What is Multifamily Underwriting?

Multifamily Real Estate, is classified as an income-producing property with two to four units in one building. Any rental property over five units is considered commercial real estate, and less than two is a single-family property. When it comes to multifamily underwriting, this distinction becomes extremely important. Not only does the multifamily underwriting hinge on the personal creditworthiness of the borrower, like residential lending, but it also depends on the income-producing power of the property and the condition of the property.When an investor fills out a commercial loan application, the lender will go through their requirements, the borrower and the property need to meet for the multifamily loan application to be approved. This process is called multifamily underwriting. Most lenders use a mix of automated underwriting and manual underwriting to speed up the multifamily underwriting process.

Multifamily Underwriting Process

The multifamily underwriting process can be complicated. The underwriter will spend the most time considering the three C’s of underwriting:

  • Credit-Credit analysis is a deep dive into the creditworthiness of a borrower. It looks at both the credit score and the borrower’s character.
  • Capacity-This is strictly the ability of the borrower to repay the loan. The debt-to-income ratio is a large part of this analysis.
  • Collateral-This is the most critical piece of the underwriting equation. It is determining if the property has the future income and management in place to earn enough to run and maintain the property to hold its value.
How it Works?

Investors will need to supply the following documents to the lender for complete and thorough multifamily underwriting.

  • Property Paperwork-How is the property currently managed? What is the current debt-service coverage ratio? This ratio looks at net operating income divided by the annual debt service amount. Lenders want this ratio to be over one. Under one and the property will not be able to pay back the loan.
  • Property Value-Lenders want a low loan-to-value ratio of the property. A lower LTV means lower risk to the lender. Underwriters determine the LTV by taking the amount of the loan divided by the purchase price.
  • Borrower’s creditworthiness-By looking at each borrower’s creditworthiness, lenders determine the risk of the loan. They can then offer better loan terms based on lower risk. Borrowers are required to sign a personal guarantee stating they will personally pay back the mortgage if the business defaults.
Benefits of Multifamily Underwriting

When you are familiar with the multifamily underwriting process and realize the requirements a borrower and property need for loan approval:

  • You are more likely to keep your creditworthiness in check.
  • Ensure that management and maintenance of a property at the highest level of performance possible.
  • You save time by having your documents ready for lenders.
  • Analyze deals with a clear picture of the potential risks and returns.
  • Lenders can provide quicker approvals due to having the loan due diligence completed in minutes.
  • Deal volume can increase exponentially, allowing brokers, investors, and lenders to increase profits even faster.
  • Saving you money by allowing you to be ready with financing when opportunities arise.
  • Automated multifamily underwriting will expedite the multifamily underwriting process when all documentation is available.

Lenders rely on only the best companies to assist with multifamily underwriting. The Automated Underwriting Software and services from Clik.ai are few of those trusted resources.

Why Should you get Automated Multifamily Underwriting from Clik.ai?

Clik.ai has been helping Multifamily Real Estate investors, brokers, lenders, and managers navigate multifamily loans since 2017 and have helped underwrite over 15,000+ deals and billions of dollars in multifamily investment and financing opportunities.

By working with the Clik.ai, Multifamily Real Estate investors and lenders can reduce operating expenses, stay competitive, free up time to focus on lending relationships, and spend time on deal analysis rather than paperwork for multifamily underwriting.

When looking for a company to help with multifamily underwriting, consider the automated underwriting. Our on-demand team of commercial real estate analysts has expertise in multifamily underwriting.