Important Facts About Commercial Mortgages

Today, commercial property has become an inevitable part of people’s life. Almost everyday people visit some or the other commercial property to do everyday tasks like work (job), shopping, eating out, watching a movie, getting appointments, etc. But then also many people have very less knowledge about commercial mortgages.

The different commercial properties may include multi-family buildings, office buildings, warehouse, retail centers, multiple-use properties, box buildings with single tenant (like McDonald’s or Home Depot), and special purpose properties (like schools, churches, car washes, gas station, etc.). To get mortgage for a commercial property is very different from that of a residential property. Here are some facts which a borrower looking to get commercial mortgage should know:

Personal Financials and Robust Credit History

While applying for a residential mortgage, you are required to fulfil basic requirements like prior tax returns of 2-years, recent pay slips and latest bank statements, whereas in commercial mortgage situation, the first thing a lender will review is the ability of property to repay the loan with its everyday operations. Then the following documents will be asked by lender:

  • Property’s rent roll copy.
  • Supplementary income sources.
  • Operating history of previous 2 years with year-till-date information.
  • Current capital improvements.
  • Photos of property internally and externally.
  • Mortgage statement (current).
  • Purchase contract (if any).

On the basis of this information, the lender will do a DSCR (Debt Service Coverage Ratio) and determine whether the financials of property can support the finance requested. Despite of all such information, many lenders make it hard for borrowers to get commercial mortgage but lenders like have very flexible policies to help the borrower in every possible way.

Various Sources of Commercial Mortgage

There are various sources to get commercial mortgage. They are:

  • Portfolio lenders
  • Government agency lenders
  • CMBS lenders
  • Insurance Companies
  • SBA loans
  • Private money

Non-Recourse or Recourse

Commercial mortgage can be both, either non-recourse or recourse. It means that a lender (in case of non-recourse commercial loan) can’t collect what they owe beyond possessing the underlying collateral. On the other hand, a recourse loan holder is personally responsible for the borrowing of commercial mortgage.