A commercial mortgage is a loan that is taken out on a business property. This may be a rental property, or it may be a property such as a storefront or industrial space. In some ways, commercial mortgages are similar to residential mortgages in that they are loans against collateral. In other words, the lender has the option of foreclosing on the property if the borrower defaults.
Commercial mortgages differ from residential mortgages in that the criteria for borrowing is stricter. The following are some of the basic criteria for a commercial mortgage.
- Debt service coverage ratio – this is how much cash you have available to make the mortgage payments and it is one of the main factors that lenders will consider before they grant you a commercial mortgage.
- Credit history – most lenders will want to see that you have a good credit history although if your credit is less than perfect, your mortgage broker may still be able to find you a suitable lender.
- Current business situation – the more profitable your business is, the more lenders will be willing to lend you for a commercial mortgage. Some lenders may require you to provide a business plan or proof of liquid assets.
- Type of business – different types of businesses often require different documentation. This can get quite complicated, so be sure to consult with your mortgage broker on any requirements that are specific to your type of business.
- Down payment – typically for a commercial mortgage, you will require a higher down payment than you would for a residential mortgage. If the property is a mix of commercial and residential, a typically down payment might be 25-30%. For a property that is completely commercial, the lender might require a down payment of 50%
How can I find the best commercial mortgage?
As you can see, commercial mortgages can be quite complex compared to residential mortgages. For this reason, it is recommended that you seek out the assistance of a professional mortgage broker who can compare the rates and terms of various lenders to help ensure that you find the right commercial mortgage for your situation.
If you are interested in learning more about commercial mortgages or are interested in applying for one, contact Akal Mortgages today.
When we say YES! We stand behind our promise.®™