Commercial real estates are those properties that are secured for commercial or business purposes. A mortgage for a commercial property is no different from a residential mortgage. One can take out a commercial mortgage from institutions like banks or credit unions, or even from private lenders. Read along to know about the specifics of private mortgages, for commercial real estate.
Facts to know about private mortgages
The following features are generally associated with the private mortgage loans, taken out for commercial purposes:
- Single individual or a group of lenders offer financial assistance in the form of private mortgage loans. Whereas institutional mortgages are offered by the banks, lending institutions, credit unions and government agencies, private mortgage loans are obtained from a private lender.
- Private mortgage lenders usually lend you hard money for shorter time period, to help you buy a new property. The loans are usually guaranteed with assets, and offer you the scope to cash out your home equity.
- The loan amount depends on the equity and the appraised value of the commercial property. Thus, you’ll be able to borrow more from your private mortgage lenders. Usually lenders allow a loan amounting to around 65 to 70 percent of a property, obtained for commercial purposes.
- Private mortgage lenders offer assistance even to borrowers with a poor credit score. They are willing to accept risks, if the market value of your house is high.
- The process for taking out a private mortgage is usually more rapid and simple than the institutional mortgages, since the lenders don’t spend time checking your financial details or credit histories. Moreover, you can even avoid going through the strict verification procedure that goes along with conventional mortgages.
- The private lenders usually charge high interest rates on your commercial mortgage. It is because they are willing to take up higher risks, and offer you immediate financial aid.
- Private mortgages for commercial real estate are usually taken out as bridge loans, until the borrowers get access to long term finances for the property.
Types of commercial lenders
Mortgage lenders for commercial properties can be categorized in the following ways:
- Portfolio lenders – The portfolio lenders usually keep details of the commercial mortgage loans in their own records till it matures.
- CBMS conduit lenders – Commercial mortgage-backed securities or CMBS, in short, are mortgages secured by commercial properties. The conduit lenders act as middlemen between the investors and the borrowers. They arrange the asset pools and issues bonds to the borrowers. The lenders then distribute the interest payments amongst the investors.
- Sub prime lenders – This type of commercial mortgage lenders help out people with low credit scores. Individuals with dismal credit history can opt for a sub prime mortgage for their ventures to purchase commercial property.
Usually, the lenders ask the business owner or owners to provide a guarantee along with a commercial mortgage. The guarantee ensures that the lender can extract the outstanding dues from you, if the sale proceeds fail to provide for the entire debt amount.