The owners conducting the office mortgage refinance would have a large range of the financing options. This would be due to various factors like the loan amount, whether property is owner-occupied or an investment, strength of the owner, or whether the building is multi-tenant, etc. Moreover, there are many office building types that would further dictate the loan options. As far as the underwriting is concerned, the fundamentals are critical. The credit worthiness of the borrowers, strength of the tenant, loan value, property analysis and debt coverage ratio would all come into play.
The debt service coverage ratio restriction is mostly set at about 1.2 for the owners as well as investors. This means that for every $1.20 of the net income, business or the property would produces, mortgage payment shouldn’t exceed over $1.00. In other words, after the expenses and mortgage paid off, owner would require net of $20 in order to get qualified. The exceptions could be made regarding this rule on the office refinances. For instance, owners occupied the transactions; it isn’t uncommon for lenders to consider some other income sources that borrowers have to replace the low income which business lacks. Moreover, the stated income loan could also be an outstanding option for all owners having low debt coverage ratio because of the overstated expenses or an understated income or current high levels of the vacancy.
The loan to value (LTV) restriction on the office building refinances is capped at about 80% on the interest rate and the term refinance and about 75% LTV on the cash out refinance. Higher LTV is available. For instance, there are some lenders which would go as much as 90% higher. However, this would come at steep price for the borrower, raising the rates by 2 to 3%. On the flip side, lower LTV would usually reduce the rate of interest for borrowers.
The tenant evaluation isn’t as important in the office property category as in others, but it is still very important. Some relevant information would include the time left on the lease and renewal options. Furthermore, on the multi-unit properties, the lenders would prefer lease expirations to get staggered, and most of the lenders would want to see three years left on a current lease. Certain traditional banks wouldn’t allow the fixed period of loan to exceed time left on the lease.
Personal credit worthiness of borrowers would get scrutinized. The 680 credit score is usually the minimum requirement for best finance options. Exceptions could be made, and some conventional lenders would consider scores like 600. Overall, the strength of tenants, property, LTV, and DSCR could offset the concerns on the low credit scores. For the corporations, the credit ratings and business performance would get evaluated. The fundamentals of buildings are quite critical. The market rent and the market value remains the paramount also would be compared and evaluated to subject the property. Any of the negatives with condition, location, appearance, local market conditions, and accessibility would reduce the available options for borrowers. The owners considering office mortgage refinance need to be pleased with broad range of the financing options that are available to them as this is a preferred building type by lenders.
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