If you have been in the real estate business for a long time, you might have come across numerous opportunities in the market. No one can find out what the next deal will bring, yet everyone hopes to take it on. Commercial real estate loans allow you to do just that! It does not hurt to work outside your comfort zone at times, especially when there is a great deal coming your way.
A commercial real estate loan can help you gain the confidence you need to make the transaction. Going from a single-family property to a multifamily property is an experience by itself. However, going from multifamily to a commercial property is a different ball game altogether. For anyone who doesn’t already know, commercial property is anything that features more than four units.
Commercial property could be a four-family mixed-use unit to a sizeable 20-unit apartment complex. Besides the noticeable differences with budgeting and property management of a commercial property, the commercial real estate loan application process is also very different from residential. If you are planning on considering a commercial real estate loan purchase, there are several questions that you need to ask yourself before you get started with the process. Below are a few critical things you should know before taking on a real estate loan.
What Are The Terms Of Your Loan?
The terms for residential and commercial real estate loans are entirely different. When it comes to a residential property, you can get away by putting a small percentage down while still getting a competitive interest rate. On the other hand, commercial loans often require anywhere from 25 to 30 percent down payment. The terms of your loan should be your first question.
Most people know that a down payment amount is often based on your credit score. However, even if you have a great credit score, you still need a minimum of 25% for the down payment. Similarly, there can be other substantial differences in terms of your commercial loan. When it comes to a residential loan, you will have the option to go for a thirty-year fixed mortgage plan.
However, in the case of a commercial real estate loan, you may only have a five-, seven-, or ten-year adjustable-rate option. Additionally, you may even notice that these rates tend to be much higher than what you see in the case of a residential loan. These higher rates often lead to a higher monthly payment, which will cut into your monthly cash flow. Before you do anything, you must first get a basic idea of what terms are being offered and the down payment of your loan.
What Are The Costs Affiliated With The Loan?
You have a loan originator, appraisal, and a lender fee for a residential property. The cost to obtain a commercial real estate loan tends to be much higher than any other type of loan. However, the appraisal fees are almost three to four times higher than usual for commercial purchases. Since the time required to underwrite a commercial loan is longer, it also adds to the list of reasons why lenders charge more. You will also have to account for an environmental fee, increased attorney fees, and title search charges. You can always contact Real Estate Funding Solutions professionals to get a good faith estimate.
What Is Your Minimum Loan Amount?
Most residential loans have a minimum loan amount anywhere from $60 to $75,000. But before you make an offer for a commercial real estate property, you should find out if they have a minimum loan amount. A typical floor can be anywhere from $100 – 150,000. Remember that this is the loan size, not the total purchase price. If a lender requires you to pay a 25% down payment, your purchase price needs may have to be over $200,000. You should also confirm if the lender has restricted any properties.
Will There Be A Prepayment Penalty?
One of the biggest concerns buyers had during the last decade of the housing boom was the prepayment penalties. Buyers would receive a short-term, adjustable-rate loan, and try to refinance, only to be charged with a fine. It would often increase the overall cost of the loan by thousands of dollars, making refinancing impossible. Even though changes in the loan application process now make it almost impossible to close without informing you about a prepayment penalty, checking twice will not hurt you.
Too Much To Deal With? Hire Professional Help Instead!
When you hire Real Estate Funding Solutions professionals to help you with your commercial real estate loan process, they will pay attention to all necessary details for you and help you get the best deal possible. We have been in the business for years. It enables us to offer you the best deals effortlessly. Click here to talk to our mortgage professionals and discuss your options right away!