Owners conducting an automotive character refinance are often surprised to discover how many new attractive loan programs that have become obtainable within the last 3 years. 30 year amortization periods, stated income and cash out refinance up to 75% LTV are now on the market. However, automotive refinances are nevertheless heavily scrutinized by lenders that are concerned with the environmental position of the character. In addition, the special use character, in addition as the high level of seller financing (land contracts) further complicate and make lenders careful.
Underwriting criteria is broken down into a few main categories – Loan to value, debt service coverage ratios, character examination, tenant evaluation and credit worthiness of the borrower.
LTV – CLTV
Loan to value restrictions on automotive refinances are typically capped at 70% on rate and term and 65% on cash out refinances. However, there are a few lenders that will now allow up to 75% on a cash out basis. Lenders also will permit high leverage with seller held financing (sits in second lien position). The combined loan to value can be as high as 90%. For example, if the current first lien position existing convention loan is at 40% loan to value and the seller held is at 30% loan to value the owner could pull an additional 20% equity out on a cash out refinance (40% + 30% + 20% =90% CLTV).
Debt Service Coverage Ratio restrictions are typically conservative at 1:1.3 for this building kind. Meaning that for every $1.30 of net income (income after taxes, insurance, repairs, etc) the character/business produces, the mortgage payment will not be allowed to go beyond $1.00. Said in another way, after all expenses and the mortgage have been paid, the owner needs to net $.30 to qualify.
Due to the cash character of this business, stated income loans, (where borrower does not have to provide tax returns) can be a substantial option for owners that do not show enough net income to qualify for traditional loans. With this kind of loan the DSCR discussed above is not applicable.
In the case of investment automotive refinances, tenant evaluation is very important. Lenders may request tenant financials in addition as borrower financials and examine the time left on the current lease; among other applicable information. In addition, many lending source will only consider owner occupant transactions.
Great caution will typically be used as market value and market rent is evaluated and compared to the subject character. Environmental position of the character will be examined and buildings constructed before 1997 will be further analyzed. turn up, location, accessibility, and local market conditions, in addition as other factors are considered.
The personal credit worthiness of the borrower will be scrutinized. 680 credit score is typically the minimum for the best finance options. Exceptions can be made (on a limited basis) as some traditional lenders will consider scores as low as 640. The overall strength of the character, tenants, net worth, DSCR, and LTV can offset concerns of low credit scores.
Every possible automotive character refinance is rare and are considered on a case by case basis. However, the above can give you a good idea of what the capital supplies look for when considering funding this kind of commercial loan.