Commercial mortgages are loans which are taken for commercial purpose by pledging another property as security for the repayment of the loan, which can be fortified in case of any default. Here, the borrower is generally a company or a person running a business either in a partnership or single-handedly. The interest rates
will relatively be higher in commercial mortgages as compared to residential rates due to the higher risk factor involved in this.
Types of Properties
There are a variety of properties that come under commercial properties. They are mainly classified under 3 categories
- Pure residential, 1-4 units
- Pure residential, 5 or more units
- Residential commercial mixed
If you are looking to finance an industrial property or an office you can consider a commercial mortgage.
Residential mortgages generally close within 90 days. Commercial mortgages comparatively come with a longer time frame. The expected time frame for commercial mortgages is somewhere around 60 days to 1 year.
Types of commercial mortgages
- Construction Project
- Industrial Mortgage
- Farmland Mortgage
- Office Mortgage
- Commercial plaza mortgage
- Multi-family residential mortgage of 1-4 units
- Multi-family residential mortgage of 5 or more units
- Storefront with the apartment/residential commercial
The interest rates may vary and the terms and conditions may also vary to a great extent. So it is advisable to procure the services of a commercial mortgage broker or an agent who deals with commercial properties and can connect you to the lenders in the area of your choice.
You can qualify for a commercial mortgage, by satisfying the following criteria. The criteria are set quite high as the risk is also very high in a commercial mortgage. It is always advisable to seek the services of specialist or solicitor as the terms and conditions of commercial mortgage is quite complicated.
- Type of Business
The commercial mortgage depends on the type of business or the property you want to purchase.
- Credit History
It is very important to have a good credit history to qualify for a commercial mortgage. Most of the money lenders will check whether you have a good personal credit history and whether your business is creditworthy. So it is very important to maintain a good credit history to procure credit from the money lenders.
- Debt Service Coverage Ratio
Most lenders apply loan-to-value ratio and you are also required to invest some money to purchase the property.
- Current Business Situation
The moneylender also checks whether your business is steady and running profitably.
- Down Payment
You may need to pay a higher down payment.
So these are the few points which you need to consider while looking for commercial mortgages. Just remember the terms and conditions of a commercial mortgage is complicates as compared to a residential mortgage. In case of any doubts, you can always hire a commercial mortgage broker to ease the whole process.