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Commercial Property Loan How to get it Approved
Commercial Property loan is obtained through several basic requirements that are somewhat different from the residential mortgage loan requirements.
When you invest in a piece of commercial estate, you generally have to take out a mortgage to pay off the cost, just like with a residential purchase. Yet, the factors determining whether or not you will be approved for an investment property loan are somewhat different and the requirements are more demanding. Commercial mortgage lenders will look at several financial aspects including a property appraisal, a credit check, the down payment, and the Debt Service Coverage Ratio.
A property appraisal is required to determine the market value of the commercial building and accompanying land. The appraisal keeps the lender from inadvertently loaning you more money than the real estate is worth, thereby reducing the risk of loss for the lender. Appraisals are also conducted during residential home purchases, but the price-deciding factors are different. A commercial property’s value is based not only on the condition of the roof, the plumbing, and other systems, but also on the size, location, and accessibility of the place.
With an investment property mortgage loan, you will also need to demonstrate a good credit record. Of course good credit is a plus in residential mortgages, but because commercial properties generally cost much more than the residential properties, the credit requirements tend to be more stringent. In addition, checking your credit history and score, lenders will want plenty of income and asset documentation to make sure you will be able to make your mortgage payments. If it is your own business that will occupy the business space, the lender will want the proof of the profitability of your venture.
Down payments are another determining factor in whether or not you will be approved for a commercial property loan. In the residential world, borrowers can often get away by contributing very little and sometimes even nothing up front in the form of a down payment. The big price tags on official and business properties, however, makes lenders very cautious as the risks are much greater. Large down payments are usually required for an investment property mortgage loan, with the minimum being 20 percent of the price. In many cases though, the average seems to be a down payment of 30 to 45 percent. You are then provided with the loan of the remaining amount of the purchase price. The amount you are loaned compared to the actual price is called the Loan to Value ratio (LTV) and is a very commonly used percentage in the mortgage world.
Finally, you will be approved for a mortgage based on the Debt Service Coverage Ratio (DSCR) of the commercial real estate. This is the amount of money the realty generates each month from rents and other fees (the net cash flow) versus the amount of the monthly mortgage payment (the debt service.) This ratio helps lenders to determine how much you can reasonably afford to pay on your commercial property loan each month. Most like to keep the ratio between 1.1 and 1.4. A ratio of 1.4 means that for every dollar you pay in mortgage payments, your property should be generating $1.40. Your revenue would therefore be larger than your debts, and you would theoretically be able to repay your loan.
Certain commercial lenders may have additional loan requirements, which are not listed here, but the basics remain the same for all. Be sure to shop around and ask each lender how he or she determines its approval. You can be competitive in the commercial property loan market by doing your homework and coming fully prepared to the negotiating table.
Acquiring commercial property loan is not an easy task as there are many stringent and basic requirements to be fulfilled prior approval. For detailed information on investment property loan and lucrative commercial property dealings, you can visit, http://www.kiscl.com.
Commercial Mortgage Loans Hard Money Ltv Ratios
Thinking about applying for a private commercial mortgage loan? You should know what LTV or Loan-to-Value ratio you could expect to be approved for.
Keep in mind that private hard money commercial lending is equity based lending. LTVs are much lower than in conventional Lending.
Land 50%
Land loans are much more difficult to get funded today than they were just last year. Many lenders who gladly approved land loans in the recent past shun them now.
Raw land loans are virtually impossible to get now-a-days, but if you have a piece of commercial property that is zoned and approved for development you can expect to be approved for a 50% LTV loan.
Improved Land 60%
Improved land is simply land with buildings on it. If the buildings are in decent shape but are vacant or under-performing an LTV in the 60% range is reasonable.
Income Producing Buildings 65%
Income producing buildings are the favorite assets of the private commercial mortgage lender. If you own, or are lucky enough to be acquiring a building with positive cash-flow, you should be approved for a loan of about 65% of the property value. Maybe a bit more if youre looking for a refinance loan.
Construction 70%
Private development money is quite hard to come-by in this credit market and if you do find a willing lender, be ready for the fact that most hard money construction loans are written for about 70% of the projects cost. The sponsors are going to have to come up with the other 30%.
Privately funded hard money commercial mortgage loans are an indispensable part of commercial real estate lending today. But they dont call it hard money for nothing. Rates start at 10% and go up fast, broker and lender points will be added and the LTVs are usually lower than the borrower would like. When you need one, however, youll be glad hard money lenders are there, ready and willing to write checks.