Underwriters work within the mortgage, investment, loan and insurance industries to evaluate and assume the risk of another party. When applying for a mortgage or insurance policy, for example, an underwriter will assess the creditworthiness, or risk, of your application.
What Is the Role of the Underwriter in Commercial Real Estate?
Mortgage loan underwriters work to ensure the applicant meets all the requirements of the lender, and, on investigation, may approve or deny the loan application.
When a company or an individual applies to borrow funding for a commercial real estate project, their application will be processed and scrutinized by an underwriter. The underwriter will assess how much risk the lender will accept and therefore how much money the applicant may borrow.
Underwriters will consider the financial status of the applicant along with the nature of the project and the value of the property.
Evaluating the Applicant
The underwriter will conduct a thorough assessment of the financial health of the applying company or individual. This will include exploring the history of any previous commercial real estate projects, lease and rental data, details of any other loans held and assets owned, income and credit history, and information on all investors. A complete financial picture will be drawn up, both of the applicant and the project, from which the underwriter will determine the level of risk that might safely be assumed.
Appraising the Property
Typically, a mortgage is secured using the property itself as collateral against the sum borrowed. Therefore, the underwriter will order an appraisal of the property and will use the information gained to ensure the amount borrowed is lower than the likely proceeds from selling the property. The underwriter will ensure that the title documentation is in order and determine whether or not the property is under threat of natural disasters.
Appealing the Decision of the Underwriter
If an application is denied by the underwriter, the applicant is entitled to appeal the decision, but the process can be time-consuming and will likely require the applicant to provide extensive paperwork as evidence of their creditworthiness.