| Need Assistance? 1-866-597-HALO 1-866-597-4256 |
Commercial Loans...
| We specialize in small balance commercial loans up to five million dollars. These loans can include all of the typical types of commercial properties, such as retail centers, industrial buildings, and warehouses. We can also assist you with the rare types of commercial loans, such as churches, gas stations and special use buildings. Whether you are a seasoned investor or just getting started, we can help. Contact us today to take your commercial project or refinance to the next level. |
| Need Assistance? 1-866-597-HALO 1-866-597-4256 |
 | |  | |  | |  | |  |
| • Refinance • Purchase Real Estate • Lower your bills • consolidate debt • Get cash out • Credit improvement • Expand your business |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
 | |  | |  | |  | |  |
 | |  | |  | |  | |  | |  | |  | |  | |  | |  | |  |
The Basics of a Commercial Mortgage
Making the leap from personal real estate to commercial real estate can
be daunting. Learning the key financing differences can prepare you for life
as an investor.
Many single family homeowners want to make the leap into commercial
investing but have no idea where to start. Financing can be the most
daunting part of this endeavor. While an apartment is very much like
several tiny homes, a commercial mortgage is vastly different from owner
occupied financing.
The Standard Commercial Mortgage: Debt Coverage Ratio
Commercial financing is based on the income of the property not the
owner. Most of the time the underlying property will produce more than
enough cash to cover the mortgage payments. Banks typically require the
property to produce 1.1 to 1.25 x the monthly mortgage payment. For
example, if the mortgage payment on the property is $1,000 per month,
the property should be producing after all expense are paid at least
$1,100 to $1,250. This math makes it much easier for borrower to qualify
for commercial financing because credit scores are typically not an issue
(unless they are abnormally low).
The Standard Commercial Mortgage: Loan to Value
Unlike most residential loans, commercial loans typically require the
borrower to put 20% down. While it is possible to get away with 10%
down, the interest rate on these loans is anywhere from 4% to 6% higher.
This can often prove to be a large hurdle for would be investors. Several
ways to get around this are equity partnerships and personal loans.
Typically second loans are not done on commercial properties because of
the risk in the deal. This is in contrast to many homeowners, who might get
a second loan to avoid paying Private Mortgage Insurance.
Also, note that this article is discussing the “standard” commercial loan.
While it is technically possible to get no money down loans, these
financing vehicles are the exception. They typically come with a very high
interest rate and require a personal guarantee. These financing vehicles
should be reserved for people who are seasoned investors or who are
pursuing a very aggressive rehab.
The Standard Commercial Mortgage: Loan Term
The typical loan term for commercial mortgages is a 10 year loan with a
30 year amortization period. Essentially, this is the same as a 30 year loan
with a requirement that the loan balance of the loan be paid off in 10
years. The payments would be the same as a 30 year loan because of the
amortization schedule, but the borrower would need to refinance or sell
the property at the 10 year mark.
The Standard Commercial Mortgage: Prepayment Penalties
If you sell your personal residence, you can simply pay off the balance of
the mortgage at that time. Commercial loans have deescalating
prepayment penalties. The fee might be 5% of the loan the first year, 4%
the second year, and so on, with no penalty after year five. This is
important because it dictates how long your holding period for an
investment will be because it is usually no a good idea to sell before
prepayment period has ended.
Making the leap from a personal residence to commercial property can be
scary and exciting. Having the facts before you apply for a loan can take
some of the fear away.
Making the leap from personal real estate to commercial real estate can
be daunting. Learning the key financing differences can prepare you for life
as an investor.
Many single family homeowners want to make the leap into commercial
investing but have no idea where to start. Financing can be the most
daunting part of this endeavor. While an apartment is very much like
several tiny homes, a commercial mortgage is vastly different from owner
occupied financing.
The Standard Commercial Mortgage: Debt Coverage Ratio
Commercial financing is based on the income of the property not the
owner. Most of the time the underlying property will produce more than
enough cash to cover the mortgage payments. Banks typically require the
property to produce 1.1 to 1.25 x the monthly mortgage payment. For
example, if the mortgage payment on the property is $1,000 per month,
the property should be producing after all expense are paid at least
$1,100 to $1,250. This math makes it much easier for borrower to qualify
for commercial financing because credit scores are typically not an issue
(unless they are abnormally low).
The Standard Commercial Mortgage: Loan to Value
Unlike most residential loans, commercial loans typically require the
borrower to put 20% down. While it is possible to get away with 10%
down, the interest rate on these loans is anywhere from 4% to 6% higher.
This can often prove to be a large hurdle for would be investors. Several
ways to get around this are equity partnerships and personal loans.
Typically second loans are not done on commercial properties because of
the risk in the deal. This is in contrast to many homeowners, who might get
a second loan to avoid paying Private Mortgage Insurance.
Also, note that this article is discussing the “standard” commercial loan.
While it is technically possible to get no money down loans, these
financing vehicles are the exception. They typically come with a very high
interest rate and require a personal guarantee. These financing vehicles
should be reserved for people who are seasoned investors or who are
pursuing a very aggressive rehab.
The Standard Commercial Mortgage: Loan Term
The typical loan term for commercial mortgages is a 10 year loan with a
30 year amortization period. Essentially, this is the same as a 30 year loan
with a requirement that the loan balance of the loan be paid off in 10
years. The payments would be the same as a 30 year loan because of the
amortization schedule, but the borrower would need to refinance or sell
the property at the 10 year mark.
The Standard Commercial Mortgage: Prepayment Penalties
If you sell your personal residence, you can simply pay off the balance of
the mortgage at that time. Commercial loans have deescalating
prepayment penalties. The fee might be 5% of the loan the first year, 4%
the second year, and so on, with no penalty after year five. This is
important because it dictates how long your holding period for an
investment will be because it is usually no a good idea to sell before
prepayment period has ended.
Making the leap from a personal residence to commercial property can be
scary and exciting. Having the facts before you apply for a loan can take
some of the fear away.