A commercial mortgage is a loan used to purchase commercial real estate. The property is pledged as security or used as collateral in exchange for the funding. Commercial mortgages can be used to purchase a variety of properties, including retail outlets, offices, hotels, and residential buildings to be used for business purposes. If you want to buy a residential property for investment purposes, you may need to apply a commercial loan in Abbotsford for it.
When it comes to using a residential real estate for commercial usage, the below given property types are available, each of which has an impact on the type of financing available.
- Residential (1-4 units) for commercial
- Pure residential (5+ units) for commercial
- Residential commercial mix property
If you are considering applying for a commercial mortgage, it is critical that you understand the sort of property you will be acquiring because it will affect the financing you are eligible for.
How To Qualify For A Commercial Mortgage?
Qualifying for a commercial mortgage in Abbotsford may involve a slightly difference process from the residential mortgage. Therefore, it is important to make sure whether you want to buy a residential property as an investment property for commercial use or directly buying a commercial building. Since you cannot use a property that is backed by a commercial mortgage for residential use, it’s better to make the right mortgage choice before applying.
Since many real estate mortgages are obtained by businesses, lenders frequently need a breakdown of how stable and successful the business is. Make sure you have a plan for lender that clearly depicts your detailed company plan, growth estimates, and financial statements before they agree to provide the funding. It is also logical to believe that business owners with a good credit score are more likely to get approved for a large commercial mortgage.
What’s Involved In A Commercial Mortgage Process?
Lenders frequently evaluate two ratios when qualifying a borrower:
- Debt service coverage ratio: A debt service coverage ratio considers the amount of cash a borrower has available to make the needed loan payment.
- Loan-to-value ratio: A loan-to-value ratio compares the mortgage’s value to the property’s worth. Many commercial properties will have a loan-to-value ratio ranging from 55% to 70%, which is lower than the average property LTV ratio.
Finally, commercial mortgages have various repayment structures. A borrower has two options: an amortizing loan with terms or a balloon payment which requires the borrower to pay the remaining sum, refinance, or sell at an agreed-upon date. Although commercial mortgages are typically more difficult to qualify for, they are within reach for many business owners. Even if you are not a good fit for banks or other traditional lenders, private lenders will allow you to apply.
In case, you are looking for reliable mortgage brokers in Abbotsford to help you with commercial mortgages, rely on none other than Sandhu & Sran Mortgages. With years of experience in the mortgage industry, we can find out a competitive mortgage deal at the best rate possible.