Knowing that you want to buy a commercial property is not even really a first step. It is more of the thought that is motivating you to take the first step. And as in many processes, a first successful step is learning about the process, your options and what to expect. In this case knowing about the different types of commercial real estate loans and their intended purposes can help you to make a smart financial choice.
If you have an opportunity to make a great buy but timing is critical then you should be looking at a bridge loan. This loan is normally for a year or less and is instant cash to get you started on a purchase or major improvement. It allows you to fund the deal and then seek long term loans. To qualify or a bridge loan you will need to have excellent credit, proof of income and demonstrate the ability to cover existing expenses plus the new loan payment.
If you are interested in procuring a long term loan for a property then you will want a real estate purchase loan. This is much like a fixed rate or adjustable rate commercial mortgage. To qualify for this loan you will need credit scores in excess of 700 plus you must have significant business and personal savings. The property must also be used as collateral and the loan rate is determined by the loan to value ratio.
A hard money loan is typically offered by a private lender and for this reason they don’t have to meet the same strict standards as the more mainstream lenders. This means that a hard money loan can carry a very high risk of default and a very high interest rate. This is a way to get money very quickly without slogging through the long process of a traditional commercial mortgage application process. Many times once hard money is used to secure a property, then the borrower begins to seek a more traditional loan to refinance as a hard money loan is often for a very short term.
There are many different types of commercial loans that are available. Some are designed to be short term and other are more long term. In many cases the term of the loan that you are looking for is determined by the use of the money. So matching the right type of loan to the right project will offer you the best opportunity for success and profit. In the long run, you are trying to find the best balance of interest rate and cost of the loan as it compares to the difficulty and time it takes to get the loan. Having a good understanding of the process will help you to make the best selection to fit your current project.
Dennis Dahlberg Broker/RI/CEO
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.
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