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There are numerous factors involved in underwriting a commercial business with multiple units. Multifamily loans are collateralized by different types of property, and all of them operate as distinct businesses themselves. The insurance and legal demands of multifamily properties are also different from those for single-family properties.
There are multiple and multi-layered financial considerations involved in underwriting multifamily loans. This is because a host of revenue and expense items have to be taken into account. There are also several streams of cash flows in such a system. This makes accounting and tax considerations more complex.
The three C’s of multifamily underwriting process
Multifamily underwriters spend most time analyzing the process’s three Cs; they are as follows:
Credit analysis takes a detailed look at the borrower’s creditworthiness. It takes into account the credit score and character of the applicants.
This refers to the capability of the applicants to repay the loan. This analysis considers the all-important debt-to-income ratio of the applicants.
Considered the most important component of the underwriting process, collateral helps determine if the property can generate future income and has the required management systems in place to maintain its value.
The multifamily underwriting process
A comprehensive multifamily underwriting process involves the use of several documents; these include the following:
1. Property paperwork
This set of documents helps lenders understand the current state of management of the multifamily property and the present debt-service coverage ratio. A ratio over one is an indicator of the borrower’s capability to pay back the loan on the agreed terms.
2. Property value
Lenders need documents that reflect the property value to make a proper assessment and provide the best offer. A low loan-to-value ratio of the property shows a lower risk. The ratio is determined by considering the loan amount divided by the purchase price of the property.
3. Borrower’s creditworthiness
The creditworthiness of the borrower is needed to determine the level of risk of the loan. A lower risk improves the chances of better offers and favorable loan terms.
Is automation a suitable solution for multifamily underwriting?
Most lenders use automated underwriting to accelerate the processes involved in multifamily underwriting. The automated underwriting system is a sophisticated program that can analyze and render large volumes of data in a matter of seconds.
An Automated Underwriting System (AUS) is used by lenders in multifamily underwriting, as there are reams of complex data to deal with. Analyzing and collating such enormous volumes of data manually is not only time consuming but is also prone to human error. An AUS can quickly retrieve all the relevant data and provide the needed input to arrive at a logic-based loan decision.
Advantages of automated underwriting
There are many advantages of using automated underwriting approvals for multifamily underwriting.
Borrowers can get better rate offers as compared to manually approved underwritings.
It eliminates human bias and human errors, as the system is based on algorithms that make use of sound logic.
Borrowers may be approved for a higher standardized debt-to-income ratio.
It provides lenders with a clear and detailed analysis of facts and covers all possible risk elements.
The loan due diligence can be completed in minutes, leading to quicker approvals.
How automated underwriting helps make sound lending decisions
Automated underwriting systems use machine learning, artificial intelligence, and predictive analytics to run a detailed analysis of all the critical documents involved in the underwriting process. Lenders can extract the relevant information that they need from the stack of documents to make the best lending decisions based on sound logic; insulated from human errors, bias, or emotions.
By using automation for multifamily underwriting, users can do the following:
Accurately identify and survey rents from relevant data.
Derive benchmark operating expenses.
Test value-add strategies.
Achieve optimal results.
Extracting valuable data from diverse and dissimilar sources with automated underwriting
Using automation, property managers can extract information from various data sources both unstructured and structured. These may include policies, binders, statements of value, quotes, submissions, applications, reports, and others.
AI can automatically recognize hundreds of specific data points from diverse and dissimilar sources faster than humans and with a much greater level of accuracy.
When integrated into a centralized submission portal, artificial intelligence can extract data from applications and submissions at a granular level even as they come in. AI systems can analyze and interpret data from various content blocks and then auto-populate the analyzed and extracted data in core underwriting systems through API integration.
Artificial intelligence solutions have the capabilities to read, interpret, and understand data associations within the document in a cognitive manner, the same way humans can, albeit more accurately and at lightning speed. AI also goes way beyond the usual recognition patterns and can read and interpret data by taking into account the context and even the language.
Automation can, thus, help underwriters make better-informed decisions and identify the best possible solutions for multifamily underwriting. There are software systems that allow any member of the underwriting team to insert comments and notes based on individual assessments. Such annotations can be controlled for viewing with access provided only to those authorized and make further decisions based on the input provided and take the underwriting process to the next stage.
How automated underwriting helps reduce risks in decision making
Automation in multifamily commercial underwriting can also help mitigate risks. The best automation systems are designed to capture data and run verification processes simultaneously. Underwriters can double check all the information provided by the applicants and confirm its veracity. Based on the project needs and demands, they can also add prequalification to the application process to stop those who do not meet the qualifying marks from moving ahead. This can save time, money, and effort by reducing unwanted screenings.
When it comes to reducing risks associated with making underwriting decisions, automated solutions can help your business, as it comes with asset intelligence. When combined with property management plans, it can help create foolproof solutions for multifamily commercial underwriting projects.
Machine learning and artificial intelligence are at the core of the top, advanced asset intelligence solution available today. They can provide holistic portfolio insights by combining performance data with market outlooks and deep business intelligence measures. By leveraging the right systems and technology, lenders can make the best recommendations that are risk-free and cost-effective.
Benefits of automation in multifamily underwriting
It’s a huge time-saver.
Deals can be analyzed in a few minutes as compared to days and weeks with manual underwriting.
Gives true and relevant numbers and data with its set calculation systems.
Deals are analyzed for possible current and future risks and returns.
Lenders can get a very clear picture, which helps them make quick decisions even in complicated deals.
Lenders can achieve an exponential increase in deal volumes to make better and faster profits.
Why it is important to choose the best
It is important to use the best automated multifamily underwriting system to keep pace with changing regulations, manage complex workflows better, and close deals quickly. Using the best automation system for underwriting, lenders can maximize profit and stand out in a marketplace that’s becoming increasingly crowded and more competitive.
Docsumo is one of the best automation solutions with unmatched expertise in creating neural networks for large organizations. The company is committed to providing freedom from stressful and time consuming manual data entry processes for property managers, investors, and COOs.
Docsumo offers the best automation solutions for the underwriting process for multifamily commercial real estate deals. The system is designed to save lenders hours of crucial time and achieve data quickly and more accurately. So, what are you waiting for? Give us a call today and let's get started.
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