Commercial Mortgage Financing Is Another Kettle of Fish
“If You’re Looking For a Commercial Mortgage, Just Remember That It’s Not Going To Be The Same As Arranging a Mortgage For Your House”
It doesn’t always have to be hard, but on average, a commercial real estate mortgage is much more difficult to get into place than a residential mortgage. There are a number of reasons why this is the case.
First, commercial properties, on average, carry larger acquisition price tags, so lenders are naturally going to be more cautious before they start writing bigger checks.
Second, the resale market for commercial properties in most situations is less active and less predictable than a comparable residential market area. If a mortgage goes into foreclosure, the lender may have to sit on the real estate for an extended period of time and the longer it sits, the more it can drop in value, making it hard to get the loan repaid.
Third, residential mortgage repayment assessments are mostly based on borrower wages and reported taxable income which is pretty easy to verify and get comfortable with. Residential mortgage even go one step further and have standardized debt servicing ratios that are based on significant statistical data. Commercial mortgages on the other hand are based on profit and loss statements which can vary considerably from one business to another, making it difficult for commercial mortgage lenders to quickly and comfortably assess the repayment potential of the borrowing entity.
Fourth, most commercial real estate now require environmental assessments before lenders will finalize a commitment to fund. These assessments can not only be costly, but can drag on and on if lab testing of soil and water are required. If any environmental issues are identified, then the applicant is going to have to clean it up, prove that the clean up was done correctly, and potentially get a further environmental assessment before a commercial mortgage can be secured.
Fifth, commercial appraisals are much more involved and costly than the residential property equivalent. And because there are less appraisers qualified for commercial work, which also take longer to complete, it can take weeks and even months to get a commercial appraisal completed at certain times in certain areas where there is a lot of appraisal demand.
Sixth, mortgage brokers that focus on residential mortgages may not be a lot of help with your commercial mortgage application as they don’t regularly deal with the different lenders and their requirements.
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About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel