Taking out a mortgage on commercial real estate, rather than residential, involves a different sort of process. In most cases, the buyer is some sort of business, such as a partnership, limited company or corporation, rather than an individual. This makes the evaluation of credit a little more complex than it is with an individual. Because banks view commercial mortgages as having greater risk levels than residential loans, the interest rates associated with these loans tend to be higher as well.
Commercial mortgages in Alberta generally apply to several different sorts of properties. Industrial, retail and office properties all require commercial mortgages. Individuals and entities purchasing residential real estate can use a commercial mortgage for the financing if they are purchasing it for the purpose of investment. These properties come in three categories: pure residential (1-4 units), pure residential (5+ units) or residential/commercial mixed.
Commercial Mortgage Down Payment
Down payment is an important consideration when taking out commercial mortgages in Edmonton, Calgary or any of the smaller cities in Alberta. The maximum loan-to-value ratio you can usually get for a commercial mortgage is for projects that are either multi-family residential (85%) or a residential/commercial mix (80%). Office space, commercial plazas and industrial properties generally have a maximum LTV ratio of 75%, while mortgages for Alberta farmland tend to max out at 55% LTV. That means that you have to put the rest as a down payment. For example, if you’re considering a $1 million, you’d have to put $450,000 down if it were a piece of farmland in Alberta, but if it were a multi-family residential, you’d only have to put down $150,000.
The time frame of commercial mortgages in Alberta can be confusing as well. Residential mortgages sometimes close in 15 to 20 days, but they don’t take longer than 90 days in most cases. Commercials can take a lot longer to close, ranging from 60 days to as long as a year. The interest rates for commercial mortgages are often kept in house by lenders, which means that it helps to have a mortgage broker looking for the best deal possible.
How do you qualify for a commercial mortgage in Alberta
Lenders generally look at several metrics:
- Credit history — both for the owners of the business and the business itself
- Debt service coverage ratio — This is the ratio of the cash that you have on hand to the payments that you have to make each month to service debt.
- Present business situation — this involves presenting your business plan and financial projections..
- Type of business — In this area, it is best to consult a commercial loan specialist before proceeding.
If you’re looking for a commercial mortgage in Alberta, call today. We can help you find the financing that you and your business deserve so that you can expand and continue to grow.