Commercial mortgages are secured to commercial real estate or an investment property that is typically over and above 4 units. (i.e. apartment building, office building etc). Some residential properties that would require a commercial mortgage are:
- Residential 1-4 units
- 5 or more Residential units
- Commercial/Residential Mixed Use
Residential mortgage financing is much simpler, cheaper and much less time consuming than commercial mortgages. Commerical interest rates are usually higher than residential interest rates.
For traditional commercial mortgages, the minimum down payment varies between 15% and 35% of the overall purchase price, depending on the lender and the risk. Most commercial lenders can provide you with a maximum loan-to-value (LTV) of 85% with a 25-year amortization. There are also lender/broker fees involved averaging from 1 – 3% of the mortgage amount. The lender will access the property's income generating potential and the borrowers financials if applicable.
Depending on the property, the financing process can take up to 6 weeks whereas a residential process usually allows 2 weeks to secure financing. An appraisal will be required by the lender as well as other reports relevant to the property. i.e. environmental, rent rolls etc. Normally an environmental report is supplied by the sellers. It should be current within 6 months.