Commercial Real Estate Loans

Depending on the type of commercial real estate you own and whether your business is operating out of the property or not creates a varying levels of risk. As such the rates, qualifications, terms and conditions for each commercial real estate mortgage will vary greatly. In general the properties with the least amount of risk are owner occupied and or residential properties.

Multi-Family Apartment Mortgages

These are the most stable and least risky commercial real estate loans. With loan to values up to 75% for conventional agency (FNMA) loans and rates slightly higher than residential loans a real estate investor can find a good loan and good cash flow buying and holding apartment buildings. The larger the loan the better the terms. Many lenders will not offer agency apartment loans under $750,000. This means the property must be worth at least $1,000,000.00. But there are some good portfolio programs available for smaller loans typically through local banks or correspondent commercial mortgage lenders. Even private lenders like multifamily properties of 5 units or more. Again the best rates are for the larger units. In general the best rate programs have tighter underwriting guidelines and specifically want those properties with the greatest cash flow. Therefore the highest income to debt ratios get the best rates.

For apartment loans over $5,000,000.00 FHA is the best program available. They take longer to close, but the 4 to 6 month process is worth the wait. With the lowest fixed rates on the market and loan to values up to 85%, a borrower can get a 35 year fixed rate mortgage lower than many 5 to 10 year balloons on other properties. These rates can even be below conventional residential mortgages.

Mixed Use

The next in the line of risk are mixed use properties. These are properties that have a combination of residential and commercial uses. The type of business and percentage square footage used for residential or business affects the rate. If the property is occupied buy the business of the owner they may qualify for SBA 504 financing. This is another government backed program with below market rates. The best rates and terms are for loans over $500,000.

Special Use

As the name implies the properties have a special use and depending on what that is would determine the risks and therefore the rates, terms, and qualifications. A bar, restaurant or gas station has a much greater risk than many other types of properties. From this point there are a myriad of different types of commercial properties like office buildings, industrial, hotels and assisted living, etc. Each has a different risk, rate and qualifying terms.

Loan Purpose

Purchase, refinance, construction, rehab, etc. Each type of loan also comes with different qualifications. I say all this to tell the consumer, in commercial real estate financing their are so many variables it is hard to quote a rate without fully understanding the type of properties, its use and the purpose of the loan. All these factors determine rates and terms. In residential lending the property is important, just like the buyer and there ability and willingness to repay the loan. In commercial financing the credit is important as well but the collateral has a great bearing on the qualifications and rate and terms. So if a Commercial loan officer asks a lot of questions before they commit to a rate and terms, you know why.