NY Commercial Mortgage - New York Mortgage

Commercial Mortgage is a mortgage loan secured by a commercial property. Commercial
properties are income producing properties including retail stores, offices, warehouses, gas
stations, etc. Properties with a commercial unit on ground level and residential apartments
above are called Mixed Use Properties. Mortgage loans secured by Income producing
apartment buildings of more than 4 units are often referred to as Multi-family loans.

Commercial mortgage is underwritten in a different manner from residential mortgages.
The income potential of the commercial property carries the most weight in the underwriting
process. The borrower's personal income, on the other hand, seldom comes in play. Banks
determine loan repayment capability by dividing the net operating income (NOI) after any
vacancy factor, maintenance costs, taxes, insurance, utility costs, and management costs, by
a Debt Service Coverage Ratio (DSCR). Depending on the type of commercial buildings, the
DSCR used for loan qualification ranges from 1.2 to 1.4. For instance, a grocery store
having a market rent of $50,000 may net $36,000 after property tax, insurance, maintenance,
etc. With a typical Debt Service Coverage Ratio of 1.3 for grocery stores, banks would grant
a loan with payments of no more than $27,692 ($36,000/1.3) annually, or $2,307 monthly.

To determine the income potential of a property, banks hire a state certified appraiser to
conduct an appraisal on the property. Included as part of the appraisal report is the "market
rent analysis", which is the appraiser's opinion of the property income potential based on the
local area rental market. Bank underwriters also use any existing leases and current owner's
expenses to determine loan eligibility.

Although personal income is not used to qualify for commercial loans, the borrower's credit
profile is. Commercial mortgage loan applicants must demonstrate a fair to excellent credit
history. If the title holder is a corporate entity, the credit report of its principal is used to
underwrite the loan application.

Another factor banks scrutinize is the loan-to-value ratio (LTV). The LTV is calculated by
dividing the loan amount by the purchase price or appraisal value, whichever is less.
Depending on the type of commercial properties, most banks allow a maximum LTV of 70%
to 80%. Although there are "sub prime" commercial lenders that lend up to 90% of the
purchase price, these type of mortgages are borderline "hard money" loans, which are very
expensive and carry unfavorable terms to the borrowers.

Commercial mortgages have much higher interest rates than residential mortgages. This
is partly due to the fact that the secondary commercial mortgages market is much smaller
than the Fannie Mae and Freddie Mac powered secondary residential home loans market.
Banks making commercial loans often cannot find suitable buyers for the loan and have to
hold on to the loan for its entire loan term. Another reason for high interest rates on
commercial loans is borrowers tend to default on their investment properties before they
would on their own residences should they find themselves in financial difficulties.

Although commercial mortgages are available in Fixed Rate and Adjustable Rate, the most
common is a hybrid of the two, with a fixed rate of 3 to 5 years, and adjusting once every 3 to
5 years for the entire term. 10-year and 15-year fixed rate mortgages are available, but most
commercial loans are amortized for 30 years, because investors tend prefer loans with
smaller monthly payments. Adjustable interest rates are most often tied to the London
Interbank Offer Rate (LIBOR), the Prime Rate, or the U. S. Treasury Bill.











					Registered Mortgage Broker - NYS Banking Department. Loans arranged through third party providers. This is not a commitment to lend. Loan programs and rates subject to change. Equal Housing Opportunity.