Commercial real estate means income-generating property used for business instead of residential purposes. Shopping centers, manufacturing facilities, apartment buildings, office buildings, and hotels fall under this category. Financing for these kinds of properties is typically done through commercial real estate loans or mortgages secured by lines on the commercial property. Zion Mortgage can help you secure a commercial mortgage loan in Texas. Just as with home mortgages, banks and independent lenders are involved in making loans on commercial real estate. Let’s take a look at what makes a commercial mortgage loan different from a residential one.
Individuals vs. Entities
Residential mortgages are given to an individual borrower, and they alone are responsible for repayment of the loan. Commercial loans are made to business entities like corporations, developers, or limited partnerships. These groups are formed for the specific goal of owning commercial real estate. So the business group is responsible for repayment of the loan, not just one person. The business may not have the capital or credit rating to secure the loan outright. At that point, the lender may ask the principals or owners to personally guarantee the loan. This gives the lender an individual, or several people, from whom they can recover the money in the event of default.
Residential loans typically allow for repayment over 15 to 30 years. Commercial loans work differently and are paid back faster. The terms on commercial mortgage loans are at a minimum of five years and a maximum of 20 years. For example, a lender might make a commercial loan for seven years with an amortization period of 30 years. The investor would make regular payments for seven years of an agreed-upon amount. After that seven years expires, the remainder of the mortgage comes due in a balloon payment. The length of the loan and the amortization period affect the rate the lender charges. Zion Mortgage offers commercial mortgage loans in Texas. Contact us today so we can get started.