Ready to begin your search for a commercial mortgage financing solution that meets your unique needs? Before you make a decision, be sure to take a step back and reevaluate your commercial lending preconceptions. All too often, these preconceptions are actually misconceptions — and those could lead to you settling for options and terms that simply are not in your best interest. The following 7 misconceptions are some of the most common beliefs prospective borrowers share. Rid yourself of these and you’ll put yourself in a much better position to get a loan that really works for you.
Depending on your circumstances, other factors are often more important: how quickly the loan can close, the monthly payment, length of term, amortization schedule, reporting requirements, covenants, or assumability of the loan.
2. APPRAISAL COSTS ARE THE SAME FOR COMMERCIAL AND RESIDENTIAL PROPERTIES: FALSE
Determining valuation for commercial properties is more intricate, and therefore more costly than for residential property. A lot more research is involved to find similar commercial properties in a given market. Recent sales are compared, as well as the rental income potential. Proper valuation is critical as property income and appreciation potential are the biggest determinants of value for any real estate investor.
3. INTEREST RATES ARE THE SAME FOR COMMERCIAL AND RESIDENTIAL LOANS: FALSE
Commercial loan rates are higher for a number of reasons. First, commercial loans have greater inherent risk. Second, government sponsored agencies such as Fannie Mae and Freddie Mac, which keep residential rates low, don’t exist for the majority of commercial real estate. Lastly, there are fewer lending options for commercial borrowers, which results in a less competitive marketplace.
4. A DOWN PAYMENT ISN’T FOR A COMMERCIAL MORTGAGE: FALSE
Commercial lenders don’t lend the full value of a property. Commercial Direct’s maximum loan-to-value ratio (LTV) is 80%, meaning we will lend up to 80% of the property’s value. Those who want a higher LTV ratio will need to be able to live with a significantly higher interest rate.
5. APPRAISED VALUE IS ALWAYS USED TO CALCULATE LOAN-TO-VALUE (LTV): FALSE
For a purchase loan, both the purchase price and the appraised value are examined. The lower of the two is typically used to determine the loan amount. For a refinance or cash-out refinance, appraised value is used.
6. I WON’T BE ABLE TO GET A LOAN IF I’M SELF-EMPLOYED: FALSE
If you can provide documents to support your income and assets, you can qualify for a conventional loan program. If you cannot or choose not to supply tax returns or other documentation, you can qualify for a limited documentation loan program. Commercial Direct offers these types of solutions for investor and owner-occupied transactions.
7. I WON’T BE ABLE TO GET A LOAN IF I WAS DECLINED BY MY BANK: FALSE
Some lenders use broader guidelines than banks, and can approve loans that banks turn down or aren’t comfortable with. Today there are options like Commercial Direct for borrowers who cannot obtain conventional financing. Another misconception regarding commercial lending is that it’s difficult to get the process started.
Commercial Direct is happy to prove that one wrong as well! Simply visit our Loan Customizer and enter some basic information regarding your financing request. You’ll then be able to customize the loan to fit your exact needs. Get started