Stricter lending laws produced during the recent reform require commercial lenders to review loan applications more thoroughly. Business owners who wish to purchase commercial properties for their business must possess three important factors. First, they must possess higher than average credit scores. Next, they should provide evidence of their ability to repay the loan. Lastly, they must present some form of collateral to secure the commercial mortgage.
What is the Preferred Credit Score?
While under the new laws, it is possible for a business owner to acquire a mortgage loan with a credit score of 630. However, most lenders who review the credit history of these applicants prefer a score as high as 700. While some exceptions are made for commercial business owners, they are may require higher interest rates and more collateral.
Additional Qualification Requirements
Applicants hoping to acquire a commercial property loan cannot have any bankruptcy cases within the last seven years. They cannot have any foreclosures that occurred within the last three years. Lastly, the discovery of any property liens for real estate property or automobiles could disqualify them for a new loan. These elements could indicate an inability to repay the mortgage loan and reduce their credit rating significantly.
Income Requirements For Commercial Applicants
To acquire a commercial real estate loan, the applicant must present extensive information about their income. In most cases, the lender requires the applicant’s income to be at least twenty-five percent higher than the projected loan payment. With greater loan values, this requirement may fall some closer to forty-five percent.
What are Balloon Payments?
Select lenders may require the borrower to fulfill their mortgage obligation within a shorter duration. For example, a thirty-year mortgage could be reduced to ten years based on balloon payments. These payments consist of larger values that include both interest and principal values. After a specific duration, the lender requires one lump-sum balloon payment to repay the entire loan. This is why the business owner must present information about their incoming profits. Income statements provide information about the owner’s ability to repay the mortgage through this method.
Business owners applying for commercial mortgages should review the requirements for these loans first. They could also acquire a pre-qualification from their lender to determine if they are ready to buy. To begin the application process for these mortgages, you should read through the Welcome to Commercial Mortgage Connection by visiting www.commercialmortgageconnection.com today.