Commercial mortgages compared to residential mortgages.

When you get conventional financing for residential loans a major part of the underwriting is the credit and income of the borrower. Naturally the value of the property is important. But the borrower is more important. This is not true with a "hard money" equity based loan. These are usually available with a maximum Loan to Value of 65 to 70%. (This if the house is worth $100,000, a 65% Loan to Value loan , LTV, would be $65,000).

The situation is reversed for commercial income producing loans. The focus here is on the property, the income it produces and the credit worthiness of the tenant. In fact, many commercial loans are non-recourse to the borrower. This means that the property is the sole security for the loan. This excludes certain issues like fraud by the borrower, environmental problems and so on.

This is especially important with a single-use property or single tenant facility. Public companies are looked upon more favorably than private companies of the same size and financial strength.

A single use property could be a fast food franchise or even a school or church.  Questions the loan underwriter will have will include: 

A multi-tenant apartment building is obviously easier to re-rent than an empty Wal-Mart® store. 

We have a FREE Microsoft Excel ® program available for download to analyze income properties. It is a compressed file. Just make a note of where you save it. It will decompress automatically when you double-click on it. Click here. 

You can also download our FREE Microsoft Excel ® spreadsheet to calculate the occupancy breakeven point on commercial properties. It is a compressed file. Just make a note of where you save it. It will decompress automatically when you double-click on it. Click here. 

When developing a commercial property it is quite common to get a short term loan to fund the property acquisition and the construction followed by permanent long term financing once the property is leased.

Construction Loans

Conventional commercial lenders like to see a CASH investment by the developer of at least 20% of the project value. They typically are not swayed by stories like, "I bought this land last year for $1 million but it is now worth $3 million." The cash investment requirement could be a cash investment by the developer in buying the land.

To learn more about commercial lending, order the book "Real Estate Finance and Investment Manual" from our bookstore. Click here.

Larger commercial loans are often funded by life insurance companies or by Commercial Mortgage Backed Securities. These loans are packaged by Wall Street specialists and are often broken down into packages of income stream.

For more on loan securitization, click here.

Free info on mortgage investments, private mortgages, hard money mortgages, discounted mortgages, seller financing.

Mortgages, owner financing, deeds of trusts, discounted mortgages, seller financed mortgage, hard money mortgage

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