Mixed Use Mortgage
“Mixed Use Mortgage Financing Can Be Challenging To Secure”
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If you’re in need of a mixed use mortgage for property acquisition, a mortgage refinance, or a construction loan, then be prepared to spend some time on the process.
Before we get any further, lets first define what we mean by a mixed use property.
Basically any property that is zoned to allow both commercial and residential use where both of these activities are being carried out will be considered a mixed use property.
What we most commonly see every day in this category are retail stores that have apartments either in the back of them or in a second story above the main floor.
But there are all sorts of mixed use property configurations out there, each with their own set of challenges when it comes to mortgage financing.
The first financing challenge is the amount of mortgage financing you can secure. In most situations, lenders that will consider financing a mixed use property will not go beyond a 65% loan to property value ratio. While it can be possible to get financing up to 75% for certain properties in certain areas, its also very possible to only be able to secure 50% loan to value for others.
There are no insured loan programs for mixed use, so each lender must bear the full financing risk and allow for same in the amount of funding they are prepared to extend on any one property.
Even though the properties are mixed use by definition, they will always be considered to be a commercial mortgage as well. A commercial property is going to require more scrutiny and loan application review than a purely residential home mortgage application, which leads to the second challenge for mixed use mortgage financing and that’s the time it takes to get something in place.
On average, a mixed use property mortgage is going to take 30 to 60 days in take in place and potentially can take longer depending on what the lender requirements are for assessing the property and the amount of third party verifications that may be required in the form of property appraisals, accountant prepared financial statements, and environmental assessments. So make sure you allow yourself plenty of time to work through the process.
The one mixed use mortgage option that can be done faster is via a private mortgage lender. Again, depending on the property, a private mortgage lending source may not have as many requirements as a bank or institutional lender, which can significantly reduce the application processing time in some instances.
The third challenge related to mixed use property financing is finding a suitable mortgage lender that will finance your particular property.
Many banks, for example, will not consider mixed use applications under $250,000. Because their requirements are considerable, they will assess a small financing request the same as one for several million dollars, making the overall process and mortgage profitability unworkable on the smaller sized deals.
Credit Unions can be a very good source of mortgage financing for the smaller funding requests. Credit Union lending is also more prevalent in the less populated markets compared to many of the banks and because of their localized knowledge, they can be in a better position to understand and manage the lending risk associated with a given property.
But just because a Credit Union is interested in the deal, it doesn’t mean the loan to value will be any higher than 65% and could still be closer to 50% loan to value.
The bottom line on mixed use mortgages is regardless of where the financing may come from, there is going to be a significant equity portion required by the owner.
Another potential option for financing are certain trust companies that are allowed to have a small portion of their portfolio assigned to mixed use mortgages. Based on their portfolio restrictions, the opportunities that can be considered are very limited and if they reach their financing limits within a portfolio for mixed use, they can be completely out of the market for periods of time.
As I mentioned earlier, private mortgage lenders can be an excellent source of financing for mixed use properties.
Due to the fact that bank and institutional lender rates for mixed use are higher than for residential, the available rates from private mortgage lenders can be fairly close to conventional banking alternatives.
While private mortgages are typically for a period of one year, there are private lenders that will provide mixed use mortgage terms for longer periods of time and potentially on longer amortization periods than what would be available through an institutional lender.
If you’re in need of a mixed use mortgage or just planning ahead, I suggest that you give me a call so we can go over your situation together and review different mixed use property financing strategies that could work for your property.