Debt coverage ration (DCR), tax returns, and commerical loans
I understand that DCRs need to be 1.25 and above for commercial loans, but what source do lenders use to compute those numbers? Tax returns? Just most recent or 2 years worth? Do they ignore depreciation as it appears on the tax return since it's non-cash? Do they take any and all expenses listed on the tax return or just PITI? Do they typically assume a %rent loss for vacancy? I have a friend who told me he had to redo his tax return to get commercial loans.
Thus far we have only gotten residential loans, but going forward given DTI limits and the ten property residential loan limit, we will start to use commercial loans. We filed an extension for 2014 taxes and I'd like to get them done right the first time around if they will be used to determine DCRs for our existing rentals.