CRE Refinance Cash-In Gap: Reconcile the Cash Needed at Closing

Calculate a CRE refinance cash-in gap by reconciling the new loan's funded proceeds with the dated existing payoff, fees, required reserves and other closing uses. Show gross and net proceeds separately, count each use once and identify prior payments. A maximum loan amount is a sizing result, not a confirmed amount available to repay the old debt.

Start with the quote and the payoff on the same date

Record the lender, quote version, expiry, conditions, proposed closing date and funded amount. Keep a preliminary sizing calculation separate from an approved commitment. A quoted facility may also include amounts that are not funded at closing; identify those separately instead of treating the full commitment as immediately available cash.

Obtain the existing lender's payoff statement for the intended date and preserve its components. The outstanding principal on a historical statement may omit accrued interest, charges or other amounts needed to release the debt. Do not invent those components when the current payoff is unavailable.

The OCC's October 2024 refinance-risk bulletin explains that refinancing risk concerns a borrower's ability to replace debt on reasonable terms under prevailing conditions. That is broader than a rate comparison. This worksheet focuses on one part of the review: the cash required to complete the proposed transaction.

Carry the binding loan constraint into the proceeds bridge

The debt-yield guide explains one sizing constraint. Here, the important handoff is from the lender-defined constraints to a single funded amount that the closing bridge can use.

Trepp's Loan Sizing 101 describes how LTV, DSCR and debt-yield tests can limit proceeds. Apply only the tests and definitions relevant to the actual lender and product. A simplified minimum-of-three calculation is useful for a teaching example; it does not reproduce every program condition.

All figures, terms, dates and documents in this example are fictional. They are not current lending terms, a valuation, a commitment or financing advice. The exercise assumes $480,000 of accepted annual NOI, an $8,000,000 value and these stipulated constraints:

The mortgage constant here means annual debt service divided by the loan amount. It is a supplied exercise assumption, not an interest rate. Debt yield is the binding test, so the example uses $4,800,000 of gross proceeds, all assumed funded at closing. Actual cash-flow definitions, amortization, reserves and lender adjustments must be established for a real quote.

Show the $530,000 gap in two equivalent views

The fictional dated payoff is $5,100,000. The new lender charges 1% of the gross loan, or $48,000. It requires $150,000 of initial reserves, and third-party closing charges total $32,000. The baseline assumes all these uses are unpaid and due at closing, with no credit, refund or other funding source.

The equivalent net-proceeds view begins with $4,800,000 and subtracts the $48,000 fee, $150,000 reserve and $32,000 charges. It leaves $4,570,000 available toward the existing $5,100,000 payoff. The remaining gap is again $530,000.

Choose one view for the main closing bridge and use the other as a reconciliation. If the $150,000 reserve has already reduced net proceeds, adding it to the payoff side again incorrectly inflates the gap to $680,000. A reserve is a required funding use in this exercise; it is not necessarily a consumed operating expense or a permanent economic loss.

Download the refinance cash-gap practice pack. It includes the fictional quote and payoff notes, sizing worksheet, sources-and-uses rows, scenario answer key and a blank closing reconciliation.

Identify prior payments without hiding the total contribution

Suppose the borrower has already paid $20,000 of the $32,000 third-party charges, and the closing team confirms that payment receives the appropriate treatment. Only $12,000 of those charges remains to be funded at closing. New cash needed on the closing date falls to $510,000.

The borrower has still contributed $530,000 in total across the prior payment and closing. Do not describe the lower new cash requirement as a $20,000 reduction in transaction cost. Record the receipt, paid status, treatment on the settlement statement and any reimbursement terms.

Fannie Mae's Title and Closing Requirements for Multifamily Mortgage Loans requires detailed settlement accounting within its program. Use the actual lender's requirements and the closing team's documents. This exercise is a reconciliation method, not a substitute settlement statement or a universal program checklist.

Stress the proceeds and the payoff separately

In a separate scenario, lower accepted NOI to $450,000 while keeping the stipulated value and constraints unchanged. The debt-yield cap falls to $4,500,000 and remains binding. With the fee still calculated at 1% of the loan, it becomes $45,000. Keep the baseline payoff, reserve and third-party charges unchanged. The resulting gap is $5,100,000 + $45,000 + $150,000 + $32,000 - $4,500,000 = $827,000.

This scenario has no prior payment. Keep it separate from the $20,000 paid-charge example. If the actual closing date moves, obtain an updated payoff and recompute the bridge. A stale payoff cannot be corrected by assuming a generic daily interest amount or an escrow refund arriving in time.

For material open items, show a status and owner: revised quote needed, payoff requested, reserve treatment unconfirmed or invoice pending. The cash-gap output should remain provisional if a material component is missing. It should not show zero merely because an input cell is blank.

Use AI to prepare the reconciliation, then read the documents

Ask the assistant to extract each amount with its source, date, conditions, payment status and location. Require it to separate gross funding, deductions, prior payments and remaining uses. Have it explain why the gross and net views agree and identify any line included in both.

Inspect the documents behind those references and recompute the arithmetic independently. A balanced table can still use an expired quote or the wrong payoff date. The public IC memo walkthrough illustrates the downstream document handoff; keep the reviewed financing case and its open conditions attached to that package.

Use the underwriting model-builder pack to organize the model inputs and review record. The closing cash bridge should make the funding question visible before the team treats a loan-sizing result as a completed refinance.

Frequently asked questions

Is the maximum new loan the amount available for the payoff?

Not necessarily. Identify what is actually funded at closing and any fees, reserve funding or other deductions. Reconcile the remainder with the dated payoff rather than treating the facility headline as unrestricted cash.

How do I avoid counting a reserve twice?

Use either gross proceeds against all uses or net proceeds after specified deductions against remaining uses. A reserve already deducted from net proceeds must not also be added to the remaining payoff requirement.

Does paying a closing charge early reduce the transaction cost?

No. An established prior payment can reduce new cash needed on the closing date while leaving the total charge unchanged. Record the receipt, approved closing treatment and total borrower contribution.

Does the worksheet confirm financing is available?

No. It is a synthetic reconciliation exercise. Actual financing depends on lender approval, current documents, conditions and funding. A calculated gap or an indicative quote does not establish a completed transaction.