Commercial Mortgages
Mortgages do not only apply to single-family housing. In fact, commercial mortgages exist to help new and/or existing business owners and investors purchase commercial properties such as office buildings, malls, warehouses, or multi-family housing units. EZ Lending Solution can help you acquire the commercial mortgage you need to reach your goals.
The primary difference between a conventional and commercial mortgage is the means of qualification. The borrower qualifies a conventional mortgage with his or her credit score, income, debt-to-income ratio, and other factors. These factors and qualifications ensure that the borrower has the creditworthiness and financial ability to uphold the terms of the mortgage and make his or her payments on time. With a commercial property, the building and the income it can generate is what qualifies the mortgage. As such, the application process is very different.
Lenders consider the following when qualifying a commercial mortgage:
Occupancy Rates
When buying a multifamily building, lenders generally allow a vacancy factor of 5% or more, but some refuse to lend on properties below a certain threshold. This means that if you are purchasing an apartment complex, the number of occupants is important to the lender because those occupants will aid in generating the income needed to repay the loan.
Lease Terms
Lenders tend to view longer leases (applicable to multifamily properties)
as a sign of financial stability.
Net Operating Income
This term is used to define all the income that the property will produce minus capital repayments, depreciation, and interest paid. In other words, the lender wants to know how much revenue you can generate by purchasing the property.
Debt Service Coverage
Debt service coverage is the ratio by which the net operating income exceeds the amount of your mortgage payments (principal plus interest). Ideally, this rate should be around 1.25, though some will provide mortgages for rates as low as 1.00.
Commercial loans can cover many different types of properties for many different reasons, whether you are purchasing a small commercially zoned building to open a boutique or you want to acquire a massive warehouse to expand an existing business. No matter what your goals might be, EZ Lending Solution is here to help.