commercial loans FAQ
Question? How much can I borrow?
As a general rule the most you can borrow against investment
and commercial property is 80%. The only exception is
for owner-occupied business properties that obtain financing
through an SBA (Small Business Administration) loan
program. Some lenders and programs limit maximum Loan-to-Value
(LTV) to as low as 60%-70%. Lite-Doc programs
may limit LTV to as low as 50%-60%. LTV varies by property
type, location, condition, etc. How much you can borrow
depends on the value of the property and the income
stream that it can generate. Lenders want some cushion
built in to the loan for both the value and the income-stream.
Therefore they will lend less than the full value of
the property and will require that the loan payments
be less than the income the property is capable of generating.
Question? Why can't I borrow more than 80% of the property
value?
While many borrowers are used to borrowing as much
as 90%-100% of the cost of a home or even more, commercial
property is different. Lenders consider commercial and
investment property to be riskier and therefore will
not lend as much of the property's value. Commercial/Investment
property is subject to wider fluctuations in value,
more environmental contamination issues and higher default
rates than residential property. Borrower's are generally
more diligent in repaying their home mortgage than any
other type of debt because their home is literally the
roof over their head! Lenders have learned from experience
that investors are much more attentive to their property
and to the repayment of their commercial mortgage if
they have substantial cash equity in the transaction
and are therefore participating fully in the risk.
Question? How long does it take to close a loan?
We can generally give you an assessment of your situation
in our first conversation. You can get Pre-Qualified
as quickly as 2-5 days. For Lite-Doc programs,
approval and closing can take place within 3-4 weeks.
Full-documentation loans that require third party reports
such as appraisals and environmental inspections usually
take between 30-60 days to close. Providing us with
complete information and documentation early-on can
speed the process considerably.
Question? What are the closing costs for a commercial
loan?
The categories of closing costs for a commercial
or investment property are similar to a residential mortgage,
but can be more expensive. Appraisals are more detailed
and can cost up to several thousand dollars because the
appraiser must use several different valuation methods
to determine the value of a property. Environmental inspections
or insurance are often necessary and may cost from several
hundred to several thousand dollars as well. Other costs
are similar to a residential mortgage loan and may include:
lenders' origination fees, application fees, underwriting
and document preparation charges, attorney's fees, survey,
title insurance, escrows for insurance and taxes, etc.
Total closing costs may range from 2% to 8% of the loan
amount.
Question?
Why do commercial property appraisals cost so much?
A residential property appraisal for an owner-occupied
home usually only costs a couple of hundred dollars
because the valuation is based primarily on the sale
of comparable properties in the area. It is fairly easy
to make adjustments to the value of one home to estimate
the value of another. Commercial and income producing
properties, however, are not as easy to compare. There
are vast differences in construction, design, materials,
and functions that the property serves. Also, the appraiser
must base the valuation on the income stream that the
property is capable of generating and the replacement
cost of the structure as well as the sale of comparable
properties. Commercial appraisals are more time consuming
and complicated, thus they can cost up to several thousand
dollars. The price of appraisals is competitive and
is set by the appraiser, not the lender or broker.
Question? What's a Low-Doc program?
Some commercial lenders offer Low-Doc or
Lite-Doc programs. These programs require
less documentation, verification and paperwork than
a fully documented loan. The lender takes more risk
when making a loan with less information, so Low-Doc
programs generally carry a higher interest rate than
a fully documented loan. But they are useful if a borrower
is in a hurry to close a loan or cannot provide evidence
to fully document income or assets.
Have more questions ?
Call us toll free (888) 696-9929 or email: help@financeagency.com
