You are ready to start the process of having commercial property if you have the confidence that your business can meet the finance requirements. The process can take a few weeks or months. Factors such as the appraisal process and negotiations affect the time of process; however it usually takes around 60 days.
- Look for a property. In order for a broker to help you in your mortgage, you must have a building or land in mind before applying for a commercial property mortgage. If you are planning to buy a rental property, it is required to have tenants on the list so that the property will show as cash-flow positive.
- Look for a lender. Once you fully understand your financial commitment, it would be best to research about several lenders or have a broker help you in doing so. With that, you will be able to look for the best commercial mortgage rates and terms for you. ‘
- Loan application must be completed. Once it is completed, the loan process will start.
- Provide documentation. Provide documentations such as financial statements within the past three years, both personal and business record. In this, operating statements, bank records, tax returns and corporate financials are included.
- Hire a lawyer. Make sure you have a lawyer help you review the terms and conditions of the mortgage and check for any undisclosed fee. It will also represent you so that you can make sure everything runs smoothly.
The universe of mortgage lending has gotten to the point where there is a place in it for everybody.
The main sources of obtaining a commercial mortgage are banks and third-party lenders.
- Banks are usually the common choice for they offer lowest rates but they only work with a certain industry or purchase. Documentations are much needed and they may charge more fees compared to other lending sources.
- Third-party lenders they provide quick mortgages with less documentation. In this, the money usually comes from private sources, insurance companies or warehouse line of credit. However, third-party lenders charge a significantly higher interest compared to banks.
We establish relationships with lenders so that we can make sure to get you deals you might not be able to get on your own. We usually do most of the research and background checking which will save you your time and effort of shopping around.
Although, broker service comes at a price. It is not the same with residential mortgages. Commercial mortgage brokers receive a commission based on the percentage of the total amount borrowed in addition to your mortgage-related expenses.
The most important pricing component of your commercial mortgage is the interest rate. There are factors that can affect the interest rate such as the amount of your down payment, the length of your loan, location of the property, and the risk level of your business. However, lenders base their interest rates on the prime rate, which is known as the rate banks offer to large corporations and to the most creditworthy borrowers.
Another important expense will be the down payment- usually around 20% to 30% of the purchase price, although that money will become the equity in the property. It is possible to put less than 20% but it will increase the rate of interest.
There are several up-front fees that you will also be responsible of aside from the monthly payments.
- Valuation fee. This is the appraising value of the property. It can cost from $500 to $5,000. It depends on the size and the type of the property.
- Environmental surveys. Buying dangerous properties require more strict inspections. Phase I environmental inspections ranges from $200 to $4,500. If Phase II inspection is needed, expect to pay around $3,500 to $10,000 or more.
- Due diligence. This will be for the credit and background checks to check your creditworthiness. This usually costs several hundred to a few thousand dollars. Depending on the time involved.
- Broker fees.
- Legal costs. Payment for the lawyer to check and review the contract, check if there are any hidden charges, and to make sure that the inspection is made properly.
- Additional fees. Charges such as application fees and processing fees may be optional but it is still based on the decision of the lender. There are instances that the lender may refund these fees at the closing.