When you are applying for a commercial mortgage Texas from a conventional bank, you will likely be working with the commercial branch of the lender. This means that you will be working with higher interest rates and more restrictive conditions and qualifications than the residential side offers. This is due to the increase risk that a commercial mortgage Texas represents for the lender. This risk is due in part to the volatility of commercial property values and also in part to the connection between economic conditions and a business’s potential for success.
You will also learn very quickly that a commercial mortgage Texas offers a lower loan to value ratio. This means that you are only able to borrow around 70% of the actual value of the property. So you will need to have the cash available to make the more substantial down payment. The reason for this large down payment circles back to the volatility of the commercial property values. Because the loan is secured by the property that you are purchasing, it is the collateral, the lender wants to be sure that there is instant equity in the property. This is the final safety net for the lender in the event that you default on the loan the lender is forced to sell the property to recover their money.
You will also discover that commercial loan terms are much shorter than residential mortgage loan terms. A typical home can be financed for 30 years but most commercial property loans are written for a term or 15 to 20 years. With these shorter terms it is very critical that your business be able to demonstrate steady cash flow and the continued ability to make the payments on the loan.
As a residential borrower, you are familiar with the cost of the interest on the loan and the points that you might have paid at closing. But a commercial property mortgage can have a lot more fees. And some of those fees might be due upfront or hidden deep within the loan document. Be ready to pay a loan application fee, a loan processing fee, survey costs, appraisal fees and even environmental testing to ensure that the property is not contaminated. Because the process is much more intricate than a residential loan processing, there are many more administrative and legal fees that are involved. And as you might expect, the lender is going to pass all of those costs on to you, the borrower.
Undertaking your first commercial property loan application can be intimidating. But taking the time to learn the terminology, the process and the qualifications for a commercial loan will help you to understand why the long process is necessary. It can also help you to tailor your application to meet the specific interests and needs of each lender that you might choose to work with.
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.