How Does a Commercial Mortgage Work?
Commercial real estate is defined as being any property that can make an income. This includes farms, office buildings, corporate buildings, and even little stores you may see along the road. The basics of this are that anyone that owns (or rents) that building to make money is commercial in its own nature. When people talk about something like commercial investments, usually they are talking about a type of property, including undeveloped land, which in the future has the ability to earn someone money or the ability to earn potential money. More often than not commercial buildings and spaces can be leased or financed by a business for business purpose. Again, this includes anything such as the before mentioned examples, as well as hospitals, restaurants, schools and more. Below, you will find out a little bit more about office building financing, the types of commercial mortgages available and more.
Types Of Commercial Mortgages There are quite a few different types of commercial mortgages available when it comes to commercial real estate. In a lot of cases commercial real estate can also include things like warehouses and strip malls, but here are a few other types of uses for commercial land: Offices and Office Buildings, including Corporate headquarters Industrial sites like factories, breweries, mills, power plants, and foundries Retail Centers like clothing stores, electronic stores, video game stores, even places like coffee stor4es like Starbucks are considered retail centers
Multi-Family Dwellings this includes apartment buildings Agricultural Buildings like barns, cow sheds, farmhouses, silos, greenhouses and well houses - which again, are all going to be used to make money Hotels, this is selfexplanatory, but it should be mentioned that this also includes motels, Inns, bed and breakfast places, etc. Special Purpose Properties like schools, churches, and theatres - these are places with limited uses The Difference Between Commercial Mortgages and Residential Mortgages When it comes down to it, just by looking at the list above, it’s sort of obvious what the difference is between commercial mortgages and residential mortgages. Residential mortgages mainly deal with home dwellings - a place in which you don't plan to make an income from that property, but instead will use it to live in. On the other hand, as mentioned above, commercial real estate and commercial mortgages deal with places, buildings or spaces where you plan to make an income from that building or space. But, there are also other differences such as: - Commercial mortgages tend to last anywhere from 1 year on up to 15 years. However, residential mortgages last anywhere from 25 to 30 years long. - Another big difference between the two is that with a commercial mortgage the maximum you can borrow is usually around 65 to 70 percent loan to value. On the other hand, with residential mortgages, they tend to be around 95% LTV. - The down payments are also significantly different. The down payment on a residential mortgage tends to be negotiable because it’s usually less risky. But, for a commercial
mortgage a lender will usually request that 20% of the loan is used as a down payment. It may be more, but it will usually never be less because commercial businesses tend to be riskier than a residential mortgage. - Penalties are also different for mortgages on commercial buildings versus residential properties. With a residential loan, you can usually pay this off whenever you want, even if the payout length is different (longer) than what you signed up for. But, with a commercial mortgage there are usually penalties when or if you try to make prepayments. Again, it’s all about risk of the loan and the lender. Hopefully, this information has helped you understand the difference between mortgages in terms of real estate versus commercial properties so that now you can get the right kind of loan for your needs! If you ever get tripped up on which is which, just remember what was written above in the first paragraph; commercial loans and mortgages deal with a property, space or building where you will make some kind of an income. Even with something like a Church, you might not make direct money, but you get donations and pay your clergy to be there.