Commercial Loans

Commercial real estate loans, also known as business mortgage loans, are used to purchase or refinance commercial properties such as offices, warehouses, and retail spaces. These loans are different from residential mortgages in that they are used for income-producing properties and typically have different underwriting standards and terms.

The process of obtaining a commercial real estate loan typically begins with the borrower submitting a loan application, including information about their credit history, income, and the property they wish to purchase or refinance. The lender will then review this information and order an appraisal of the property to determine its value and potential income. Based on this information, the lender will then make a decision about whether to approve the loan and at what terms.

Commercial real estate loans typically have a longer term than residential mortgages, with terms ranging from five to 25 years, and are available in both fixed and adjustable-rate options. They may also require a larger down payment, typically ranging from 20% to 30% of the purchase price. The interest rate on commercial real estate loans may be slightly higher than on residential mortgages, and borrowers may also be required to pay points, or a percentage of the loan amount, as a loan origination fee.

Commercial real estate loans can be used for a variety of purposes, such as purchasing an existing property, refinancing an existing loan, or making improvements to the property. The loan terms and the amount of money a borrower can borrow will depend on factors such as the borrower's creditworthiness, the value of the property, and the projected income from the property.

Generally, interest rates for commercial real estate loans are higher than for residential mortgages. This is due to a number of factors, such as the fact that commercial properties tend to be larger and more complex, and the income generated from commercial properties is often more difficult to predict and stabilize. Additionally, commercial real estate loans tend to have longer terms, which means that the lender is exposed to more risk over a longer period of time.

Another factor that can contribute to higher interest rates is the type of property being financed: the interest rate may be higher for more specialized properties such as hotels, gas station, or self-storage, due to the particularities of each type of property and they may entail more risks.

The creditworthiness of the borrower, the loan-to-value ratio and the amount of the down payment are other factors that influence the interest rate of a commercial real estate loan, these may vary from lender to lender, and from one project to another. It's also common for commercial real estate loans to have higher closing costs, points, and origination fees than residential mortgages, which can also contribute to the overall cost of the loan. It's important for us to shop around  with you and compare offers from different lenders to get the best rate possible.

Some ccommercial real estate loans have balloon features, which means that they are structured with a lower monthly payment during the loan term, but a final, large payment is due at the end of the loan term.  This is known as the "balloon payment". This final payment can be significant and the borrower may need to refinance or pay it off in full.

Commercial real estate loans with balloon payments can be useful for borrowers who expect to have a significant increase in income or to refinance the property in the future, as it allows for lower payments in the short term, but the trade-off is that a large payment will be due at the end of the loan term. Balloon commercial loans can also be useful for borrowers that want to take advantage of low-interest rates but are not sure if they will be able to refinance the property in the future.

When considering a commercial real estate loan with a balloon payment, it's important to make sure that you will be able to afford the balloon payment when it is due, or that you will be able to refinance the loan before the balloon payment is due.  It's also important to be aware that some lenders may require a balloon payment, while others may not. 

It's always a good idea to consult with a commercial loan specialists at Jake Taylor Mortgage before making a decision to make sure that this type of loan is the right fit for you and your business.

It can be more difficult to obtain a loan for commercial real estate compared to a loan for a residential property. The approval process for commercial real estate loans is often more stringent and the requirements for borrowers can be more demanding. This is because commercial properties are typically larger and more complex than residential properties, and the income generated from commercial properties is often more difficult to predict and stabilize. Additionally, the risk for the lender is also considered higher.

Commercial real estate loans usually require larger down payments, typically ranging from 25% to 40% of the purchase price. Lenders may also require additional documentation such as financial statements, business plans, or property appraisals, and may have stricter credit score and debt-to-income ratio requirements.

However, it's not impossible to get approved for a commercial real estate loan, the approval process depends on several factors such as the creditworthiness of the borrower, the loan-to-value ratio, and the cash flow of the property. Additionally, the type of property, and the intended use for the property may have an impact on the loan approval, some lenders may specialize in specific types of commercial properties. With a solid plan and a good credit history, it is possible to obtain a commercial real estate loan, but it may take more effort and time than obtaining a residential mortgage loan.