This article is a part of a series that deals with commercial and non conventional financing solutions that we at Edward Voccola & Co, LLC mortgage brokerage make available to our clients. Many potential clients who come to us seeking commercial and private mortgage solutions are confused as to what down payment will be required by lenders. Another point that needs to be clarified is the difference between conventional and private lenders in this regard.
The confusion is very understandable, however, since commercial property financing is entirely different from residential financing, and follows a completely different set of rules. Whenever a client’s (i.e. borrower’s) file is presented to the lender, there are several criteria as to how it is evaluated, and we will go over most of them here.
Most institutional lenders will have firm requirements in place when it comes to financing properties with a commercial mortgage. This applies particularly to the downpayment or equity, and to the property income requirements. This means that it is crucially important to properly calculate just how much downpayment is required for successful commercial property financing.
The Rules and the Way Around Them
The classic/standard program that is practiced by most institutional commercial mortgage lenders requires for a 20-25%% down payment from the borrower. This high number is mainly due to the security and risk reasons that the banks are taking into account. When you are looking to finance the acquisition of a commercial office building, industrial building, retail property or office space, this down payment is the normal expected minimum for the equity component to be satisfied.
When and if the 20-25% down payment is not available, things become interesting. Secondary financing options can be made available in the private, non conventional, lender’s sector. This is where our company can be of use, since finding and securing private capital to assist in your acquisition is a non trivial matter. Our company can quickly determine if secondary financing can be made available for the given asset and save you an additional 15 percent of equity required on purchase.
If your aim is to purchase multi residential buildings, then you are looking at a requirement of 15%-20% downpayment. This also hinges on the income factor to also be satisfied, of course. This can also come under the influence of multiple other factors, such as the property’s location, insurance costs and other considerations that we will set aside so as not to turn this article into a full-blown thesis paper. Cutting this wide corner, we will just summarize that it is usually prudent to have a down payment of 25% ready for the multi residential property purchase.
Another type of commercial property financing that we often assist with is a gas station acquisitions. The problem with this is that most conventional lenders simply don’t finance gas station acquisitions. This means that financing such a purchase will have to go through private lenders and other sources of funds. Our company has established methods of financing gas stations with a leverage of about 50%-55% depending on the situation.
The Commercial Property is for Your Use?
When the commercial property you intend to purchase is intended for main use by your own business, then it is easier to find financing of approximately 75-80%, provided your company has a strong income report. If you intend to use the commercial property mainly for your own business but your company’s income is not amazing, it is still easier to secure financing with a down payment of less than 25%, than if you purchased a commercial property for other uses.
Vacant Land Acquisitions
Vacant land acquisition is another area where we can be of help. There are many lenders who will consider this type of purchase too high-risk, but depending on what you intend to develop it for, its location, and your own finances, it is not impossible to secure adequate financing for the purchase. Private lenders tend to be more liberal in their risk-taking decisions and will often approve you if the conditions are right. It is not impossible to secure 50%-60% financing for a purchase of vacant land for commercial use.
The bottom line is that there is likely a solution for every and any situation, with the securing of such solutions being our main specialty. We have helped hundreds of our clients get their commercial property financing in multiple states, assisting with commercial loans, commercial mortgages, bridge loans construction loans and other products. We have a vast network of lenders and clients in Phoenix, New York, Boston, Denver, Miami, Orlando, Houston, Dallas and other central locations across the country.
We will keep on publishing those informative articles and are always happy to lend a hand in a more practical way should you need our expert assistance. We at Edward Voccola & Co, LLC wish you plentiful and meaningful financing, which we are always happy to secure!