Some Important Facts About First Position Commercial Mortgage Notes
In the current low-interest rates ecosystem, coming up with borrower-friendly interest is very difficult. An attractive First Position Commercial Mortgage Notes put the lender in the First Position referring to the lender as the rightful owner of the property and therefore provides security for the lender’s investment.
Commercial Mortgage loans vs. Residential Mortgage loans
Commercial loans are by far different from residential loans. When it comes to residential loans the lender inquires of the borrower’s financial history over the past two year – in terms of credit history, tax returns, and bank statements. The loan majorly focuses on a borrower’s ability to make monthly payments on the loan. Whereas in commercial loans, the lender observes the property and check whether the business will be able to pay the loan from it daily operations. The lender will request for copies of the companies two-year trading history. In that way, the lender will calculate the debt-to-service ratio in order to figure out if the property can cover the loan.
Commercial loans require borrowers to have reputable credit and financial history for them to qualify. However, the lenders always stress more about the property’s ability to pay the loan other than the borrower’s financial situation. Unlike residential loans where the main focus is the borrower’s financial ability and not the property in question.
Sources for Commercial Mortgage loans.
- Portfolio lenders – they include banks, credit unions and other financial institution that provide commercial loans
- Government agency lenders –companies that are authorizes to provide commercial loans. These loans are always funded by the government.
- Insurance companies – these companies are regulated hence making them flexible to provide loans outside the traditional loan lending norms.
- CMBS lenders – they issue CMBS loans. In case of a default, the mortgages are trusted.
- Private and Hard money loans – these are loans that are given to an individual who has bad debts and cannot qualify for traditional loans. They are given at higher interest and are more expensive than other loans.
- SBA loan – these are for borrowers who want to buy space for their own businesses – to operate in.
Commercial loans are mostly non-resource since the property is used as collateral hence the individual is not liable for pay the loan in case of a default.