What do you need to qualify for a commercial mortgage?
If you own a business or are considering buying rental properties, then you may be wondering how to get a commercial mortgage. Unlike residential mortgages, many lenders do not advertise their rates for commercial, so if you simply walked into your financial institution to apply for a commercial mortgage, it would be difficult to know if they were offering you a good deal. For this reason, working with a qualified mortgage broker is especially helpful when you are trying to get a commercial mortgage.
There are several different types of commercial mortgages including:
- Residential/Commercial mixed
- Multi-family residential
- Commercial plaza mortgages
- Office mortgages
- Farmland mortgages
- Construction mortgages
The rates and terms of these can all vary – so again, by working with a mortgage broker who specializes in commercial mortgages, you will be in the best position to get the loan that is right for your business.
What do you need to qualify for a commercial mortgage?
When you apply for a commercial mortgage, most lenders will evaluate the following factors:
- Debt service coverage ratio – one of the main things that lenders will be looking at is how much cash and debt you or your company has as this will help them evaluate your ability to pay.
- Credit history and credit score – the better your credit is, the more options you will have available to you in terms of getting a commercial mortgage. If your credit is less than perfect, you may want to discuss alternative lenders with your mortgage broker.
- Current business situation – if you have an established business that is making a profit, this will be viewed more favourably by lenders than if you have just only recently received your business number.
- Type of business – some commercial mortgage approvals will be highly dependent both on the type of business you have as well as the type of property that you want to buy.
- Down payment – when you apply for a commercial mortgage, you typically require a much higher down payment than you would need for a residential mortgage. A mixed property for example may require a 25-30% down payment while a property that is purely commercial may require as much as a 50% down payment.
- Insurance – most lenders will want to see that you have some sort of insurance in place in case of default and CMHC will not insure properties that are purely commercial (although in some cases, they may insure mixed commercial/residential). Your mortgage broker should be able to give you some advice on where to get insurance for your commercial mortgage.
If you are considering a commercial mortgage, and would like more information contact Matrix Mortgage Global today!