The longer you are in the property business, the more opportunities will open up before you. Buying a commercial property is different than buying a residential property. Moreover, some of the commercial properties come at a higher cost, and you would need the assistance of a broker to get the best interest rate. A commercial property is something that is more than four units. This can be anything like starting small commercial complex to a large twenty-unit building. Other than the differences that exist with property management as well as budget, the process of loan application is also different. If you are thinking of taking commercial property loans, then there are certain questions you should ask before starting the process.
Points to Consider:
Have a look at some of the important things that you should know before getting involved with commercial property loans.
Terms of Loan
Mortgage has become the best way to get money for buying a commercial or residential property. If you are looking for a commercial property loan, then one of the first things you should be looking at is the term of the loan. For your primary residence, you can easily get away with as less as percent down, and also get a good interest rate. But on a commercial property loan, you are required to do a 25-30 percent down payment.
The maximum portion of your down payment is dependent on your credit score. Even though you have a good credit score, still you will require a minimum of 25 percent down payment. There is a difference in the terms as well. During commercial loan purchase, you will have only 3 or 5 or 7 tear adjustable rates and these rates are also high than that for a primary residence. The high rates mean high monthly payment, which may cut down your cash flow. So, the first and foremost thing is you should know about the down payment and the terms offered.
Loan Cost
One of the factors that you need to take into consideration is the cost associated with the loan, there are different kinds of fees like appraisal fees, loan origination as well as lender fees. And in the case of commercial loans, the appraisal fee is much more than the single-family loan. The time for underwriting the loan is very long for which commercial property loan charge more. In addition to that, there are more attorney fees and any other fees.
The Minimum Loan Amount
Most of the single-family loans have a minimum size of$50-75000. Before starting the process of commercial property loans, you should know about the minimum loan amount. If the lender needs a 25% down payment, the buying price should be over 2 lakhs. You should also check if the type of property is restricted by the lender.
Prepayment Penalty
One of the points that you need to consider is the prepayment penalty. Most of the lenders have this clause. If someone wishes to prepay the loan amount, then the lender might impose a certain penalty. So, before finalizing a lender, you must ask about the prepayment penalty. Commercial property loans could provide a prepayment option that reduces every year.
Conclusion
Commercial property loan is the easiest way to buy commercial property. However, it becomes important to mention here that you need to complete the paperwork and scour the best lender before applying for the same. The lender will review everything and every unit in addition to the rent rolls along with other information. Before you make an offer, you are required to ask questions until you are fully comfortable with the whole process.