Commercial mortgages are similar to residential mortgages except instead of a residential property as collateral it is a business property. Also, the lender is not an individual, but a business consisting of several individuals. A commercial mortgage PA is typically based on the income of the business or property and not the owner. However, in certain cases the commercial mortgage lender will conduct a thorough background check of all owners and controllers of the property. The mortgage lender will use the information they have gathered to determine how likely it is that the borrower will pay them back.
When applying for a commercial mortgage PA the lender will first ask for the Debt-Service Coverage Ratio or DSCR. The DSCR is the cost of the property or business verse is potential income. This is the most important part of the application process because it will show the property lender if it will turn enough profit to pay back the loan.
Commercial mortgage PA applicants should be prepared to disclose the following information to mortgage lenders:
- Income
- DSCR
- All financial commitments
- General credit status
- Background check of business
- Background check of owners and controllers of property
- Applicants should be prepared to not only answer questions concerning their business , but also their personal finances.
Unlike a residential mortgage that requires most borrowers to only place 10% down on a property, commercial lenders usually require 20%. In few cases commercial borrowers will only put 10% down on a property; however, in those cases the interest rates are significantly higher.
What qualifies as a commercial property?
- Office buildings
- Apartment buildings
- Businesses such as gas stations, movie theaters, etc.
- Hospitals
- Retail shops
- Storage business
Tags: commercial borrowers, commercial mortgage lender, debt service coverage, debt service coverage ratio, thorough background check