Commercial Mortgages: Types, Timeframes, Qualification Criteria & InsuranceAdmin
With a commercial mortgage, a loan is taken out for a commercial property, as opposed to a residential property. The commercial property is used as the collateral. Credit history assessments are typically more complicated with a commercial mortgage, and you can expect rates to be a bit higher as well since there is more risk involved.
Types of Commercial Properties
Commercial properties can fall into a few different classifications, and it’s important to understand what type of commercial property your financing. You can even finance residential property under a commercial mortgage, so long as it’s purchased as an investment property. Here are the three categories that residential investments can fall into:
- Residential property with 1 – 4 units
- Residential property with 5 or more units
- Mixed Commercial Residential
If you’re hoping to finance an industrial property, office or retail space, these would also fall under a commercial mortgage.
With residential mortgages, closing timeframe expectations can be anywhere from 14 days, up to 90 days. However, a commercial mortgage can take from 60 days, up to one year.
Commercial Mortgage Criteria & Insurance
Commercial mortgage criteria, terms, and conditions may differ, making it harder to compare commercial mortgage rates. Therefore, we advise you obtain professional assistance from a qualified mortgage broker. Commercial mortgage brokers have access to lenders who specialize in industrial, office, rental properties, and retail areas.
These lenders will complete an assessment to determine the property risk involved. The level of risk usually increases for residential commercial mixed properties. For instance, a store with an apartment above. If the business space is larger than the residential space, the risk will be greater, although commercial properties alone are typically riskier since prepayment depends on the success of the business.
Here are more specifics on the criteria you’ll have to meet:
- Lenders will evaluate how much money you have available for the required loan payments, this is also known as the debt service coverage ratio. They will apply a loan-to-value (LTV) ratio and their expectation will be for you to invest some of your own money as well.
- As a general requirement, you should have a good credit history. This means you both your personal and business credit scores should be in a good position. However, there are certain lenders that will accept borrower with a moderate credit history.
- If your business is in operation, it should be profitable as well. You’ll need to be able to provide proof, which may include your business plan and financial projections. This will prove to lenders that you can make your payments on time. Depending on the lender, you may also be required to have a minimum net worth between 100 to 200K.
- Your commercial mortgage terms may vary depending on the type of business you’re investing in. Business property types can be complex areas to understand, so it’s best to hire a mortgage specialist to advise you.
- If you’re purchasing your first commercial property, know that your down payment will be higher. If you’re purchasing a mixed property, you could be looking at between 20 and 35 percent. However, if you’re buying a pure commercial property you’ll have to come up with about 50% for your down payment. Your risk profile is a direct determination when your down payment requirement is determined.
When it comes to commercial properties, insurance can also be another complication process to understand. For example, the Canadian Mortgage Housing Corporation (CMHC) will not insure a pure commercial property, but they might ensure on that is mixed (both residential and commercial), with a lower down payment in the range of 15 and 20 percent.
Are you in need of some commercial buying advice, or looking to have your questions answered? Contact Mortgage Alliance professionals for expert advice and answers.
To know more details about Commercial Mortgages Mississauga just click on the given link!