Underwriting is a process that is often seen as much more complex and challenging than it actually is. While some loan types present more obstacles than others, specifically underwriting multifamily loans can be a very straightforward and simple process. Breaking it down step by step and focusing on the essential components of multifamily loan underwriting can help alleviate some of the challenges often experienced.
Getting Started with the Underwriting Process
Make sure you have a plan in place to help you stay on track and remain organized throughout the process. While it is best to complete the underwriting process in order, you may find that you need to revisit earlier stages, which will be much easier if you keep organized.
Once you have established an organization strategy, the first phase of underwriting multifamily loans requires getting very familiar with the money flowing in and out of the property. Examining this piece carefully will help you accurately project post loan costs and cash flows.
Gathering all of the information needed for the underwriting process may seem intimidating, but it is an essential part of ensuring you’ve made accurate predictions, careful conclusions and have strong returns headed your way.
Here are 6 simple steps you can follow to encourage a smooth underwriting process.
Step 1: Estimate your expenses - Anticipate your expenses, including routine and rare, for the entire duration of owning the property.
Step 2: Assess your revenue - Take into account all potential sources of income that could come from the property. You can start by taking a close look at your rent roll.
Step 3: Consider financial variables - Evaluate potential renovation costs, rent adjustments, the occupancy and vacancy rates, and the expected growth rate.
Step 4: Refine your financing - Be sure to account for any debt you’re taking on in order to purchase this property as well as any future refinancing.
Step 5: Analyze everything and review - This is when you take the time to thoroughly look over and review all of the information and details you’ve gathered regarding this deal. Don’t rush this step in the process, as this is the time to catch any potential errors or revisions.
Step 6: Set your price - Your price will be determined by all of the predictions made regarding your property and should reflect your desired rate of return.
Use these steps to guide you through the underwriting process so that you feel confident and prepared when securing your loan.