Getting a mortgage of any type is a complicated endeavor, but commercial mortgages have a few differences that every borrower should be aware of.
Whether you’re looking to purchase a location for a business or you’re in the market for an investment property, these mortgages have a unique set of requirements.
Read on to discover five things you should know about commercial mortgages before you apply.
1. Expect a Large Down Payment
Standard loans may require borrowers to put as little down as three-percent. However, commercial mortgages typically ask that you put a sizeable amount of money down on the property.
Even if your credit score is outstanding, you’ll likely need to shell out at least 15 to 30% down on your mortgage. Ask your lender what their commercial loan requirements are for down payments before applying.
2. Commercial Mortgages Charge Higher Fees
When you apply for a commercial mortgage, the cost for things like an appraisal is significantly higher than the standard mortgage. Everything from title searches to attorney’s fees will be more than a traditional loan.
Ask about a good faith estimate for the property you’re interested in buying. This paperwork will show you exactly what you should expect to pay in terms of fees and closing costs.
3. There Could be a Minimum Loan Amount
As you’re browsing for commercial property to buy, it’s good to know what your minimum loan amount will be. Keep in mind, this amount is the total you’ll be paying back and doesn’t account for the down payment.
If the property is on sale for a great price, you should ask what the minimum loan amount and commercial loan requirements are before making an offer. Many lenders set this price at different levels, so shop around to find out more.
4. Check on Your Reserves
Some lenders consider commercial mortgages to be higher risk, which means they’ll expect you to have some money in reserves. For most of these types of loans, the bank will ask that you have at least six months’ worth of mortgage payments sitting in the bank.
Check the commercial mortgage terms and your finances to see if you’ve got the cash for both a down payment and reserves. If not, you may need to wait a bit longer until you have the money you need to get approved.
5. It May Take Longer to Close
The average timeframe to close on a mortgage is around 46 days. However, a commercial loan can take significantly longer.
Commercial mortgage lenders will need to review all of your paperwork, credit, and financials before the loan is underwritten. This commercial loan process is time-consuming and takes quite a lot of work, which means your time to close could extend to 90 days or longer.
Find the Right Commercial Loan for You
Now that you’re familiar with the nuances of commercial mortgages, you’ll be prepared when it’s time to apply. Get your finances in order and be ready to pay more for fees, down payments, and other costs to get the loan secured.
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