The underwriting process typically involves the following steps:
Examining the borrower's credit, capacity, and collateral (the 3 Cs).
Requiring third-party reports, such as a full appraisal and Phase I Environmental Assessment.
Checking into a borrower’s credit history, net worth, and commercial real estate experience.
The requirements for the underwriting process vary depending on the type of loan. For example, HUD 221(d)(4) and HUD 223(f) loans require a significant underwriting process, while HUD 223(a)(7) loans require only minimal underwriting. For FHA 232 financing, lenders will consider both the borrower’s financial strength, as well as the borrower’s history of owning and operating similar facilities in the past, in order to determine their suitability for a loan. For CMBS origination, the underwriting process is intended to determine whether a borrower presents a reasonable credit risk to a lender. Borrower credit, net worth, and experience requirements are significantly less strict for conduit loans than for bank or agency loans (i.e. Fannie Mae and Freddie Mac).