If you are looking to purchase commercial property or refinance your existing commercial property, a commercial mortgage may be the solution you need. However, qualifying for a commercial mortgage can be a more rigorous process than qualifying for a residential mortgage. In this article, we’ll explore the steps you can take to qualify for a commercial mortgage.
- Credit Score
Your credit score is one of the most important factors in qualifying for a commercial mortgage. Lenders typically require a credit score of at least 680 to qualify for a commercial mortgage. If your credit score is lower than 680, you may still be able to qualify, but you may need to provide additional documentation to prove your ability to repay the loan.
- Income and Cash Flow
Commercial mortgage lenders will look at your income and cash flow to determine whether you can afford the loan payments. They will typically require documentation of your income and cash flow for the past two years, including tax returns, profit and loss statements, and bank statements.
- Property Cash Flow
In addition to your personal income and cash flow, lenders will also look at the cash flow of the property you are looking to purchase or refinance. They will want to see that the property has enough cash flow to cover the loan payments and generate a profit.
- Property Appraisal
Commercial mortgage lenders will also require an appraisal of the property you are looking to purchase or refinance. The appraisal will determine the value of the property and help the lender determine the loan amount.
- Down Payment
Commercial mortgage lenders typically require a down payment of at least 20% of the property’s value. However, some lenders may require a higher down payment depending on the property type, location, and your creditworthiness.
- Debt Service Coverage Ratio (DSCR)
The Debt Service Coverage Ratio (DSCR) is a calculation that lenders use to determine whether you can afford the loan payments. The DSCR measures the property’s net operating income (NOI) against the loan payments. Lenders typically require a DSCR of at least 1.25 to qualify for a commercial mortgage.
- Business Plan
If you are looking to purchase or refinance a property for business purposes, commercial mortgage lenders will want to see a business plan. The business plan should outline your goals for the property and your strategy for generating income.
In conclusion, qualifying for a commercial mortgage requires careful planning and preparation. You’ll need to have a good credit score, adequate income and cash flow, a property with strong cash flow, a down payment, a good debt service coverage ratio, and a solid business plan. If you can meet these requirements, you’ll be well on your way to securing the commercial mortgage you need to achieve your goals.
