Why You Need to Find a Commercial Mortgage Broker
If you are a commercial property investor or when a business wants to acquire, refinance or redevelop a property they’ll need to obtain a commercial mortgage. While this is something you can do on your own, you stand the best chance of getting a good rate and term when you use a commercial mortgage broker.
Commercial mortgages are mortgage loans that are secured by a piece of commercial property. This generally but not always will include the property being acquired by the loan. Commercial properties can include industrial or commercial warehouses, office buildings, shopping centres, apartment complexes and private medical facilities among many others.
As with any type of loan, you want to get the best interest rate, terms and repayment options. Knowing how to compare the available commercial mortgage options takes time and experience. This is where a commercial mortgage broker can assist you.
The commercial mortgage lending process begins with your application. Your mortgage broker will obtain all of the information necessary to submit your application to several companies or even private individuals that are likely candidates. A mortgage broker is not a lender. They work with you to find potential lenders.
A commercial mortgage broker can advise you before you begin the application process of your chances of getting a loan. Generally the mortgage will be based on the debt service coverage ratio and the loan to value ratio of the property.
The debt service ratio required by most lenders is 1.1 to 1.4, this is the amount of income the property makes over the mortgage payment amount. For new properties or those under renovation the lender will look at the rents or costs per square metre. They will also consider the location, property use and the financial health of the commercial real estate market in the area.
The standard loan to value ratio for most commercial loans are 55 percent to 70 percent, which is much lower than residential properties. The loan to value ratio compares the amount of the mortgage to the total appraised value of the property.
Since many lenders may require a application fee, it’s best to first determine if you have a reasonable chance at successfully obtaining a loan. Generally these fees are used to cover the expenses associated with the loan process such as appraisals.
Your commercial mortgage broker can then assist in guiding you through the lender’s underwriting process. This process may include a review of your (or your businesses) finances, as well as, a financial review of the property. There will be various reports that need to be commissioned including appraisals, these can also be handled by your mortgage broker.
The due diligence a lender does on a commercial mortgage can include touring the site, environmental impact studies, engineering reports and background checks on the borrower. Many of these can be handled through commercial mortgage brokers.
The interest rates can be greatly affected by the information obtained during the underwriting process as well as the current market interest rates. These rates are usually much higher than residential mortgages and are available as a fixed rate or flexible rate. Your commercial mortgage broker can advice you on which type of loan would best suit your needs.
The terms for a commercial loan generally range between five and ten years for established commercial properties and one to three years for new properties or those under renovation. Multi-family properties may be eligible for government programs which can extend the term of their loans to thirty years. A knowledgeable commercial mortgage broker can assist you in determining which type of loan you are qualified for.
Your mortgage broker can assist you by ensuring you have options when it comes to your loan. They can obtain multiple quotes from qualified lenders, manage the application process and guide you to the mortgage is best for your business.
There are not as many commercial brokers as there are residential ones. Further they do not advertise in the mass media so they are less well known by the public at large. Sometimes the main banks will lend on commercial property deals but they have strict lending guidelines. Sometimes these restrictions will not allow the deal to go ahead.
In this situation a private lender or dedicated commercial financing company may be able to help. One of the biggest private commercial mortgage companies is Global Pacific. You can see more about them here www.globalpacific.co.nz. They have successfully arranged funding in numerous industrial, retail and office lending situations. Click here to get the ball rolling for you.