of commercial mortgages is the purchase financing or refinancing of multi-unit apartment buildings. To qualify as a commercial multifamily apartment building, a building must have at least five apartments. If a building has only four apartments, it must be financed under residential rules. Licensing requirements apply to transactions considered to be residential. Therefore, do not finance any four unit buildings unless you are licensed as a residential mortgage broker or correspondent lender.

The properties that qualify as multifamily include: low-rise garden apartments, mid-rise apartment, military housing, low-student housing, townhouse style, co-op, other apartment and mobile home park.