A commercial property mortgage loan is often secured by the commercial property such as the office building, land, apartment complex, or warehouse. Usually, the proceeds from the rent of these commercial properties are being used to develop or refinance the said property. There is a big difference with the requirements of a commercial property loan mortgage and from that of a residential home loan mortgage. Take note that a mixed used property may also go either way depending on the deciding factor of the bank or lender such as the amount of space allotted to the residence compared to the amount of space allotted to the business. However, most lending companies make the decision for you when it comes to the type of loan you are going to take and they are going to offer on your mixed used property.
Investment property loans are more demanding than the residential home mortgage loan. The appraisals are conducted based on the condition of the property, size, location, and accessibility. With this kind of loan, you need to demonstrate a good business and personal credit record. The lenders would want more demonstration of income and asset documentation after checking our credit history to make sure you have the capacity and the asset to pay off your loan in case of a payment default. Sometimes, the lender would want a proof of the profitability of your business. Commercial estate financing is often times partly based on the value of the business in the future, perceived risk, market conditions, and anticipated returns from the property.
Large down payments
Lenders often ask for larger amounts as down payment because of the risk involve. The average equity is usually about 30 to 45 percent. The rest of the amount will be provided by the lender. This loan to value ratio is the most common percentage used by lenders in commercial lending. Some relationship managers may offer a financing margin of 80% and a repayment of 30 years for commercial and industrial property financing. You will be given the option for a fixed rate, floating rate, or SIBOR rate packages. The property must show a sufficient debt-payment ratio, which is calculated using Net Operating Income/ Total Annual Debt Burden.
What are the other factors to consider?
You need to demonstrate a solid income stream.
Provide a very good profile of the management team.
Provide the building plan and blueprints for the use of the property, if available.
In case of a sole tenant, the sole tenant must be able to demonstrate a solid and sound financial strength. Here, tenants are considered as business.
The features you need to look in the financial statements are, profit, positive net worth, consistent monthly collections, committed paid up capital, and positive cash flow. With a stable business, it seems logical to buy a commercial property than renting it. Sometimes, the mortgage payments are lower than the rent.