Commercial property is a valuable asset class to consider but financing a commercial-property is a rigorous application process that may require help from a commercial mortgage broker in Houston. However, You may be struggling to know how you’ll manage to finance all your commercial real estate funding needs if you are new in the field of real estate.
The first step to investing in commercial real estate property is being sure about investment, getting the right guidance and a little knowledge about how the real estate industry works. In this post, we’ll walk you through all the different options you have to finance a commercial property so you can turn the idea of purchasing real estate into a reality.
Commercial Property Financing Options
Commercial property loans will help you finance your property as well as fund any construction projects as needed. However, understanding commercial real estate financing basics requires being able to identify the option that works best for you and your existing knowledge about commercial property financing options. The following are different commercial property loan financing options that are offered by various financial institutions in Houston. For information on commercial real estate in a larger market, read our guide to commercial real estate loans in Los Angeles.
1. Hard Money Loans
Investors searching for a quick solution to commercial property financing may look to a hard money loan. This type of loan has the advantages of being both convenient and flexible. Hard moneylenders usually offer short-term loans and the Interest rates can soar to 12 percent or higher, not including additional upfront points.
The property is used as collateral for a hard money loan. Investors often use hard money loans to quickly finance deals in the short-term while negotiating a longer-term bank loan. It’s suggested to make sure that you have multiple plans in place before taking the hard money loan.
2. Conventional Bank Loans
These types of loans are ideal for investors with proper credit because they have conservative guidelines for credit scores and minimum down payments. Those who have poor credit may have a difficult time qualifying for a conventional loan.
Investors with a credit score of at least 660 will find bank loans as a viable commercial property financing option. Conventional bank loans offer competitive interest rates, may require a 20 percent down payment, and may also charge a penalty fee if the loan is paid off as at when due.
3. Commercial Bridge Loans
Commercial bridge loans are the loans meant to be a short-term fix to help you gain the money you need to fix up or buy your next commercial property. Commercial bridge loans in Houston are a fast and short real estate solution that you can use while you wait to finish refinancing, or purchasing a commercial property.
The ideal commercial property bridge loan in Houston has a term of six months to 5 years, but many lenders will give the owner an option to extend for six months to one year for a fee of between a half-point point to two points. If you’re looking for a quick loan to help you through a real estate purchase or renovation, bridge loans can be an excellent answer to your problem.
4. Commercial mortgage loans
Commercial property mortgage loans in Houston can be used for any business property transaction, from buying a complete company to purchasing a new building or even to unlock equity in the commercial property you already own. The amount financed can range from a thousand dollars to millions of dollars.
In Houston, the commercial mortgage loan length and term can vary widely with repayment periods spanning from 3 to more than 20 years. Most lenders typically require a down payment between 20 – 30% of the purchase price, which means a loan-to-value (LTV) ratio of 70 – 80%. We suggest you should always seek the appropriate professional and legal advice before taking out a commercial mortgage.
5. Home Equity Loans
Home equity loans, also called second mortgages, are secured against the value of the property just like a traditional mortgage. The borrower uses the equity of their property as collateral with a home equity loan, i.e., you will have tap into an investment you already have in your property without having to sell the house to receive that money.
These loans provide an accessible source of cash for funding renovations, repairs or buying a new property. Investors can withdraw money after pre-approved for a specific spending limit. Monthly payments vary based on the amount borrowed and the current interest rate. However, it is essential to be aware of interest rates before getting this type of loan.
How Do These Loans Work?
Commercial property loans are made out to business entities, and not to individuals. These loans work different, and they are solely utilized to finance income-producing properties. Investors have to establish a business entity to qualify for a commercial real estate loan. Most real estate lending institutions will require commercial property borrowers to put up the property as collateral or lien, to help secure the loan request.
Creditworthiness is also an essential factor between commercial property loans, and lenders will carefully examine the property’s potential income generation when deciding whether to approve a loan request. However, the creditor reserves the right to seize the property if the investor fails to meet the repayment terms.
How To Get A Commercial Property Loans?
Commercial properties are accessible to Investors when they familiarize themselves with commercial real estate financing options. Investors can get a loan for a commercial property with no money down by employing any of the financing methods we have explained above. These loans involve fees like legal, appraisal, origination, loan application, and survey fees.
Investors can also explore commercial properties if the lender is willing to offer a loan directly to purchase the property. However, regardless of property type, your chances of getting approved are higher if you have a good business plan and a credit score above 650. Keep in mind that the property should assure attractive returns for the investment to be considered worthwhile for a partner.
