Most consumers are familiar with the personal mortgage process but there is more to a commercial mortgage than just a larger dollar amount. Knowing the differences can help you decide if you are ready to apply for this type of loan.
A commercial loan is used to purchase business structures such as office buildings, apartment complexes, health care facilities and retail space. And due to the large size of the property and the large price tag, buyers need a loan to make the purchase just a person gets a loan to buy a house. So there are some similarities to a personal mortgage but a commercial mortgage is also very different in some ways. The similarities are very basic, you need to apply for the loan and you need to provide collateral for the loan but the size and value begin to make the commercial loan more difficult to obtain.
Collateral is what is used to secure a loan, and in the case of a mortgage, it is the property itself which is the collateral. Because commercial property values can fluctuate very rapidly, a commercial loan is most often only offered for around 75% of the property value. This ensures that there is equity in the property if the borrower defaults on the loan and the lender needs to recover their money. This value fluctuation also makes it very critical that there is a very in depth appraisal completed on the property to determine the market value.
In addition to verifying the property value the lenders take a very hard look at the financial situation of the business who is making the purchase. If the company does not have previous commercial loan experience and good credit then the lenders will request the personal financial information from the owners of the business. This is done so that the lender knows that the business owners can guarantee the loan if the business itself fails.
When you apply for a loan you will want to determine if you are looking for a fixed rate loan or a variable rate. This is much like a personal mortgage but the difference is that many commercial loans are offered for a shorter time frame than the personal loans. This means that the amortization is longer than the actual loan and you will be facing a large balloon payment at the end of the loan term.
There can be a lot of important information tucked into the pages of a commercial loan document. You need to be sure that you understand all of the terms of the repayment as well as any caveat for early repayment or default. You will also want to understand the personal implications if the business fails and is unable to repay the loan. Having a complete understanding of the basic process will ensure that you can manage your expectations and make a successful commercial real estate purchase.
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
Technorati Tags: commercial mortgages,commercial loans,commercial lender,commercial hard money lenders texas,commercial mortgage Texas,commercial loan Texas,commercial mortgage Arizona,commercial loan Arizona