How To Get A Commercial Mortgage Today
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A loan in which real estate is used as collateral - a guarantee
that the loan will be repaid and on time - is usually called a
commercial mortgage. While it is much like a residential
mortgage, the difference is simply that the collateral and the
building purchased with the mortgage is used for commercial
rather than residential purposes.
A loan would be considered a commercial mortgage if, for
instance, an entrepreneur were moving from his home office to a
storefront retail, office or warehouse location due to the
growth of her business.
If, however, she simply wanted to expand her home office by
another few feet and needed a mortgage loan to do so that loan
would probably be considered a residential rather than
commercial mortgage.
Another difference between a commercial mortgage and a
residential mortgage is how the financial institution looks at
the ability to pay the loan. The okay for a residential
mortgage, as well as the rate, are determined by the borrowers
financial situation - her or his credit history, and current
ability to repay the debt.
When considering a commercial mortgage, however, a lender would
look at the value and quality of the property being purchased by
way of that commercial mortgage, and its ability to bring in
revenue.
Rental property in a market that is glutted would be looked on
less favorably even when the borrower has sterling credit than
a mortgage for commercial rental property in a town that has a
scarcity of rentals and people moving in all the time.
Even if the borrower had less than perfect or even some bad
credit, he or she would be favored over that person with
perfect credit in the town that doesnt bode well for full
rental occupancy.
Commercial mortgage loans are charged a considerably higher
rate of interest than are residential mortgage loans. These are
nearly always fixed rate loans, however, which means that that
borrower pays the same interest rate throughout the life of the
loan.
There are some capped or variable rate commercial mortgage
loans, but theyre not in the majority.
If you are an experienced home owner and mortgage borrower that
is just setting out to secure a commercial mortgage for the
first time you may be unpleasantly by how much more complicated
and time consuming the commercial mortgage process is than its
residential counterpart.
That is because the legislated guidelines require lenders to
rely on the propertys stability and income history as a means
of determining its potential for future profit. It is only
after this revenue potential has been determined to be
promising that the credit history, financial strength and
assets of the commercial borrower are even looked at.
The commercial mortgage application is extensive enough that
youll probably benefit from working with a commercial mortgage
broker. Youll probably have to provide financial history about
the property and your own situation for the last two years.
The format in which this information must be provided is
generally quite strict and an experienced and knowledgeable
mortgage broker will get you past these commercial mortgage
hurdles and on your way to a great fixed or variable rate
commercial property mortgage.
About The Author: James Copper is a Commercial Mortgage
Consultant for http://www.commercialfinancespecialists.co.uk
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