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FINANCING 1- TO 4-UNIT RESIDENTIALPROPERTIES AS A COMMERCIAL LOAN

Rebecca KasowVP, Commercial Lending

September 26th, 2017

© Nexera Holding LLC dba Newfi Lending

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Agenda

• Why finance with a commercial loan?• Differences between commercial and residential

loans on investment properties • How to evaluate a commercial loan opportunity• How to package a commercial loan • Types of commercial loans we offer at Newfi• Resources & contact information

3 © Nexera Holding LLC dba Newfi Lending

Why finance 1- to 4-unit investment properties with a commercial loan?• Advantages

– Outside income & debt are not included in DTI calculation • No W2s• Debt payments such as primary mortgage, personal credits and

term loans are NOT included in ratio calculations– No limit on number of properties financed or owned

• Fannie and Freddie maximums do not apply • There may be lender-specific limits (such as exposure limits)

– No disclosures and no rescission periods• But there are special requirements:

– Property must not be owner-occupied – Property must produce enough income to service debt – Property must have long-term lease(s)


Why would a property owner do a commercial loan instead of a residential loan?

• Property owned by a non-individual• DTI does not meet residential standards • Too many properties owned or financed• Large amount of personal debt • Needs one loan for multiple properties • Needs short term financing to Fix and Flip


Differences between residential & commercial mortgages (1/2)Residential• Underwriting based on personal

cash flow – DTI– Loan to Value– Credit score

• Loan Structure – Down payment (15-30%)– Lower interest rate – Similar terms 30/30– Similar fees – Prepayment penalties

Commercial• Underwriting based on cash flow

from the property – Lease income – DTI (property only) – Loan to Value– Credit score– Property management

• Loan Structure – Down payment (25-35%)– Comparable or higher interest rate – Similar terms 30/30– Similar fees – Prepayment penalties– Can be non-recourse

© Nexera Holding LLC dba Newfi Lending 6

Differences between residential & commercial mortgages (2/2)Residential • Closing

– 30 to 60 days • Transaction Differences

– High transaction volume– Few days response time

Commercial • Closing

– 30 to 60 days • Transaction Differences

– Low transaction volume– Slower response time– Flexibility to structure


Ideal scenarios: Does it fit with commercial? Great fit • Property owned by an non-

individual entity• Borrower has a lot of personal

debt • Borrower DTI is higher then

40% • Wants to finance multiple

properties with one loan • Property has long-term renter • Borrower is foreign nationals • Needs cash out refinance

Not so great fit• Properties which will be used

as a second home • Main source of income is

Airbnb or VRBO• Owner occupied properties --

even part time • Student housing• First-time home buyers


Evaluating commercial properties:What criteria are used? • Property DTI

– Only income and debt for the subject property is considered– Documentation required for any leases in place, property tax,

and insurance information – Max DTI 85%

• LTV – LTV of the property (not the borrower) – In a blanket (multi-property) situation, overall LTV is

considered – Max LTV 75%

• Vacancy rate if there are multiple units • Property management history


Evaluating commercial properties:Property DTI

Loan Details Loan Amount $ 100,000.00 Interest Rate [x.xxx] 7

Payment Breakdown

Monthly P&I Payment $ 665.30 Calc'd: $665.30 Annual P&I Payments $ 7,983.60 Annual Property Insurance $ 500.00 Annual Property Tax $ 200.00 Annual Home Owners Associaton Dues Rent Assessment

Property Type (SFR, 2-4, Townhouse, Condo)

Single Family

Monthly Rent Eligible Lease Rent

(input) Use? Market Rent Assessment

(input) Use? Rent for Property Based

DTI Calculation Unit 1 $ 1,800.00 No $ 1,800.00 Yes $ 1,800.00 Unit 2Unit 3Unit 4

Total Gross Rent $ 1,800.00

Property Based DTI Calculation

PITIA (Principal, Interest, Taxes, Insurance, & HOA) $ 8,683.60

Gross Rent (94% of the lesser of either Eligible Lease Rent or Market Rent Assessment)

$ 20,304.00

Property Based DTI (must be less than or equal to 85%) 43% Pass? Passed


Evaluating commercial properties:Property management history• Self or professionally managed?• Questions to ask:

– Years of experience– Number of properties under management – Evictions in last 12 months – Average occupancy for all properties (last 12 months)– Percentage of available rent collected each month – Do you allow tenants to qualify for rental if rent is in excess of 40% of

gross monthly income?– Do you allow tenants with credit scores under 619?– Do you allow tenants with evictions in last 24 months?– Do you allow tenants with history of bankruptcy or foreclosure in last

24 months ?


How to package a 1- to 4-unit commercial loan• Documents needed:

– 1003– Tri-Merge credit report– All applicable leases – Property management agreement – Purchase contract, if applicable – 2 years of tax returns for borrower – Entity documentation – DTI calculation – Property management questionnaire – Foreign nationals may require extra documentation


Types of commercial loans we offer at Newfi1. Single asset commercial loans2. Blanket loans on multiple assets3. Short-term “fix and flip”/bridge loans


Newfi loan types (1/3):Single asset commercial loans • 30-year term with 30-year amortization• Fixed rate • 3 year prepayment (3,2,1)• Loan amounts: $67,500 to $1,300,000 (determined

by location)• LTV up to 75% • Foreign nationals OK


Newfi loan types (2/3):Blanket loans on multiple assets• For 5+ rental properties • Minimum loan amount: $500,000• Maximum loan amount: $100,000,000• Each unit must be worth at least $50K• Fixed-rate 5- and 10-year terms • LTV up to 75% • Interest only periods available• Foreign nationals OK


Newfi loan types (3/3):Short-term “fix and flip”/bridge loans• Single or multi properties• Up to 80% of cost• Variable rate 18- to 24-month terms • Revolving credit lines available • Min loan amount for single assets: $250k• Min loan amount for multiple assets $1M


Contact us

• Approved Brokers: – Please contact your Regional Account Manager – See next slide for listing

• NON-approved Brokers: – Please call 888-415-1620


Contact Us:Account Managers

Account Manager Region TelephoneNicole Christy Washington State 206 718 6425Steven Duran Florida - West Palm Beach 954 483 5213Jeff Garcia Southern California (LA) 818 270 0020David Johnston Southern California (LA & Orange County) 949 466 3993Todd Kaufmann Sacramento 916 295 6061Debbie Koehler Florida 561 512 1212Lisa Morris Southern California (San Diego) 619 278 9958Shayne Nielson Utah & Colorado 801 710 6110Eric Nowak Sacramento 415 672 1025Jeff Portnoff SF Bay Area, Sacramento & Arizona 925 890 2963Jesse Tannlund In-House, OR, NJ, and PA 415 690 9471Scott Territo In-House 415 300 0224Greg Vaughn SF Bay Area - South Area 415 694 9405Scott Wise SF Bay Area 510 461 2891


Important Links

Newfi Wholesale http://NewfiWholesale.com

SBC Forms http://NewfiWholesale.com/resources

SBC Guidelines & Flyers (under “Commercial”)http://NewfiWholesale.com/wholesale-loan-programs


http://newfiwholesale.com/

http://newfiwholesale.com/resources

http://newfiwholesale.com/wholesale-loan-programs

QUESTIONS & ANSWERS


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For more information, please contact Rebecca Kasow, VP Commercial Lending, at tel (510) 907-3462.

Note: Today’s presentation is being recorded and will be provided in 24 to 48 hours.

Your Participation

QUESTIONS & ANSWERS
