All Forum Posts by: Ken Jernigan

Lenders know to add back depreciation and any other non cash charges when calculating the DTI. Last bank I worked for used 40%. Underwriting these days is pretty much by the formula, so I wouldn't count on "feel good" factors like on time payment. That's reflected in your credit report anyway. Still, sounds like you shouldn't have too much trouble re-fiing the balloons if you have decent equity in the property.

Lenders will look at documented income on tax returns. As long as you can show a decent DTI and there's adequate collateral, it shouldn't matter.

Hello--taking your questions in turn--

How often shot down--This depends on your loan officer and how well he's prepped the underwriter and committee. Good lenders know what they can get approved. @Ryan Kurth is right--too many committee declines ruins your credibility.

Does the loan officer take any semi-reasonable deal---Yes, some do. 

Are they graded--Typically, loan officer comp plans are base plus commission, structured so that you can make an OK living with the base but the commission really buys the house, car, kid's education, vacation. Commissions are only paid on closed deals, not approved ones. There is also the quarterly nut--meaning if you don't make a minimum level of closed loans, you're shown the door.

Should I be encouraged--Yes. but so much depends on your loan officer.

A note of caution--It's not over until the loan closes and funds. After 40 years as a lender and borrower, I've seen approved deals tank on sudden changes in terms, pricing, failed appraisals, environmental issues, undisclosed bankruptcies, criminal records and a host of other unforseens. Good to have a few lenders working on your deal.

@Rich Hupper During construction you can draw under the loan to make the monthly interest payments the bank charges. Interest becomes part of the loan and thus a liability, so capitalized instead of expensed.

I've been in finance both as a banker and CFO for nearly 40 years and learned that the most important part of the relationship is frank communications. It's really the hairdresser syndrome--develop a relationship with an individual you trust and keep that relationship. These days bankers move more than rude lane changers on the highway, so find a good one and stick with her.

Working mostly with commercial but all construction projects I've done allow capitalized interest during construction.

Generally the SBA requires at least 51% ownership by US citizens or LPRs. The remaining ownership can be non-US. Any owner with 20%+ ownership is required to personally guarantee and does not have to be a citizen or LPR. SBA may consider loans to non-citizen or LPR owners, but there are several important restrictions. Only certain visa types qualify, business must have one year operating, management must guarantee, and must be 100% collateralized with US assets.

There are other SBA requirements that may affect your situation, such as company formation look back rules and equity funds sourcing.

All that considered, it's easier to set up 51/49 companies. Or just go hard money with a lower LTV. SBA advance rates are pretty good, though. Note SBA only works with commercial real estate--no multi families. We have a couple of projects we're working on with similar structures. PM me if you want more info.

I think @Maheen Akhter nailed it. Seller's knowledge of environmental condition may trigger mandatory reporting which may lead to other obligations. I don't know about California environmental law, but here in NC no one (including the lender) is released from liability until the state issues a no further action letter.

I've done a few hospitality deals in the past, from small non-flags to new construction flags in large markets. Most successful were family-run enterprises with hands-on management. Best categories for cash return were lower tier flags and older exterior corridor non-flags. These of course were the toughest to manage and finance. Best client I had lived at the hotel full time for 25 years, until his kids talked him into buying a house. 

If it's owner-occupied (51% of square footage) I can connect you with national SBA lenders. PM me for more detail.