For many first time commercial mortgage applicants; the complexity of the financial agreement that lies before them can often be quite easily marred by a lack of understanding and inability to determine the basic differences between a commercial and residential agreement.
For those with a lack of commercial finance knowledge, it is all too easy to assume that a commercial mortgage is the same as a residential agreement. After-all they are both a process in which borrowers require property, they are both long term and both require the need for vast sums of financial aid. However, when searching for the right commercial mortgage deal and indeed the right commercial mortgage broker; it is of great importance that, as a first time buyer; you ensure you are aware of the major differences between both financial agreements in order to determine you get the best deal possible.
Are you a first time commercial mortgage borrower? Are you searching for the right deal and wish to ensure your business is in the right hands?
Naturally, commercial and residential mortgages have many similarities but the differences are also vast:
- Length of Agreement- Albeit both mortgage agreements run for a lengthy period of time; a commercial mortgage if often in place for between fifteen to twenty years whereas a residential mortgage may last for up to thirty years.
- Criteria- During a residential mortgage application; lenders will analyse the personal banking history of the borrower and the overall credit report to determine the risk level. For the commercial mortgage applicant however, the process is far more extensive and lenders will analyse cash flow, accounts, personal and business banking history, business experience and commercial loan history in order to determine the capability of a borrower.
- Loan to Value Ratio- For many residential mortgage borrowers, obtaining 100% of the required sum can be comparatively easy and require only a relatively small deposit. For the commercial loan applicant however, the chance of obtaining 100% of the required sum is slim and as a riskier investment the deposit required is often far greater.
- Penalties- For the residential home owner, the mortgage can be paid off quite easily (either as a result of property sale or otherwise) however, for a commercial mortgage agreement an early repayment can present further charges and greater difficulty for the business owner.
- Lenders- Many high street lenders and banks offer a range of residential and commercial loans; all at a seemingly ideal rate however, were you aware that when seeking a commercial mortgage; an independent company can provide better opportunity and better lending rates? For those seeking commercial finance; a commercial mortgage broker is agreed to be an ideal lender, who will work for a business to secure the ideal financial solution. Having access to a specialist selection of lenders; a commercial mortgage broker can often provide mortgage agreements with the best interest rates on the market.
When making the jump from a residential mortgage to a commercial mortgage agreement; it is vital to ensure you obtain the basic knowledge and understanding required to determine just what a commercial mortgage requires, how much input and work is required form you the lender, how your risk level will be determined, the length of the agreement and of course payments. It can be all too easy to succumb to the common belief that all mortgage agreements are the same however, although there may be a number of similarities; the differences are vast.
When searching for commercial mortgage finance; ensure you are aware of the entire process and the hurdles your business may face, as any ignorance to the matter could leave you struggling greatly.
Do you know the real differences between a residential and commercial mortgage?
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