Global income in terms of commercial mortgage underwriting is about trying to get at the whole picture of the borrowers financial position. Underwriters want to know what the borrower’s total NET income is. This is calculated by looking at all income and all expenses on all businesses, real estate, any other investments and personal expenses the borrower has. The primary question the underwriters are trying to answer “is the borrower cash flowing?”
It is common for a borrower to have a several entities that are showing a profit and a few that are losing money. It’s also common to see that the borrowers personal expenses actual exceed what they make through all of their sources of income. If the borrower is losing money overall and he will have a difficult time getting a loan (obviously).
Here’s a quick example on how to calculate global income. Scenario - commercial refinance, owner occupied, with a loan amount of $1,000,000. Rate on the proposed loan is 6.5% on a 25 year amortization schedule. To keep is simple, the borrower only has one business and personal income & expenses with no other entities to take into account. After reviewing the business tax returns and adding back non cash expenses such as depreciation, interest, amortization, etc you see you have say $150,000 in net business income that can be used to service the proposed loan.
On the personal side, the borrower pays himself $100,000 a year from his business and it is reported as W-2 income. After pulling the borrower’s credit report you see that his total monthly personal bills are $4,500. Most banks will simply double the personal expenses that show up on the credit report to cover all of the borrower’s personal expenses that don’t show up.. So that’s $4,500 x 2 x 12 months equals $108,000. According to underwriting guidelines he’s $8,000 ($108,000 - $100,000) short per year in personal income and this amount is subtracted out of the $150,000 of net business income.
So the global net income is $142,000. This is a simple example and does not go into all the items that can be added back or that are reported twice, but hopefully should give you an idea on how to calculate Global Income.
By: jeff rauth
About the Author:
It is common for a borrower to have a several entities that are showing a profit and a few that are losing money. It’s also common to see that the borrowers personal expenses actual exceed what they make through all of their sources of income. If the borrower is losing money overall and he will have a difficult time getting a loan (obviously).
Here’s a quick example on how to calculate global income. Scenario - commercial refinance, owner occupied, with a loan amount of $1,000,000. Rate on the proposed loan is 6.5% on a 25 year amortization schedule. To keep is simple, the borrower only has one business and personal income & expenses with no other entities to take into account. After reviewing the business tax returns and adding back non cash expenses such as depreciation, interest, amortization, etc you see you have say $150,000 in net business income that can be used to service the proposed loan.
On the personal side, the borrower pays himself $100,000 a year from his business and it is reported as W-2 income. After pulling the borrower’s credit report you see that his total monthly personal bills are $4,500. Most banks will simply double the personal expenses that show up on the credit report to cover all of the borrower’s personal expenses that don’t show up.. So that’s $4,500 x 2 x 12 months equals $108,000. According to underwriting guidelines he’s $8,000 ($108,000 - $100,000) short per year in personal income and this amount is subtracted out of the $150,000 of net business income.
So the global net income is $142,000. This is a simple example and does not go into all the items that can be added back or that are reported twice, but hopefully should give you an idea on how to calculate Global Income.
By: jeff rauth
About the Author:
Jeff Rauth is President of Commercial Finance Advisors, Inc. He has a commercial broker “store” at his website. Check it out. Everything you need to broker loans, agreement, books, spreadsheets, etc. commercial broker training or Become a commercial broker or commercial broker fee agreement
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