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Real Estate Financing

How Can You Qualify For A Real Estate Financing?

If you are looking forward to developing, acquiring, or constructing a commercial property, you will probably need to secure funds via commercial real estate financing. Almost all investors seek funding to buy an income-producing property, buy or build a space to house their business, and when they require a loan for an upcoming construction project. It does not matter why you may be searching for a commercial real estate financing solution. Financing the purchase of your commercial property tends to differ significantly from procuring a financing solution for a private residential loan in various ways. 

These differences often depend on the kind of financing required and how you (as the borrower) will use those funds. Nevertheless, several factors play a critical role in helping you qualify for commercial real estate financing. Ideally, all commercial real estate loans require much more scrutiny and effort than a residential mortgage. When evaluating a commercial real estate loan application, you will have to consider numerous factors. Depending on the type of real estate financing and the lender, these may include borrower creditworthiness, available collateral, and specific financial ratios based on the property’s characteristics in question. You, as the borrower, may be required to provide a few years of financial statements along with income tax returns. A lender may also want to see your financial settlements that indicate you have the proper cash flow for your property to be financed.

Creditworthiness

Almost all residential mortgages are made for individual borrowers, but commercial real estate funding is explicitly designed for business entities. If a business does not have a good financial track record or credit history, the lender may require its principals to guarantee the loan instead. Your minimum credit score tends to vary on all these factors, as well as on what credit reporting bureau and credit scale the lender is using. In all commercial real estate lending types, the minimum individual FICO score ideally ranges anywhere from 500 to 700, depending on the lender’s loan type.

Collateral

Since private mortgage insurance is not an option for a commercial real estate loan, all commercial lenders need to ideally rely on the property itself to act as collateral if the borrower defaults on the loan. For this reason, commercialreal estate financing depends on the LTV ratio (also known as the Loan-to-value ratio), which measures the total value of your loan against the overall value of the property in question. Generally, all commercial real estate loans tend to have an LTV ratio of 60% to 80%. However, the exact Loan-To-Value rate required will depend on the commercial asset you want to finance. If your LTV rate is too high, a lender may not offer you financing.

Loan Rates and Fees

Interest rates on commercial funding are generally much higher than a residential loan. They can be affected by several factors, including the total length of the loan, the amortization period, and the investor’s credit strength. All commercial real estate loans tend to have shorter terms than a residential loan, ranging from 6 months to twenty years, depending on the loan type and lender. The longer you wait to schedule your loan repayment, the higher your interest rate will be. The interest rate forcommercial real estate financing can also get affected by your LTV ratio. 

Ideally, the lower the LTV ratio you have, the lower the interest rate you will have to pay. There are also a few fees associated with commercial real estate financing. These include loan application, loan origination, survey fees, legal, and appraisal. You may have to pay a few of these fees while your loan is still in the approval phase, whereas others can be applied annually. Compared to residential loans, commercial loans are also more likely to have several restrictions on prepayment or charge prepayment penalties, although these can be negotiable.

Want Professional Help? Contact Real Estate Funding Solutions Today!

Investors like you are always on the lookout for newer commercial properties to expand their portfolios and reach greater heights. However, securing enough capital to purchase a real estate property is not as easy as you may think, nor does qualifying for the loan. There can be numerous constraints on the way preventing you from acquiring the right loan product. If you need help finding the perfect financial product for your needs, you can always contact the Real Estate Funding Solutions team for professional assistance.

All our advisors have years of on-field experience and can help you with your real estate financing right away! Our years of experience can help you glide through the process with ease. Our team will be more than happy to assist you in getting your loan approval without any hassle. Click here, and our team will get back to you in no time.

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