A residential mortgage only applies to residential property (no greater than four units per building). A commercial mortgage is utilized to secure financing for a larger spectrum of properties. A residential loan process is standardized by established guidelines, but the commercial loan varies depending on individual lenders.
Usually, the magical number is 20% minimum equity in the property. This relates to a loan to value that is no higher than 80%. There are some exceptions that apply (two properties can be cross-collateralized).
Usually, residential mortgages take about 45 days to close while the more involved commercial process takes around 60 days from beginning to end.
All lenders will want to see:
Yes, debt service coverage is one of the key factors contributing to whether a commercial loan is approved.
Most commercial loans do have a "pre-pay penalty." This penalty is instilled if a loan is paid in full or prior to the outlined terms. Commercial loans carry a prepayment penalty for four of the first five years.
A broker can aid you in understanding the transient nature of the mortgage market. The broker's fee will be more than made up in the insight they can provide in steering you away from mistakes. Since they work with mortgages on a regular basis, they will be able to offer their expertise and better be able to explain the numbers.
Use the time between accepting a lender's offer and receiving the commitment to your advantage by tackling as many obstacles as possible:
All professionals will say to move as many things into the "completed" list from the "to do" list. Some processes are very time consuming and should be immediately addressed.