decided to research commercial mortgages in Mississauga and you want to know
everything there is to know before you meet with a mortgage professional
or real estate agent; smart move, you’ve come to the right place!
commercial real estate financing is similar to residential mortgage financing,
the first thing to remember is that lenders tend to be more conservative in
their underwriting and mortgage approval process – mainly because loans are
generally much higher, there is often more complexity to the transaction, and
the likelihood of default is determined by the success of a business. Whereas
when the mortgaged property is a principal residence, a homeowner is less
likely to default and lose their house.
Due to this increase in the
lender’s risk, commercial mortgage rates are typically much higher
than those of a residential nature.
Getting approved for a commercial mortgage can be somewhat like selling your
home: build a well-balanced and thorough case, ensure you’re well-prepared for
questions and scrutiny, and dress-up your deal to show the least possible risk
to financial institutions and private lenders.
- Debt service ratio - The underwriter will begin with an
evaluation of your ability to consistently meet the periodic payment
obligations, as a percentage of the rental or business income associated
with the property.
- Credit history – A strong personal credit history will go a
long way to support your case. In addition, the credit history of the
business will also expect to show evidence of reliable and consistent
payment on its obligations. To offset a less than perfect credit history,
a larger initial down payment will often be required.
- Current business activity – Lenders insist on a profitable business
with consistent cash flow that can comfortably handle its current payments
plus a new mortgage obligation. For a new or less-established entity, a
strong business plan, financial projections, and a healthy statement of
personal net worth may be required to support your application.
- Type of business – Commercial mortgages can be complex, based
on the type of business application. If you don’t have the requisite
skills in-house, it’s highly recommended you hire a specialist such as a
solicitor or chartered surveyor to provide sound professional advice.
- Down payment – The strength of your case for all of the above criteria will
impact the down payment required of you; the higher the real or perceived
risk, the higher the initial cash outlay you’ll need to make. A typical
commercial mortgage down payment will fall between 20 and 50%.
Here are a few of the minimum down payment
requirements of commercial mortgages:
|Storefront with Apartments/Residential Commercial (Mixed) Individuals
|Multi-family residential (5 or more units)
|Commercial plaza mortgage
|Farm land mortgage
mortgages take much longer and could take anywhere from 60 days up to a year,
so it’s important to do your homework and preparation diligently and remain
patient with your Mississauga mortgage broker throughout the process; after
all, they are shopping your deal to lenders for both favourable mortgage terms
and competitive interest rates.