LET US DECIDE if you qualify!
“Just as the rich rule the poor, so the borrower is servant to the lender” (Proverbs 22:11, LB)
Three important dynamics are unrelated to a church’s past or current financial performance: time, the economy, and pastoral leadership. Most loans are for an extended period of time—15, 20, or even 25 years—during which time several downturns or transitions in these areas could significantly impact a church’s ability to pay their loan over time. To minimize the impact that these events could have on a church, our underwriting takes a conservative approach to loan approvals. The long-term health of the church is important to FFS. There are times when “sorry, not now” is an appropriate, Spirit-filled answer.
Factors in Underwriting
Qualifying for a loan involves due diligence as part of the loan process called Underwriting. Our underwriters evaluate all aspects of a loan request in order to form an educated opinion of a borrower’s creditworthiness and determine what would be required to make a loan possible. Some of these factors include margins that should not be eclipsed because it impacts a borrower’s ability to perform. We calculate and use the following ratios in the underwriting process:
LOAN TO VALUE
The Loan to Value Ratio (“LTV”) is computed by dividing the first mortgage loan amount by the value of secured collateral. The lower the loan to value, the more safety there would be in the event of a downturn in property values for the church to refinance or sell the property in the future. The higher the loan to value, the less maneuverability the church would have in the event of difficult economic periods. Ideally, the LTV ratio should be 70% or less (above 80% is substandard). New purchases typically meet the LTV ratio by having existing equity in a current property that is being sold, adequate cash savings, or proceeds from a capital campaign bridge loan. Property values are confirmed by a Brokers Opinion of Value, tax assessment (where applicable) or appraisal (required by ICFG on new purchases).
DEBT SERVICE COVERAGE
The Debt Service Coverage Ratio (“DSCR”) is computed by dividing the current Net Cash Flow by the proposed annual debt service. Adjustments in cash flow may be made by excluding capital campaign funds and restricted funds from gross income. Net Cash Flow includes an add back of the current debt service (if it will be eliminated by the new loan) and current lease/rent payments (if they will be eliminated by the new loan). The minimum DSCR is 105% and is computed based on the previous and current year to date. A safer margin for DSCR is 125% or more.
DEBT SERVICE TO INCOME
The Debt Service to Income Ratio (“DSI”) is computed by dividing the proposed annual debt service by the General/Unrestricted revenue of the Borrower. General/Unrestricted revenue should be based on the prior year twelve (12) months (debt service based on same number of months as YTD financials). The maximum DSI is 35% and is computed over two years.
DEBT SERVICE PLUS SALARY TO INCOME
The Debt Service Plus Salary to Income Ratio (“DSSI”) is computed by dividing the proposed annual debt service plus salary expense by the general/unrestricted revenue of the Borrower. Salary expense should encompass salary, fringe benefits, housing and payroll taxes of Borrower. The maximum DSSI should be 70% and is computed over two years.
IMPORTANT NOTE: Our Underwriting is not based on one ratio alone, but each ratio is weighted against the total of all ratios, with a grade assigned to the total. This allows a prospective borrower to have a marginal ratio (or even substandard ratio), but because of the total weighted grade, the loan often can be approved. By completing a preliminary loan questionnaire, we can evaluate your information and determine how FFSLF might best serve your church.
Foursquare Financial Solutions provides expert assistance to you throughout the Loan Process