How Underwriting Standards Have Changed and What Real Estate Investors Need to Know
Interest rates and lending standards can feel like a moving target, especially if you haven't shopped for commercial debt in the last few years. To help make sense of what's shifted, we sat down with Owen Dashner, Co-Founder of Liquid Lending, to get his firsthand perspective. Understanding what's changed, straight from someone in the thick of it, can help you avoid costly surprises.
What Sparked the Shift in Lending?
The biggest turning point happened around 2022, when interest rates started climbing fast. As Owen explains, "a lot of lending banks, institutions, commercial debt...they were getting skittish about investing in larger deals."
That uncertainty pushed many lenders to pull back, especially on bigger commercial projects. Since then, rates have settled into what looks like a new normal. Right now, 30-year rates are hovering around 7-7.5%%, compared to the historically low levels buyers had become used to.
Are Banks More Cautious Now?
Yes. According to Owen, "I think banks really have gotten a lot more cautious about their underwriting. They're not going to let things slide as much." This shows up in ways that catch investors off guard. Some lenders wait until the last minute, sometimes just days before closing on a big commercial deal, to change the terms.
Watch Out for Last-Minute Surprises
Imagine you're days away from closing on a commercial property, and your lender suddenly asks for more cash upfront. Owen has seen this firsthand: "You'll see banks that come days before closing on a big commercial deal, and they'll want you to bring 10% more down or 15% more down or something like that to the deal."
That's not pocket change. As Owen points out, "That could represent hundreds of thousands of dollars, if not more." A few things to keep in mind:
Appraisals have gotten more conservative. Lenders aren't valuing properties as generously as they used to, which can shrink your loan amount.
Terms can shift close to closing. Don't assume your deal is locked in until the funds actually transfer.
Cash reserves matter more than ever. Having extra capital on hand can protect you if a lender asks for more down.
What This Means If You're Refinancing
If you're planning to refinance out of a deal, it pays to know your numbers cold. Owen puts it simply: "Just be really comfortable that you understand your numbers well."
That means going beyond a rough estimate. Know your property's income, expenses, and current market value in detail before you approach a lender. This gives you a stronger negotiating position and less room for surprises.
Make Sure Your Lender Understands the Plan
Communication with your bank matters just as much as the numbers themselves. Owen warns that you want to work with a lender who "understands what the game plan is" so they don't turn around and "require you to bring half a million dollars to closing."
Before signing on with a commercial lender, ask direct questions about their track record with last-minute changes. A lender who's upfront about potential risks is one you can trust to manage your deal.
Moving Forward with Confidence
Underwriting standards have tightened, and appraisals have grown more cautious since interest rates spiked in 2022. Investors who understand their numbers and communicate clearly with lenders are in the best position to avoid last-minute financial curveballs.
If you're gearing up for a refinance or a new commercial deal, take the time to review your numbers thoroughly and choose a lending partner like Liquid Lending who's transparent from day one. It's the best way to keep your investment plans on solid ground.