Commercial Mortgages in Mississauga – A Quick Guide to Getting Approved the First Time!

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So, you’ve 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!
 
While 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.
 

Approval Factors

 
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   
20%
Multi-family residential (5 or more units)  
15%
Commercial plaza mortgage 
25%
Office mortgage 
25%
Industrial mortgage
25%
Farm land mortgage    
45%

 

Commercial 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.

 

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