The 8 Criteria You Must Know When Applying For A Commercial Mortgage Loan

Lenders apply different and often more stringent criteria for approving commercial mortgage loans than they do for residential mortgage loans, although the principles are essentially the same.

Commercial mortgage loan lenders want to know that a borrower and the property meet the following tests:

1.  That the borrower has equity in the property if he or she already owns it, or sufficient down payment funds if a purchase is being contemplated;

2. That the borrower can pay the debt servicing costs, property taxes and occupancy costs and still have a surplus of income after paying these;

• If the property is occupied or intended to be occupied by the owner, the lender will require evidence of sufficient revenue that is earned by the borrower from his or her business operations to pay the aforementioned property and debt costs, the business’ expenses and that the borrower earns sufficient revenue after paying all expenses

• If the property has tenants, then the lender wishes to know that the tenants pay sufficient rent to service the debt, pay the property’s operating costs and that a surplus of revenue less expenses is retained by the borrower

3. That the mortgage loan amount does not exceed a percentage of the value of the property. The limit for industrial/commercial properties is usually within a maximum range between 65 % to 75 % of the property’s value.  The limit for multi-unit residential properties is 85 % of the property’s value.  The lender will arrange for an appraisal of the property to determine its value.,

4. That there is no environmental contamination of the property.  The lender will arrange for environmental site assessments to determine whether or not it is free of contamination.,

5. That the condition of the building or buildings that are erected on the land are in good condition.  The lender will arrange for engineering consultants to examine the buildings and report on their condition.

6. That if the borrower is a company that it is properly authorised to borrow money.  The lender will arrange for lawyers to investigate the same.,

7. That the borrower is financially solvent whether it is a company or an individual.  The borrower will determine this by reviewing the borrower’s assets, liabilities, and financial statements.,

8.That the borrower, whether it is a company or an individual, has a good history of paying debts and therefore a good credit risk.

By Domus Financial Corporation

http://www.domusfinancial.com/